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June 29, 2020: The state of luxury, the staying power of secondhand retail, Amazon’s Dash Wand is officially dead.

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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, Kevin Graff and Anne Beall. Kevin is the president of Graff Retail, a consultancy that has designed and delivered award-winning retail training programs for major chain stores and top merchants across North America and internationally for the last 20 years. Anne is the Chief Executive Officer and founder of Beall Research, Inc. A marketing research consulting firm that uses research to create solutions for Fortune 500 companies. She’s also the author of Strategic Market Research: A Guide to Conducting Research that Drives Businesses.

Julia Raymond:
Anne and Kevin, thanks for joining the show today.

Anne Beall:
Thanks so much for having us.

Kevin Graff:
Yeah, great to be here, Julia.

Julia Raymond:
I’m so happy to have you guys on. We have a bit of news in the luxury realm. That’s what we’re going to dive in first. Last week, Italian fashion retailer, Valentino sued its landlord at its U.S. flagship store on Manhattan’s Fifth Avenue in an attempt to void the remainder of its lease, post COVID-19. Valentino says it can no longer afford to operate the prestigious location after the pandemic forced non-essential stores in New York City to close down in March.

Julia Raymond:
Although physical stores are reopening in New York, a complaint filed by Valentino argues that shoppers have grown fearful of “in-person, nonessential, luxury retail boutiques.” And that quote, “Even in a post-pandemic, New York City should such a day arrive, the Fifth Avenue location was irreparably damaged.”

Julia Raymond:
The brand’s lease is not set to expire until 2029 and the Fifth Avenue locations landlord has denied Valentino’s requests to shutter the location. Anne, based on your research, what can you tell us about how consumers are feeling about returning to brick-and-mortar?

Anne Beall:
Well, what we have learned from several research studies that we’ve conducted is that consumers are going to dip their toes in very slowly. They are going to start doing some retail visitations and they’re going to kind of ramp up over time.

Anne Beall:
What they are looking for is they’re looking to feel safe. They’re looking for some level of normalcy and they’re looking to buy great products once again. They are looking for that. And interestingly, what we found in the study that we just did a few weeks ago, we learned that 46% of Americans said they’re looking forward to treating themselves to something nice when this is over. 26% of people said, they’re buying things that make them feel good. We know that retail is going to come back. We just know it’s going to be happening over a longer period of time. It’s going to take a while to ramp up and consumers are going to be looking for very specific things.

Kevin Graff:
Yeah. And I think Anne, great research. I think that very much aligns with sort of everything we’re hearing up here too. But I think this Valentino story, I think there’s a lot going on in behind the scenes that Valentino’s isn’t necessarily saying as they try to get out of that ridiculously expensive rent. They’re probably paying about 2500 bucks per foot, which is kind of the going rate down on Fifth Avenue. They’re not the only ones that are in that little bit of a challenge. I mean, apparel sales overall have been pretty challenged for quite a long time. I mean, they took the biggest hit during this whole period.

Kevin Graff:
You take a look at the shift that’s been going on. Like if you go to your local mall, it wasn’t that long ago that if you looked at the mix of tenants in that mall, 70, 75% used to be fashion-based. Now if you go to the mall, it’s closer to 30 to 35% that are fashion-based out there because people are kind of changing where they’re putting their money. I’m kind of like the boomer and as much as I’d like to think the world still revolves around me, you get into the world of luxury retail and there’s a lot of competing messaging that’s out there.

Kevin Graff:
Very few of them have done a great job of pivoting to meet the millennials. Gucci’s probably the best. Even my teenagers want to own Gucci for some unbeknownst reason to me, and it’s not going to happen on my watch. But the most, the rest of them they’re sitting there and they’re kind of like, “Okay, how are we going to do this?” But then on the other side of it, I don’t know. And Anne, maybe your research talks about this. When you get to the peak of luxury and you start talking about retailing to that top 1% or half of 1%, money’s got money’s got money’s got money and always has money.

Kevin Graff:
I do just a tiny bit of work. There’s this very high-end jewelry chain up here and their numbers for April and May have been better than their numbers in December. They’ve been hitting it out of the park. Their only rationale is, look, they think their customers all think they might be going to hell in a handbasket, so I should get a Rolex and get my wife a diamond before that happens.

Anne Beall:
In my case a Gucci bag.

Kevin Graff:
Yeah, may as well. May as well. I don’t know if you’re seeing that in your research as well that that top 1% is… and I think you alluded to it when you said, “I’m going to go get myself something nice.”

Anne Beall:
Yeah, so it’s really interesting. We have been doing research for a long time and after the recession 10 years ago, we saw some of these luxury department stores really struggling. It wasn’t that their customers don’t have money. They have plenty of money. We actually did focus groups with people who spent over $100000 a year at places like Saks Fifth Avenue. But what we heard from them was, I don’t really want to be ostentatious right now because I don’t want to look insensitive to the people who are financially impacted. I don’t really want to buy the trendiest thing that’s out there because that’s kind of revealing that I haven’t really been affected, and I’m being insensitive to those who have.

Anne Beall:
What we saw was that this top 1% was spending money very differently. They were still purchasing, but they weren’t necessarily buying. They were buying, I would say more of the basics and they were buying things that were a little bit less showy.

Kevin Graff:
Yeah, less conspicuous.

Anne Beall:
Less conspicuous. I think we’re going to see that again. I think that luxury brands are going to have to think about how do they kind of speak to that notion of, “Oh well, this is an investment piece that you will have forever.” Versus, “This is an investment piece for the new trend. This is the new fashion. And oh by the way, you’re going to throw your wardrobe out next month or next season because we’ll have a whole new set for you to buy.” That’s not going to work now.

Kevin Graff:
Exactly, exactly. You’ve run across it I’m sure in your research, like the millennial’s different mentality, right? Different value base. Experiences over product. Yeah. I was out in cottage country, not too far from where I’m at and I was talking to a real estate agent. And I said, “So how’s the market been?” He says, “The past few years, cottages have been flying.” And I said, “So who’s buying them?” He says, “You won’t believe it. It’s the millennials. It’s people in their thirties that are buying them.” I went, “Where are they getting the money? Because I don’t have the money. Where are they getting the money?” He goes, “What they’re doing is they’re working in the city, but they’re renting in the city and they’re buying a cottage because they’re more interested in the experience than they are about the job.”

Anne Beall:
Yeah. No, I think they’re very specific about what they invest their money in and it’s, they don’t follow necessarily a script.

Kevin Graff:
Yeah, exactly. The thing I think that would chase a Valentino and many others out if I was them, there’s not going to be very many Chinese luxury consumers visiting the United States or Canada or anywhere this year that drive a lot of their sales.

Anne Beall:
Absolutely, yeah. That’s a really important point because those luxury retailers really depend on those international segments.

Kevin Graff:
Absolutely. So it’s pretty understandable that they’re trying to get out of their lease.

Julia Raymond:
Absolutely. That’s a great point too. Kevin, because North America and Europe, not having the travelers. Especially where I’m based, a lot of people from Brazil purchase most of the luxury goods here and then the Chinese consumer historically has had a large portion of luxury buyers. We’ve seen the photos coming out where they’re lined up outside of the Chanel Store in Beijing and things like that. It’s really interesting to see. Do you think that there’s a little bit of, if we reduce or negotiate your lease, we’ll have to do that with our other luxury leasees?

Kevin Graff:
Oh man, I’ll tell you up here the story of COVID in retail to a large degree has been a battle with the landlords about giving rent concessions. So I think you hit it right on the head because the landlords up here are like cutting very quietly some backroom deals with their most favored tenants and giving them some rent relief and with other tenants they’re like, “Uh, no.” And they don’t want to put it out there publicly because of Julia exactly what you just nailed on the head that says, “Hey if we publicly say hey we’re going to draw your audacious rent down dramatically to reflect the new reality of shopping, in this case on Fifth Avenue, we’re going to have to do that for everybody and we don’t want to have to do that.”

Anne Beall:
That may be why Valentino has done this. They may have not gotten one of those sweetheart deals. So they said, “Okay, here we go.”

Kevin Graff:
Exactly.

Julia Raymond:
I’m taking it to the press, right. It’s interesting because I think I also saw something on the news that Hudson Yards, Amazon was looking at some of the retail space there.

Kevin Graff:
Interesting.

Julia Raymond:
And some interesting players. I remember. Anne, you had said that when it comes to luxury, the retailers are presenting it as this is an investment piece. And that’s part of the play, especially in recent years. I think that’s a really good segue to our next topic, which is about resale, because there’s a lot of opportunities today versus five years ago for customers to sell their products and get some of that money back on luxury goods.

Julia Raymond:
Interestingly enough, even during this global pandemic, secondhand shopping is becoming more popular than ever before. Consumers have been spending their time hunting for the best deals as they turn to resale marketplaces like thredUP, Poshmark, OfferUp and Mercari. A new report by thredUP and Global Data Retail revealed that the resale apparel market is valued at about 28 billion today and is forecasted to reach about 64 billion within the next five years. The report also said secondhand goods are expected to make up 17% of a person’s closet by 2029. That’s up from 3% in 2009. So a huge jump.

Julia Raymond:
I’ll pass this to Kevin first. With the secondhand apparel now entering the mainstream, do you see re-commerce widening into non-fashion categories?

Kevin Graff:
Yeah, it’s a very interesting trend. The report that you referenced, and I always love it when somebody that’s in the industry and is interested in propping up their stock price tells you it’s growing and it’s going to be the greatest thing and they’ll be 17% of everybody’s closet.

Julia Raymond:
A little biased.

Kevin Graff:
It’s kind of like when the wine world came out and said, “Yeah, drinking red wine is really good for you.”

Julia Raymond:
It reduces blood pressure, sure.

Kevin Graff:
It was like, “Fantastic. That’s a great idea.” And then you go, “Well, wait a minute. The wine makers came up with that report.” Look, is it a growing? But I’ll be honest with you. From an overall dollars, 25 billion now represents about one third of 1% of all retail sales. If it gets to 60, 64, and I’m not saying it’s not going to, that will be all of 1% of all retail sales.

Kevin Graff:
I look at things like this and I go, “Hey, it’s a better media story than it is a groundbreaking story of what’s going on in retail.” But even in those numbers, there’s opportunity. I look at my kids who are teenagers, Gen Z, and you look at all the research and Anne you probably know more about this than I do, but they don’t see any stigma that’s attached to buying used clothing or sneakers.

Anne Beall:
None at all.

Kevin Graff:
I’m an old guy. I’m like, “Somebody’s foot was in that shoe. I’m not buying it.” Right. They don’t see that along the way. I think that’s why there’s this opportunity to kind of grow through it. And thredUP’s probably done the best job of anybody because they’re building partnerships with Walmart and Gap and Macy’s and JCPenny. I hope they get their money upfront on that last one. But can you get into other categories? Sure. The sneaker business has got a massive used category already. Office equipment’s been around for a long time. Bikes. There are immense portals of used bikes out there. I think there’s opportunity inside of re-commerce in other categories. But Anne from your research, what do you seeing in terms of people’s appetite as it relates to buying used products?

Anne Beall:
Yeah, so it’s interesting. As you know, people have been very affected financially by the pandemic. In recent work that we’ve done just a few weeks ago, almost half of people, 42% said they have lost some of their income. Some of the desire for used good is actually coming from a desire for a good value for the money. I think that what we’re seeing is that this category is going to grow because in fact, as you said, and I can confirm, the younger generations do not have a problem with used goods, used clothing. They do not have an issue with it at all. I’m like you. I look at something, a used dress and I’m like, “I don’t know if I really want to put that on my body.” But you know, people who are in their twenties don’t have that same feeling.

Anne Beall:
I think there is some growth in this category, partly because there has to be due to demand and due to less cash. My prediction is that home goods will be kind of the next big thing. I look at letgo.com, which is telling its customers that they are the largest and fastest growing app to buy and sell used goods. That’s interesting to me. I think that as people have been sitting in their homes for months on end and are wanting that thing that they desire, but don’t really want to pay full price for, that I think you’re going to see this growing more and more in the home goods area. That’s my prediction. I guess we’ll see what happens, but certainly great openness to used goods from consumers and a desire for things that they want to get a good value for the money and to the extent that people don’t have problems with buying things that are slightly used. I think this could be huge.

Kevin Graff:
Yeah, exactly. It’s a question of being able to find those categories where you can build it at scale.

Anne Beall:
Right, exactly.

Kevin Graff:
That’s part of that challenge. It worked really well in fashion. It’s working pretty well in sneakers. If you look at what is it, goat.com. A lot of, they’ve got a massive sneaker business, used where people have the opportunity to sell their use sneakers for a ridiculous amount of money and somebody will pay an even more ridiculous amount of money to buy a used pair of sneakers. So, yeah is there opportunity? Yes. How big that opportunity is from a total industry perspective, I think really remains to be seen.

Anne Beall:
Yeah. I think that’s absolutely true. It’s going to see. Basically people have to have a good experience with it and that’s going to be the thing that will predict whether this really takes off.

Kevin Graff:
Exactly.

Julia Raymond:
And to Kevin, your point about scaling. It was interesting because I had the president of thredUP on the podcast a while back and he said, “I’m not a retailer. I know a lot about retail, but I view myself as a platform. ThredUP is really a platform. We’re a tech company.” And I thought that was interesting.

Kevin Graff:
Yeah, absolutely. Good of him to get out in front of it and recognize that. That probably puts him in a better position to understand how to build scale to his business. He’s not confined to the same mindsets that a traditional retailer has. They can look at the marketplace completely and totally differently and understand how to use and leverage technology as a platform to be able to achieve better market reach and hopefully be able to do it where the cost of acquiring a customer is not astronomical. Because the challenge with all this pure online stuff now is that for most categories of retail, it’s more expensive to capture a customer online than it is to acquire a customer in a store.

Kevin Graff:
You’re seeing all these pure online places open up brick and mortar stores for a couple of reasons. One they’re discovering, it’s not that expensive in the store relative to the cost of the online. And at the same other time, it’s like, “Okay, there’s very little experience online. And there’s a whole lot of experience when it goes well in a store.” I wish them well. I think thredUP maybe the one that may have the greatest staying power in this.

Julia Raymond:
Absolutely. It’s definitely a new arena. I mean the fact that thredUP negotiated deals with multiple huge household name retailers instead of the other way around where they had a binding agreement with just one.

Kevin Graff:
Absolutely. Super smart on their part.

Julia Raymond:
Definitely. Before we move on to the next segment, I just was curious Anne if you had any research around Gen Z, because we’ve been talking about that segment a lot lately. I’m seeing research being put out by Barnes Noble college and some others that says they are not as price sensitive as millennials, and they also care more about the ethos and the sustainability.

Anne Beall:
They actually are very values-driven in the research that we’ve done. They tend to be very focused on causes, things that matter to them. They will buy based on what companies are doing, which I think is very admirable. If a company sort of talks the talk, but doesn’t walk the walk, they’re very sensitive to that. I think they are a little bit more considered in some of their purchasing. I also think that they really are going to do what’s right for them. I think they’re a little bit less, as I said, kind of following the script. They, if they like Gucci, they like Gucci. If they don’t, they don’t. But it doesn’t matter what sort of is out there in the ethos. They are kind of doing their own thing, which is interesting.

Kevin Graff:
Yeah. It’s interesting when people say Gen Z is not as price sensitive. I think it’s because they’re still living at home and mom and dad are paying for everything.

Julia Raymond:
Could be.

Anne Beall:
That’s possible.

Kevin Graff:
I know my kids aren’t price sensitive.

Julia Raymond:
That’s funny. Well, our last segment today, we’re going to bring up a retailer we probably talk about it a little too much, but it’s Amazon. After a three year run, Amazon is ending support for its Dash Wand. I’m going to be completely honest, I totally forgot the Dash Wand was a thing. This was an Alexa enabled device that let shoppers scan barcodes on grocery items and household items from their house. You have this little wand, you’re walking around your house, you scan things. It evolved from their idea of the Dash Button, which were the push to order, physical buttons that you could, you had one that says Tide and you tape it to your laundry machine or whatnot. But they abandoned the buttons last year. We can’t forget about the Amazon Fire Phone, which they also abandoned a few years prior. The Dash Wand released in 2017, now let go and has seemingly been replaced by Alexa and subscribe and save, et cetera.

Julia Raymond:
On a LinkedIn post just last week, I commented on something. I saw Tom Goodwin, the Head of Futures and Insights at Publicis Group. He responded to this news and said, quote, “I’m sure Dash Buttons were designed by Amazon with the sole purpose of getting attention when people like us talked about the future of retail. Anne, do you agree with Tom?

Anne Beall:
It’s interesting. Amazon’s an interesting company that they throw their resources in lots of different ways. I think they see what sticks and I think they’re not afraid to abandon things either. I also know that they are constantly trying new things. I almost feel as though it’s not as if they’re competing against anyone else’s if they’re literally just trying tons of things and seeing what happens.

Kevin Graff:
Well, Amazon’s a fascinating company. They have the joy of getting $12 billion a year from their Prime Membership fees. With that $12 billion, they get to play and do lots of different things. They are also brilliant marketers. Your question Julia was, do I agree with that LinkedIn comment? Absolutely. If you watch, and I’ll bet you dollars to donuts on this thing. You watch this November, December, Amazon’s going to start… they get all this free press because they’ll start to come out with something. A couple of years ago it was, they would do to the delivery right to the trunk of your car. There was this hole and I was like, “Fantastic.” And the media jumped all over this. You could just, you don’t have to be at home. They’ll put it in the trunk of your car.

Kevin Graff:
Well, it got them all these impressions that they could never have bought. It’s the same as when they get talking about drones and it’s just all this stuff. They’re so smart about it because it’s a media story that lives and lives and lives and lives. I’m a big Amazon fan. They are incredibly innovative. They do all sorts of amazing things, but they also do some things that are purely experimental and maybe they’ll stick. And I think they do some things that are really just really shrewd marketing things.

Anne Beall:
They are constantly trying new things. I mean, as an Amazon author, I have to tell you that we are always trying to keep up with what it is that they are doing with their algorithms because they are constantly refining them on almost a weekly basis. It is incredible.

Kevin Graff:
Tough to keep up with.

Anne Beall:
It is, it is. Yeah.

Julia Raymond:
That’s really incredible. I don’t mean to put you guys on the spot here, but now that we’re talking about tech that was a failure, but that’s okay because Amazon’s culture fosters failure in such a great way that’s allowed it to innovate. Are there any other retail technologies you can think of that is going to maybe be obsolete in the next couple of years?

Anne Beall:
I think anything with a touch screen, kiosk type technology is going to be obsolete in the future.

Kevin Graff:
Don’t touch it.

Anne Beall:
I think that all of those sorts of interactive things that retailers put into either help you find something or whatever that you actually touching a screen I think is going to be very problematic going forward.

Kevin Graff:
Yeah, possibility. I’ll tell you one thing. I’ll give you two things that I think are on their way out. I’ve said this for a long time. Self-checkout is a temporary measure in the world of checkout. Because you think about it, you could go to the cashier, but you don’t want to have to get in line, but now you’ve got to go still check yourself out. Mobile checkout, it is out there now.

Kevin Graff:
Everyone knows the technology that, we’ll go back to Amazon, is using in their go stores. The cashier-less system. That they’re now going to license out to other retailers and make it a revenue source on its own. Self-checkout, give it another five years, six years. You won’t see that, I don’t believe out there. The other thing is more in the world that I play, traditional learning management systems. These learning portals. Big, bulky things, are going to just get replaced. Even in our world, we took all of our online training. We took it off of an LMS and we now drive it through an app. The flexibility is just a thousand times greater. I think those are the two things I would look at to go, “Yeah, I wouldn’t be spending a lot of money on either of those technologies right now.”

Julia Raymond:
I like how you pointed out technology that was both external and then internal facing for retailers because training is such a big part of the industry. Is there any tech that you think will have the greatest impact on retail moving forward? I know we said touch screen’s probably out. Do you think voice technology? Will we be yelling at the screens? I mean, I can’t picture that either.

Kevin Graff:
I think we already do that.

Julia Raymond:
Well, that’s true. In our homes, I mean, yeah.

Kevin Graff:
I’ll tell you, there’s so much cool stuff out there. There are all kinds of bells and whistles. We think about augmented reality and I ran into an example just in our home the other day. We bought these LED light panels for in our kids’ bedrooms and you can configure them in different ways. Well, what does it come with? It’s got an app that controls them. But the coolest thing was it had an augmented reality component in the app where you could just hold your phone up to the wall and try different configurations and see how it would look on your wall. That’s from this tiny little startup company that operates just outside of Toronto. And I’m like, “Wow, that’s pretty interesting.”

Kevin Graff:
Then, artificial intelligence. We’ll all have our own personal shopping assistants. You’ll just say to your personal shopping assistant like, “Where can I get the best chana masala for dinner?” You know, “Who’s got the new Nike Air Jordan in a size 11 in stock that I can go pick up today?” And your personal shopping assistant will be able to find that stuff for you.

Kevin Graff:
I think things like that, and there are all kinds of body scanning technology that’s coming out that’s going to allow for customization in the fashion world. So you know when you go out and you’re buying something and what you really need is a size eight top, but a size six bottom.

Julia Raymond:
I’m tall so no pants are long enough.

Kevin Graff:
Or more likely an eight and a half and a six and a half. But body scanning technology allows a manufacturer to be able to customize that for you and do it instantly. Because you’ll have a body scan and those measurements go directly to the manufacturer and they spin it around and 48 hours later you’ve got your outfit that fits perfectly.

Anne Beall:
Yeah, absolutely. Yeah. I come back to what I said in the beginning, which is that customers want to feel safe. They want to have some level of normalcy. They want to buy great products and they do want personalization. I think that that’s… what’s going to happen is that you’re going to see the integration between online and brick and mortar is going to become even more so over time. Certainly, smartphones will play a role there. Certainly, extended reality can play a role there.

Anne Beall:
I want to get in. I don’t know that I want to be necessarily trying stuff on. Maybe I want to look in a mirror and see how it might look on me. Maybe I want to see how it goes with the rest of my closet. Maybe there’s an app that will help me figure out what I need next in terms of both fashion or sizing or whatever. I think the notion of a sort of virtual assistant, again shopping both in-store and online is going to become more and more of a trend. And I see every single website I go on, they say, “Can I help you? Chat with our bot.” Well, I think that’s going to become more the case with retail as well.

Kevin Graff:
Sure.

Julia Raymond:
We hear some, a lot about mental load recently because of Zoom and people saying Zoom fatigue is caused by the mental load. There’s a bit of a delay. It’s hard to read how other people’s body language is when you’re not in real-time. I think there’s going to be a huge decrease in mental load when you have a virtual assistant to find you the best deals and you don’t have to stare at the screen and search and have 20 tabs open. And to just think about how much free time that will free up for people and consumers.

Anne Beall:
Absolutely.

Kevin Graff:
You think about the potential of how our lives are going to get better. You think about grocery shopping, which has been so slow to evolve, but fundamentally if you looked at grocery shopping, you know what, 70, 75, 80% of your grocery list is the same week to week to week. The question becomes, why are you going to the store to even get it? Why do you even have to write it down on a piece of paper other than we all have no memory left?

Kevin Graff:
As soon as you start buying your groceries online, that can go on auto-replenishment. Now all those sudden those groceries can just show up at your house. They know you’re a big Cheerio’s eater year and you go through two boxes a week. Well, what shows up at your house is two boxes of Cheerios every week. People look at that and they go, “Well that seems odd.” I go, “Well but think about that. How much time would you save if you didn’t have to go and do that? And what could you do with that time?” And that’s where the richness and the quality of our lives comes around, when technology can help us out in those ways.

Julia Raymond:
Absolutely. And it’s always retail that seems to be at the forefront of the big technology changes because we’re all consumers. It’s really exciting to see. I just wanted to thank you again Kevin, President of Graff Retail and Anne, CEO and founder of Beall Research for joining the show today. I really appreciated hearing your insights and it was fun.

Anne Beall:
It was great. Thanks for the invitation.

Kevin Graff:
Absolutely. Anne, great insights. Thank you for sharing those. And Julia, tremendous job hosting this thing. Thanks for having me.