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June 15, 2020: Coresight Research’s prediction for U.S. malls, retailers double down on e-commerce, Big Lots partners with Instacart.

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Hosted by Julia Raymond

Written and produced by Gabriella Bock

Edited by Trenton Waller

 

TRANSCRIPTION

Julia Raymond:
Today we’re joined by guests, Thiago Garcia and Erik Saltvold. Thiago is the Vice President of Customer Experience at VTEX Commerce Cloud and an eCommerce expert with over 15 years building, growing, and maximizing digital commerce in the omnichannel.

Julia Raymond:
Erik is the founder of ERIK’S Bikes Shop. Founded in 1977, ERIK’S is the largest independent bicycle dealer in the United States with 27 stores in four States and more than 450 employees. Thiago, Erik, thank you for joining today.

Thiago Garcia:
Pleasure to be here.

Erik Saltvold:
Thank you.

Julia Raymond:
We’ll jump in and talk a little bit about store closures. US retailers are projected to shutter somewhere between 20,000 25,000 stores this year, according to Coresight Research. More than half of those closures are projected to occur in America’s malls. Coresight recently updated their tracking prediction, showing a rise in closures since its pre-pandemic forecast, which projected five to 10,000 fewer closures. So far this year Encoursa recorded around 4,000 closures in the US including retailers, such as Pier 1 Imports. Their entire 900 store fleet is closing, 300 GMC stores, 250 Victoria Secret stores, 230 Tuesday Morning locations, and 154 JCPenney stores.

Julia Raymond:
Just last week Zales, Jared and Kay Jewelers parent company announced plans to permanently close 380 of its stores across the US in the UK. Although Macy’s saw better than expected sales from stores after COVID-19 lockdowns, Macy’s Chief Financial Officer, Felicia Williams warned retailers that she did not foresee business returning to normal until late 2021. A 2017 report by Credit Swiss predicted that one in four US malls would close by 2022.

Julia Raymond:
Erik, based on the number of department stores projected to shutter this year, do you think we’re likely to see an increase of mall closures specifically?

Erik Saltvold:
I think the experience will be interesting in terms of how safe would people feel going into malls? Our stores are mostly in strip malls or freestanding, and we’re finding people that are more comfortable with that experience since they want a social distance and they want to be having a little more space. But I think it’s going to accelerate the repurpose of malls in our area. For example, some of the malls have been converted to fitness facilities and so forth, or schools and things of that nature. So I think that might accelerate that trend, Thiago?

Thiago Garcia:
Yeah, I agree. Starbucks just yesterday announced 400 store closures. I have a feeling that some of those are in mall settings and then just to piggyback, Neiman Marcus, J.Crew and JCPenny also they’re bankruptcy, and those are direct impact in mall foot traffic. And then you put on top of that between 20 and 30 million Americans unemployed right now, and with no end in sight in terms of whether or not we are out of a pandemic or reopening States, but seeing a rise in areas from coronavirus outbreak. So it’s still very murky and the situation, but I certainly can understand how this trend is continuing to worsen for mall experiences in specific.

Julia Raymond:
Mm-hmm (affirmative). So, Erik, you said it really depends on how safe people feel, and you mentioned some of the malls in your area have been converted to fitness facilities. Thiago, have you seen any interesting mall repurposes?

Thiago Garcia:
Yes. I think that there’s a great opportunity for warehousing fulfillment and distribution centers. We’re starting to see that when malls closed in Brazil, for instance, and I was talking to my family down there, they were able to actually keep some stores still operating, but through fulfillment centers only. And so I’m thinking that this trend of creating some pickup locations and warehouse fulfillments, and utilizing the mall spaces, their closures, companies like Amazon might come in and look at that retail space as new distribution centers opportunities.

Julia Raymond:
Mm-hmm (affirmative). I love that because with the COVID pandemic, we’ve seen a lot of issues with the supply chain, and we’ve heard a lot about localization of the supply chain. Erik, from your business perspective, being the owner of ERIK’S Bikes, did you have problems with the supply chain or do you have any insight as to how retailers are responding there?

Erik Saltvold:
Yeah. In our industry, because the factories were shut most of the January and February, that’s really impacted our supply chain currently because that product which would have been produced in the first quarter of the year would be delivered now. So, the bike industry, in particular, has benefited in a weird way from COVID because biking is a great social distancing sport, and it was an activity that most States were allowing people to do during the COVID stay at home orders.

Erik Saltvold:
Our business was considered essential because of transportation. So most States allowed us to remain open. And so we had a dramatic uptick in our sales and demand, which compounded the issue of supply, which was going to be a problem regardless of the demand due to the factory shutdown. So got hit a double whammy, and then piggybacking on the earlier question too, about the trend of people wanting to do a digital transaction, and pickup in the store has accelerated as well, which is also a feeling that our stores, even though we’re not located in malls per se, a good chunk of our business is becoming just a fulfillment model where the order is just fulfilled from the store, rather than the person coming in and shopping and selecting in the store, they’re doing more of that digitally.

Julia Raymond:
Mm-hmm (affirmative). And it’s crazy because 10, 20 years ago to think about buying a bike online would not be something most people would do. It’s very, touch and feel sort of buying process. But now I think that it’s switching that way. And you said that your stores were considered essential because of the transportation aspect and also because most places were still allowing people to ride their bicycles. What was that like, just transitioning so quickly and having to sanitize the stores? I mean, was it difficult to adjust faster than maybe other retailers who closed and had some time?

Erik Saltvold:
Yeah, it was every day was different where you had to figure out as you go along and you wanted to obviously. Safety was our number one priority, safety of our staff, safety of our customers coming in. We implemented pretty quickly, our doors are actually locked. We only let her in a limited number of people. And we’re still continuing that today, where we have a limited number of customers in the store at a time. So they give a day, we have a line out the door and limit the time and quantity of people in the store. And we’re sanitizing. We have implemented more curbside drop off. We’ve implemented a more amplified pickup in-store.

Erik Saltvold:
And the biggest challenge, I think for most retailers I’ve talked to during the COVID crisis was, it was like an overnight switch in terms of how your business was conducted. You were going along operating in one way and all of a sudden your digital capabilities had to be amplified dramatically because the consumer demanded that shopping experience.

Julia Raymond:
Mm-hmm (affirmative). The change happened so fast and to be agile and respond to that is what makes the difference really. And Thiago, I wanted to pass it to you just quickly here, because you have so much e-commerce expertise throughout your career. And now working with VTEX, did you see an uptick in the amount of clients coming to you asking to help them enhance their digital experience when the pandemic started?

Thiago Garcia:
Yes, we’re absolutely experiencing that demand. And also it’s Black Friday every day for most of our customers because of the demand that we’re having worldwide. And I wanted to just add one anecdotal thing. The retail experience in my mind currently is very inefficient, and I’ll illustrate that. My wife hates shopping. She hates shopping because if she goes, and I think she’s not alone, right? If she goes and tries to find a pair of jeans or a pair of shoes, the entire experience is very frustrating because you have to go through a number of stores and then try out different apparel until you find something that fits, or something that is right. And maybe after two, three hours, you find it, it might not be the right price that you’re expecting to pay for the product.

Thiago Garcia:
And so most of the time when my wife goes shopping, she comes home empty-handed, and it is a very inefficient experience. If you think about it from all the time and energy that is put behind something like that. So it makes sense for me that consumers are doing their research and discovery online because you’re saving the time and you’re narrowing choice. And then when they’re ready to buy, they want that convenience that Erik was talking about. Now I know which type of bike I have. I have all the information that I need online. I just need to go and pick up. So stores that have broken those barriers, these pain points for the consumer are doing really well and stores have expedited the pickup or curbside and create a more of a fulfillment center type of model, are going to survive and going to thrive in this new economy as folks start to become much more accustomed to this type of shopping.

Thiago Garcia:
And there was a not too long ago that people felt that they still needed to go to stores to buy things like grocery, because they may have felt awkward as someone was picking their grapes or their bananas or their produce. And nowadays I am 100% convinced that we’ve converted to just curbside pickup for grocery or home delivery for grocery, because it’s the most efficient way and prices gone down and it’s comparable. And if you are in a subscriber of Instacart or Amazon Prime or even utilizing Walmart’s grocery delivery and pick up, you’re just saving so much more time, and folks are doing the shopping for you. So I feel like this trend is here to stay and folks that have had some reservation about it are now becoming more convinced.

Thiago Garcia:
And I’d see that there’s a rise in this, what we call this surrogate shopping experience, which is you’re connecting directly with a sales associate at the store through WhatsApp or through some video chat. And that person is doing the shopping for you, is taking pictures, is talking to you, and placing the order on your behalf as if they were in the store? And I can see that very organic type of shopping evolving very rapidly in the next few months.

Julia Raymond:
Certainly, and I like the term surrogate shopping experience. I will say that’s the first time I’ve heard it called that. So I like that. I like how it sounds. And you made a good point, Thiago about adding convenience, reducing friction, all of the things making e-commerce more attractive to today and tomorrow’s consumer, and this is a good segue to hop into our next segment, which focuses on e-commerce.

Julia Raymond:
Non-essential shops in the UK reopened today after two and a half months of lockdown restrictions. The British Retail Consortium did say however that it did not expect customers to flock back to the high street. With consumer confidence and social distancing rules are likely to hold back sales, according to the BRC chief executive officer. Consumers do however appear ready to spend. Last month, online non-food spending in the UK rose by a record 60% year over year. In the US, eMarketer is calling for eCommerce sales to surge 18% this year. And in India, nearly 50% of consumers over the age of 55 are now drifting toward online purchases according to a Deloitte India study. Thiago, with these numbers in mind, should the majority of retailers be doubling down on e-commerce, or do you think it’s more skewed toward the essential businesses, the groceries, et cetera?

Thiago Garcia:
No, this goes along with my perception and understanding that the current retail experience is very inefficient, and I think that retailers should really focus on accelerating their own disruption by bringing in folks that are trying to disrupt them on the outside and incubating them into their own processes and trying to come up with a better business model that works in the current day and age. I’m a strong proponent of understanding that eCommerce is a key accelerator, that there is a trend behind it. And folks will continue to adopt that for multiple categories as they become more, like grocery for instance, right? And we talked about it. Two months ago, the penetration was not even there, and now it folks are adopting that as a method of delivery and getting their grocery at home. So I feel that retailers should really look inward and try to find ways to disrupt themselves before someone else does it.

Thiago Garcia:
And a great way to do that is by looking at what are their pain points, what are the inefficiencies in the current experience, and how can you now create solutions through technology that enables you to provide a differentiated experience and therefore survive and create a better outcome for you?

Julia Raymond:
Mm-hmm (affirmative). Good points Thiago, especially considering that there are increases in e-commerce across sectors. And like you said, it’s Black Friday every day, even for some of the apparel retailers. So passing this to you, Erik, what are your thoughts on e-commerce in general? I mean, do you see a day where people might purchase up to half of the things they buy online or more?

Erik Saltvold:
Well, I think in our business we define e-commerce to be of multiple channels, a lot of eCommerce some people think of the eCommerce traditionally as buy it online and ship it to the consumer. A big part of what’s happening in our business is buy online, pick up in-store, I would still define that as an eCommerce transaction. And we’re a specialty retailer, so we’re having a lot of sales that are consulted with the customer and providing education, showing a higher-end product. And I think the winning retailers in the future are going to be the ones that are able to serve the customer any way, any how they want us be served, whether that’s with an in-store experience, online, pickup in-store, whether that’s a true eCommerce, so buy online ship directly to the consumer.

Erik Saltvold:
And so what we’re doing in our business is really making sure that we’re strong in all those areas so that we can be relevant to the customer, however they want to buy it. But I think that the trends towards digital transactions have been accelerated several years and just the last two months with COVID. So those trends that we’re moving that way in a slow way, now we’re three, four or five years ahead of where we would have been without COVID.

Erik Saltvold:
And we have been rapidly investing in. And I would say when you asked the question earlier about how are we adapting to serve our customers during COVID, the biggest, what we’re spending extreme amounts of energy on is just making sure our digital experience can handle that. I mean, it’s many, many times the activity online that we’re accustomed to pre-COVID, so that’s been the biggest adoption we’ve had to make in terms of the business, and so on.

Julia Raymond:
Mm-hmm (affirmative). And I did notice. I took a look at your website and I saw you have a new turbo electric bike and very customized options. I mean, these are high end, like you said, specialty retail products. So would a brand like yours consider doing, or are you doing live streaming or anything where you’re interacting and having that surrogate shopping experience Thiago mentioned with the customers, or is it really best suited for in person?

Erik Saltvold:
We’re exploring different ways to have that interaction with the customer. I think the challenge has been in the acceleration of this, is how do you adapt your staffing to serve the customer? I think I’ve talked to retailers in a lot of different industries and everybody is having the same challenge is, most retailers are set up to serve the customer a certain way. When that gets flipped totally and reversed from being an in-store experience to a digital experience, your staffing and your customer service levels may not adapt as quickly that way as you’d like them to.

Erik Saltvold:
So serving the customer digitally with a surrogate experience is I think definitely a future, but it’s not something you could do on a dime, right? You can’t just flip a switch and all of a sudden that happens because you’ve got to figure out how do you staff, and we’re still serving people in store. Because of who we are, we still have stores that are open, we still have a product that people want to ride, test, we have service departments. So the in store experience, the physical experience is still very important for our business, and I think still always will be in our business, but it will be enhanced by the digital experience.

Erik Saltvold:
And so I think I’m not a believer in an all digital world where everything happens digitally and we never have an appearance at the store. I’m a believer in a world where all of that integrates together and you can buy, and there’s less friction in between all those different channels, but it becomes a really convenient way for the customer to shop with you, to interact, get what they want. And there’s going to be a variety of different ways in how people are going to want to do that. And so your digital platforms, your store platforms, your staffing all need to be aligned to serve the customer in the best way.

Julia Raymond:
Mm-hmm (affirmative). That’s quite the challenge to reach with all of the variety of ways that consumers are shopping and meeting them where they are.

Erik Saltvold:
Yes, exactly.

Julia Raymond:
Where there’ll be in two years. Right?

Erik Saltvold:
Right. Exactly.

Julia Raymond:
Well, I’d like to flip the conversation in the opposite direction right now, and talk about some news that’s happening with the largest broadline closeout retailer in the US. So some big news was released about Big Lots. The discount retailer entered the grocery delivery game when it began offering same day delivery in partnership with none other than Instacart. So available at nearly 1400 Big Lot stores in 47 States, the new partnership brings affordable groceries, as well as everyday essentials and even home decor straight to your door.

Julia Raymond:
Instacart’s delivery service is available to more than 85% of US households now. And Big Lots remained open during the pandemic reporting comparable sales up 10.3% in the quarter ending May 2nd. The retailer also saw its eCommerce sales up 45%. I wanted to go ahead and pass this to Thiago. What do you think about the Big Lots’ partnership with Instacart?

Thiago Garcia:
So smart move, right? Understanding that grocery was considered. And by the way, Walmart has a similar strategy, right? Grocery is considered now as essential, therefore all Walmart stores remain open, whereas the Best Buy who does not sell grocery had to shut their doors and just do curbside limited pickup availability. So smart move for Big Lots. I think it’s also a smart move because Instacart works really well with the type of categories that you want immediately. Things like baby, pet, grocery or medicine. And that’s a great model for big lots to partner with a company like Instacart, to be able to fulfill that and then extend the rest of their categories and availability so that if someone has that instant experience through Instacart with adjacent categories that Big Lots has. And so they will benefit tremendously from not just from this move, but think about their business model, they’re store closeouts, right.

Thiago Garcia:
And more that malls and other retail stores close, the more that stores like Big Lots will benefit from inventory and getting that inventory and then bulking up, but they also need to build demand. So it makes sense for them to look for e-commerce as a solution. Right? But we can also think that Big Lots could benefit from a marketplace model, which is something that it’s a nascent, kind of a rise now, where other independent resellers take the risk of the inventory purchasing and then they’re able to list their deals on a recognizable retail or like Big Lots. So they could even take a step further in their eCommerce model and look at something like marketplace as a great fit for their type of business.

Julia Raymond:
Mm-hmm (affirmative). And marketplace, that might be an interesting approach considering what you said about, they might be ready with open arms to accept some of this closeout inventory that’s going to come in droves. So potentially having a marketplace system would help them get the product to consumers faster.

Thiago Garcia:
Correct. So imagine the efficiency of someone who’s closing the stores. And instead of having to liquidate inventory, that store becomes a reseller and is able to sell those products into a marketplace scenario. Or another, a third-party reseller that wants to acquire the inventory risk and then able to sell on something like a Big Lots. I think those are great models for something like a marketplace to be very efficient for these types of scenarios.

Julia Raymond:
Mm-hmm (affirmative). I want to pass it to Erik because first of all, Instacart, I think they just became profitable this year. And there’s been a lot of debate online about whether or not they will be able to compete with Walmart considering their store footprint and having everything in house with their delivery program. Erik, do you think there’ll be able to compete? What are your thoughts on Instacart expanding partnerships?

Erik Saltvold:
I agree. I think it’s smart for them. I mean, I think they’re trying to figure out exactly, use that differential and leverage that over multiple retailers. So I think it’s really smart that they’re expanding the retailers that they’re working with. I mean, in Minneapolis, so obviously home of Target, and their partnership with Shipt has been, I think really successful and they’ve expanded that out rapidly. To me it’s just a trend of physical retailers trying to leverage their inventory out to again, serve the customer in multiple ways. And I think all of these partnerships, I agree, we’re just going to hear more and more about this since it’s a really smart strategy to compete with Amazon and their strategy of having multiple warehouses across the country with retailers. You’ve got even more warehouses, so it becomes a competitive advantage for people to partner with services like that.

Julia Raymond:
Mm-hmm (affirmative). Good point, especially comparing it to our Amazon strategy work. So why do you guys think the discount category is performing so well in recent years?

Erik Saltvold:
Well, I mean, I think the economy is, there still is a bit of the haves and have nots. There’s a part of the economy that’s super successful and we’ve been low on employment, but I think there’s still a part of the economy has struggled a little bit with wage growth. And so I think that’s been probably attractive for some of the closeout retailers, but what’s interesting is some of the home goods retailers that are focused on closeouts or some of the brands in our space, such as Tuesday Morning. So you have this, I mean, we see a trend of people looking for visibility of products that are at a discounted price and having those kind of experiences, the fun of discovery, I think is part of shopping. So I think that’s one way they’re successful, and I think there’s another way that they’re successful is just, they’re serving a part of the market that is more value-oriented and can have more focused.

Erik Saltvold:
And to your point earlier, there’s going to be, I believe in certain categories, not across all categories but in certain categories that are going to be a lot of closeout products as we move through the fall, because the rise in retail has not buoyant across all channels. It’s been buoyant across specific channels, whether it’d be essentials or outdoor activities, or things where people can do it in a way that’s sensitive to the way we’re living in the COVID age.

Julia Raymond:
Mm-hmm (affirmative). Absolutely. And for the final question about the age of COVID, on last week’s episode, we asked Sucharita Kodali of Forrester, and Shannon Ryan of Valtech, which digital initiatives they thought would make the most impact on the retail industry moving forward. And they both agreed curbside pickup is definitely here to stay. Erik, I know you mentioned that earlier is important for your business right now. And they also said retailers need to hunker down to solve the problem of inventory visibility in stores. So, that’s their thoughts. I wanted to turn the question over to you and ask, Erik, you can hop in first if you like, what digital initiatives do you think will have the most payoff in 2021 and beyond?

Erik Saltvold:
The biggest thing we’re working on in our businesses is exactly what you just said, which is inventory visibility, so that you could see it no matter how you want to shop. Again, you want to pre-shop and know what’s going to be in stock at that particular store when you go in, or what’s in stock and what’s available to ship to me, and leveraging our strength, which is multiple stores in multiple markets. So we have the convenience of having product close to somebody in different markets. We can ship that product. If you want to pick it up in the store, you can identify where that is, and the consumer can make a choice, but make better and easy frictionless experience so that they can see where it is, identify when they can get it, and then they’re on to make the best decision.

Erik Saltvold:
And I think whether that’s pick up in-store, whether that’s ship it to me, whether it’s an integrated how you introduce payment methods, financing, all the different ways that you can buy. There are so many things that go into that experience, but it has to be a frictionless experience. How do you make that experience that you get when you shop in a store? How do you expand that to be digital? So it feels like I can get the information and be armed with what I need to have when I walk in that store or when I contact that customer service agent, that I have the digital experience enhanced, and that it wasn’t a detractor from that.

Julia Raymond:
Mm-hmm (affirmative). Good points. Thiago, final question. Do you agree with Erik? Do you have any other digital initiatives that you’re keeping an eye on?

Thiago Garcia:
Yeah, absolutely. Just so we have a name for what Erik has described and it’s called unified commerce, and it’s this notion that you’re integrating everything, POS, OMS, your inventory management, ERP, CMS and CRM. All of those systems created and if you are able to integrate them all, then you are able to start to serve the customer. And no matter where she shops, no matter how she wants to shop, you’re able to serve that new shopper in this day and age. So that is a big trend. And I agree that that is critical for most retailers to be able to get a handle on their technology to serve that consumer that wants that convenience.

Thiago Garcia:
The other thing that we already talked about it in the show, surrogate shopping, which is looking at augmented reality, virtual reality, the teleconferencing type of things, and even virtual assistant shopping where really, someone will shop on your behalf. That way you can still have almost like an in-person experience, but at the convenience of your home and be able to break some of these barriers from a lot of these categories that we described, that still you might want to touch and feel, there might be some barriers or some friction that you will be able to break by adopting some of these technologies.

Thiago Garcia:
And then the last thing I would mention here is the rise of marketplaces. Now retailers have this opportunity to become marketplaces, to simplify their business models by deleveraging the inventory risk and increase the profit margins through what we call collaborative commerce, which is creating these networks of sellers and buyers and leveraging their brands and their properties to enable this type of shopping to occur. In my mind that’s the evolution that some of these retailers are thinking about, certainly Best Buy, Walmart, the big retailers and Target have already created, but the technology now exists for other retailers to be either participants of a marketplace through sellers, the Amazons of the world, or create their own marketplaces, which I think is an exciting time for people to start to think of their business models and how they can evolve.

Julia Raymond:
Mm-hmm (affirmative). Good points Thiago, from Unified Commerce to new newer service models and collaborative commerce with marketplaces. I wanted to thank you, both Thiago Garcia VTEX and Erik Saltvold, founder of ERIK’S Bikes for joining the rundown today. I appreciate your expertise and insights.

Thiago Garcia:
Thank you very much.

Erik Saltvold:
Thank you.