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.

November 16, 2020: Ulta and Target team up, keeping tabs on holiday inventories, China’s Singles Day breaks new records. 

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Hosted by Julia Raymond

Written and produced by Gabriella Bock

Edited by Trenton Waller

 

TRANSCRIPTION

Julia Raymond Hare:
Today we’re joined by my guests, Christine Russo and Bob Phibbs. Christine is a retail consultant working in data analytics, inventory forecasting, wholesale sales, and brand growth. She also runs Connected Retail, which produces short form video updates about digitization of the retail industry. Bob also known as the retail doctor is an internationally recognized business strategist, speaker, and brick and mortar expert. Christine, Bob, thank you both for joining today.

Bob Phibbs:
Great to be here.

Christine Russo:
Thank you.

Julia Raymond Hare:
Great to have you. We’re going to kick off with the biggest news recently, it’s covering two of our favorite retailers Target and Ulta Beauty. So they announced a partnership deal last week to open makeup and skincare shops inside of hundreds of Target stores. Launching next year, each shop in shop will be about 1000 square feet in house curated assortment of established and emerging prestige beauty brands. Some of these stores will be equipped with Ulta’s digital tools, including virtual try-on technology, and customers will be able to shop in person or use Target same day services, such as curbside pickup or home delivery by ship to get their online beauty purchases. Bob, I’ll pass this to your first. What are your thoughts on this huge partnership?

Bob Phibbs:
Well, if anybody wonders what the legacy of Ron Johnson’s disastrous leadership of JCPenney led to a mass exodus of their customers… Where did she end up? I think we can all say probably Target. And this is bad news for Sephora who really staked that that turnaround was going to happen in JCPenney and didn’t. I think it could be great news for Target. I think Target’s certainly hitting on all cylinders, as people are thinking about locking down, they’re going to be blessed with your essential, so buy your cosmetics while we’re open but you do have to ask with over a thousand locations that Ulta already has, is this going to be over-saturation particularly on the East coast where they have so many locations? And I think that’s probably a pretty fair worry if I was in all tissues. I think Target wins no matter what.

Julia Raymond Hare:
All right, Bob, so you said bad news for Sephora, or you pointed out that they were relying on a big JCPenney turnaround that never happened. Good news for Target, no matter what, you’re a little bit concerned about the over-saturation specifically on the East coast. Christine, what are your thoughts?

Christine Russo:
I found it to be a curious match up myself. I feel like Wall Street yawned at it. In some cases applauded it in some cases thought that it was a shop within a shop is not really as nobel as one might think. Going back to either JCPenney or even just a department store model. In terms of cannibal cannibalization, I think if you look at the Walmart math and where they… 90% of the population lives within 10 miles of a Walmart, I think maybe they’re going after that. I think also the differentiation with the bringing in prestige products into Target is maybe another move. I think Ulta wins with this because they sort of are piggybacking on all of the strength of Target. And I’d be really curious to know when the discussions happened and when they thought they could execute it because maybe they were trying to get it done and out there while we were in lockdown and while Target was deemed essential and that would have really been genius.

Julia Raymond Hare:
I would like to know what that timeline looked as well. And it’s important to note, I think, that makeup has really dropped in a lot of categories of makeup this year. And there’s been a report by NPD Group, they said 70% of consumers scaled back their usage. So I really think of this, at least during the pandemic, as a win in terms of customers know what makeup they regularly replenish. And now knowing that you can get it at Target instead of going to Ulta, that’s huge. But I will note that Ulta has been building a lot of stores over the past few years. So it might hurt their own footprint a little bit. I think that’s a valid concern.

Bob Phibbs:
And I’m curious what their consumer… Who that is. Duane Reade an awful lot of drugstores upgraded their cosmetics and obviously I am not Ulta’s ideal customer. But you do have to ask, are we getting to a saturation point for women with cosmetics when we’re being told the younger generation doesn’t want as much makeup and as going more natural and that they don’t have money for things like this? So again, I stand by the oversaturation just in the category itself.

Christine Russo:
I think one of the interesting objectives for both Target and Ulta was to combine and get exponential growth in their loyalty programs. They combined, they have a hundred million people that are active in their loyalty programs and digital customers. So while it’s a sort of brick and mortar play per se, there’s a huge digitization aspect to it behind the scenes.

Julia Raymond Hare:
I would agree with that. And I also, that there’s a lot of DTC growth in makeup and they’re doing really well. And I think that’s a huge competitive play. I think there’s a lot of Gen Z who are more interested in the indie makeup brands.So we’ll see how that goes.

Julia Raymond Hare:
Okay. Let’s talk about inventory. We have Black Friday, Cyber Monday right around the corner. Retailers have been stockpiling their holiday merchandise. And if we look at Amazon Walmart and Target, they began importing customer electronics, home appliances and atheleisure ahead of schedule this year, as they’re preparing for a holiday shopping season, like never before. At the same time, retailers are also scrambling to replenish inventory and the possible event of another coronavirus lockdown. Christine, what advice do you think retailers aiming to become more agile with their inventories should be looking at?

Christine Russo:
Well, it’s funny because coronavirus 1.0, in general, sort of out there was dumped the inventory wherever you can. We don’t know when we’re reopening and then when we reopened, they either had dumped it or we were obviously in a new season and they couldn’t get back into there… Any inventory positions. So coronavirus 2.0 where people are stockpiling is a complete 180 from where we started. In general in inventory planning, taking the pandemic out of it is… You going to want to replenish and have inventory as close to selling as possible. So in terms of replenishment and having a constant flow, that’s usually the best advice. And I’m really thinking here about apparel, not home goods, but apparel retailers, where if the pandemic can shift the industry to really be more “buy now wear now”, very big concept hasn’t worked in the past. But if this can finally trip us over to that philosophy, we’re going to see a big difference for manufacturers and retailers in terms of profit.

Julia Raymond Hare:
So you mentioned that first of all, the stockpiling is a complete 180 from where we started with the pandemic and then apparel, if we can get to that “buy now wear now” space that will change and impact a lot of different areas. Bob, what’s your take on the inventory challenges retailers are facing?

Bob Phibbs:
Well, I think most people, both apparel retailers have really shrunk to put in the basics and something that would entice or be different or a little more cutting edge has been left of the direct to consumer brands. And I think that’s a big miss because customers go into a particularly boutique or a mall store to see what’s new. We want to go in and see something that’s going to chat us. We know we might want to get something, but customers are motivated. They’re not browsers anymore that they walk in and put on a mask, they’re going to buy something more.

Bob Phibbs:
They’re going to want to buy something. And so I would encourage the retailers who are scared and have gone back to that basics, I think is a challenge, but let’s make no mistake here. Retailers at the holidays are going to cut themselves wide open with margins because someone has got to say, “we got to move this stuff, whether we make money or not.” And wall street will allow that to happen for most of the big boys, but it is still going to be a promotional holiday season. And I think that when it comes to inventory management, the real question is where are we in six months? Because the supply lines have still been broken and not rebuilt very well. And particularly the higher end items, meaning people have the money to buy it, but you’re out of stock. That’s a bigger concern for me because if that wanes, or if things change in the economy with the new president, then they may be left out in the cold and not be able to ride this wave of new hedonism, which I absolutely believe is going to be what’s on tap holiday 2020.

Christine Russo:
Well, I love the idea of new hedonism. I do think there’s so much pent up demand and with cases rising right now, when travel sort of questionable there’s definitely a retail itis out there where people want to be spending. I love the idea of what Bob says about kind of fast-forwarding and jumping over the next six months. We really need this to cause a change going forward. And hopefully this will do that. And in the meanwhile I think that people need to just continue to understand that the money is there and they need to have the right things and to Bob’s point playing it safe is not necessarily the way to go.

Julia Raymond Hare:
And I also think that new hedonism would be amazing. I think a lot of people are still not traveling. So hopefully there will be money to spend, especially in the items Target, Walmart and Amazon have been importing especially with electronics, which are more expensive and home appliances. Do you guys think Target will [inaudible 00:11:40] a loss you said Wall Street will allow it to happen. I’ve seen a ton of promotional activity, like never before from Target this holiday season so far, just as a shopper myself.

Christine Russo:
I think that Target and Walmart and Amazon will be Q4 winners. People are kind of creatures of habit and their feet have been reprogrammed to walk into a Target or a Walmart because of the lockdowns. So you sort of are, “well, I need some lettuce and some cream and a sweatshirt. Where would I normally go? Well, I ended up at Target because of the lockdown and well, wait a minute. Wow. They sell this and they sell this and they sell this and they sell this.” So feet have been reprogrammed. So, no, I don’t think they’ll have a loss.

Bob Phibbs:
Target is going to beige up America, even worse than the worst malls, because the reason why we go to a Whole Foods is because it’s better and it’s different. And the experience is different. And the reason we go to the sporting goods store is because you’re going to find these different and better items, which are probably not going to necessarily be made in China. And they aren’t going to be priced, promotion driven. And if we don’t realize that we really just do become rats to the cheese and that somehow the government has decided the winners and losers in a capitalist society. And I consider myself a pretty progressive voice. But if you don’t see what’s going on with the small businesses and why they are hurting as well as the restaurants, because the big have gotten bigger and we seem to just go, “well, that’s the way it is.”

Bob Phibbs:
I think especially as Biden comes in, I think you’re going to see city leaders suddenly realizing Holy crap, the big have gotten so much bigger. Our downtown will never recover. And if we don’t do something about the malls and find a way to get these people working we’re in trouble, because one out of four jobs depends on brick and mortar, retail. I don’t care. You have an omni-channel, I don’t care. You have a magic mirror at the end of the day, it’s still people coming into a mass environment to buy things and to just kind of wholesale say, “well there’s winners and losers everywhere.” I think really is naive and that’s not what either of you have said, but I just felt like the idea that this giant Target and beigeing up America, as you said that, because I’ve gone to a Walmart grocery and oddly it’s not the same as a Whole Foods.

Julia Raymond Hare:
Bob, I will have to say… I just have to jump in here. Two things: one is that it’s clearly evident that the color beige has done something to you and your life, because I remember when I bought a beige couch and I told you about my couch, you said, “I hope it’s not beige.” And here we are talking about beigeing up America. The second is we’re talking about this before we started recording. And you talked about the path of Gap. And I just wanted to have your thoughts for the listeners as well, because it was interesting what you said on kind of where they’re headed. Cause it’s the same thing. I think it falls under that beigeing up America.

Bob Phibbs:
Well, but Gap is closing 300 mall locations. It must mean malls are terrible investments. No one’s going to the malls. No, what it means is no one knows what the hell the Gap brand stands for and they’re not voting with their wallets anymore. They’re voting with their feet. I can’t think of a time I was in a mall and admittedly it’s been a while, but I can’t think of a time. I was at a mall in the last five, 10 years that there wasn’t a promotion of friends and family or 40% off this weekend only, or something with the most beige materials that you could imagine. And no compelling reason why a guy or a girl would buy a $65 pair of their jeans instead of a $20 at Old Navy. And you forget that Levi’s was why Gap existed. It was a partnership. So that Gap would carry everything that Levi’s had and was why their stores were so big because they were never out.

Bob Phibbs:
You could only get a truckload of jeans like twice a month or something, which is why they had to have all of that. And now they’re closing thread or mall stores. It must mean… No it’s not what it means. It means that we still have leadership that doesn’t understand what the brand is… Has come up with anything. Remember this is a brand that came out with Groupons about 10 years ago saying, “Oh, this is the way the future.”

Bob Phibbs:
And you look at Levi’s who has the brand name, they’re opening a hundred mall stores. They are doing incredible partnerships like their Lego collection. And they are looking at new ways to really hone in on who their customer is and how they tell that American branded story, just like Ralph Lauren and some other brands. And yet Gap continues to make news with these half-hearted stories and kind of like JCPenney and Sears before it and Pier One and several others where we’re blaming someone other than take ownership. We don’t know what your brand is, what it stands for. Either fix it or get someone who will, but you can’t kick it down the street anymore. What do you think of that Christine?

Christine Russo:
A great example of that is his Bed Bath & Beyond, great new leadership in there from Target CEO… By the way, Target is apparently the best thing to have on your resume. Everyone is getting placed in creative leadership roles and God bless. And they’ve been changing out the C-suite. The stock has been soaring and they are expected to perform and deliver on the promises that they have been out in the new cycle quoting that they’ve been doing. Now go back to my Target comment. I think that they’ve pulled market share. I want to leave the independent retailer out of this because they are my heart, my soul, they are the heart and soul of the community, but Target has successfully pulled from the Gap from T.J. Max, who has not recovered from the pandemic. They have inventory flow problems, their stock price is stuck.

Christine Russo:
They are not performing yet. And so to your point, great leadership and vision, and sort of saying “this stop… Stop the carousel, this isn’t working. We’re going to change for a kind of old school retailer, be it a Gap or some of the other brands that you mentioned and really change everything deep down like Bed Bath & Beyond. They’re the ones to watch, I think they’re the ones to watch. If I were at a mega brand and say, “you know what? It worked.” They’re the blueprint to follow now.

Julia Raymond Hare:
Great thoughts on Bed Bath & Beyond. [crosstalk 00:18:47].

Bob Phibbs:
Are you sure it’s not the Gap? Are you sure?

Julia Raymond Hare:
I will say we did cover Bed Bath & Beyond a little [crosstalk 00:18:54]

Bob Phibbs:
We have Kanye. Doesn’t know yet? [Crosstalk 00:18:59]

Julia Raymond Hare:
Even though he was threatening to pull out of the Gap deal.

Bob Phibbs:
I know we never heard anything else from that since then.

Christine Russo:
I just want to say about that. I really rolled my eyes when they announced that, because to me it has no soul. It has no… it’s like an accessory. You’re taking something and you’re just layering something on, it’s bad architectural design, mixed versions of architectural design, so to speak would be an analogy. So I don’t think, yes, it moved the needle in terms of the stock, but I don’t think it’s going to cause that a real shift in what the Gap needs.

Bob Phibbs:
All right, I have to jump in one more thing, Julia. So last week was the infamous tweet that Gap had with the hoodie with blue and red. And it was like, “we needed to come together” and it was like, “Oh, what an innocuous tweet?” And I guess some people flame them. So instead of saying, “Oh, this is who we are. We believe we should all be together.” No no no! They had to delete the tweet and then apologize, and then pull back. I don’t think they apologized, but to pull it off and to retreat. And would you see that happen from a Starbucks? No. This is who the hell we are. This is what we believe. Think Target. When they, people got upset about the Bathrooms, like, “well, never shop there.” “Great, well, this is who we are. This is what we do.” What does Gap stand for when you turn on an hour after putting out the most innocuous…? If anything, they should have made the damn hoodie. I didn’t realize that that wasn’t even a real… A piece of apparel. They should’ve made the damn thing, but people said too soon.

Julia Raymond Hare:
I didn’t realize that either. It was just a mock-up it wasn’t a real [inaudible 00:20:54]

Bob Phibbs:
The whole thing you’re just like, “seriously!” And yet people say, “Oh, they were tone deaf” really? Really tone deaf? We should come together? People don’t seem to realize, I don’t care whether you supported Trump or Biden. Their success is our success. It’s that simple either we get behind it and we say, “we’re going to the future together.” Or we sit in our little holes and we comment on social media. We just want to be angry and pissed off, “and that tweet was offensive to me.” Well, great. So do you want to hold the train back? beause I would rather work in the future cause it pushes me forward. That’s what we’re missing in retail. I was keynoting a grocers conference yesterday morning and they were saying, so what would you do if you were a grocery store? I said, I would clear out that middle aisle and I would put up colored lights and I would do something that said fun and elegant. I would put, have a champagne section in the middle and say celebrate it’s Friday. And I would do everything I could to jumpstart our creativity and our fun again.

Bob Phibbs:
We just got to be safe. We got to wait… Come together. Wait. No, we don’t wait. We got to be careful here. We got to leave them. Let’s get somebody who wants to put on their big boy pants and put on their big girl pants and do the damn job of leading your company. Lead retail away from some of the industry publications and there’s one of them particular that like will not say on your program, but who thrives on saying retail’s dying? And here’s another reason these people are dying and department stores and other people that there are hopeful signs out there. Look at Rite Aid who had their prototype that they just announced today. Looks amazing. Look at Bed Bath & Beyond who was more abundant eight months ago, it was like, “Oh, they’ll never get out of this.” Look at the retail, LuluLemon, look at the ones who are doing it. Let’s find a way to find more of that and commit to making it fun again and get out of the, “the worst is still to come.”

Julia Raymond Hare:
I like it, Bob, we need more positivity. And I think the ones who are doing it right, kudos to them because it’s so hard, it’s a challenging time and they’re thinking outside of the box. So it’s really great to see. And Christine great thoughts on some of the retailers you mentioned like Bed Bath & Beyond who are doing a lot of big things as well. So let’s move on from America to China for our last topic of the day. It’s huge, every year it’s China’s Singles’ Day, the world’s biggest digital shopping event. It brought in a record-breaking $115 billion in sales, across Alibaba and jd.com their cause-commerce platforms last week. So more than 250,000 brands participated that included over 200 luxury brands and Prada and Cartier. Sorry, I think I mispronounced that.

Julia Raymond Hare:
And Prada and Cartier even joined in on the fun this year. Nike also released its Air Jordan 6 Women’s Singles’ Day sneaker, and the event brought in big names from the US entertainment industry. They announced a partnership between Alibaba and Bravado, which is Universals Music Group’s merchandising and brand management arm. And they pre-launched merchandise that was tied to Taylor Swift’s latest album while pop singer Katy Perry performed over live stream. And speaking of live stream Coresight Research estimated that the live streaming market in China will bring in about $125 billion in sales this year. That’s up from 63 billion in 2019. Christine, a few brands such as Urban Outfitters and Tarte Cosmetics offered single day of sales in the US this year, do you think there’s potential for Singles’ Day to become a holiday here in the United States in Canada? Why or why not?

Christine Russo:
I do, I 100% do. I actually think we already have it sort of, I’ll tell you why. I think that Prime Day is our Singles’ Day. I think that we would never call it Singles’ Day. We would call it “treat yourself day.”

Christine Russo:
And I think that a shopping event not tied around necessarily gift giving to someone else, but truly gift giving to yourself, which is the premise for Singles’ Day has had the groundwork is there for us to really capitalize on it. And so just like Singles’ Day where JD now has piggybacked on something that Alibaba created, Target and Walmart piggybacked on Prime Day, which is what Amazon created. And I think it can spread out to all the way through all the different retailers down to independent retailers as well. So looking at the Prime Day spend, which was about 10.4 billion, and looking at just the Alibaba spend 74.1 billion, it’s about $32 per capita in the US and $54 per capita in China. And so that tells us that the potentiality for it is there. That being said, I think that if you are an American brand, you must participate in Singles’ Day. This is not one or the other. You participate in both.

Julia Raymond Hare:
I like how you said call it “treat yourself day”, Christine. I liked that a lot. And the parallels you drew between JD piggybacking on Alibaba’s Singles’ Day, just how we saw Target and Walmart put up their huge promotions the same week as Prime Day with Amazon. Do you agree, Bob, that if you’re an American brand, like Christine said, you should totally be operating and selling on Singles’ Day as well. What do we lose Bob?

Bob Phibbs:
Just because we’ve agreed on too many things, I’m going to say no. So the only thing I would say Singles’ Day is about 30 years old. It started off as Bachelor’s Day. It was only celebrated by young men. So there’s a huge… It start on universities. So it was an excuse to do blind dates. And it’s got a whole social component that people have grown up with, decades have grown up with this behavior. I think it’s again, another excuse to have a sale, which okay, great. Amazon’s doing it, everyone else is doing it. I certainly get how Christine, how you get there, but I don’t think it has got legs in the US.

Bob Phibbs:
I think you don’t have the history underneath it. I think I get that Prime does. I think Amazon is definitely going to get a more scrutiny to be broken up or to divest itself of AWS and some of the other things as it moves forward. I don’t think most people would be willing to adopt the prime name. I can certainly imagine that most smaller retailers wouldn’t want to do that. So we agree on much, but I don’t agree on that one.

Christine Russo:
Okay. So I actually think having a history to it is, better than and more meaningful than Prime Day, which is really just the Behemoth of Amazon kind of creating commercialism, which kind of has zero reason to engage what people do. So the history of Singles’ Day is actually I see it as a positive. And where it came from doesn’t really matter where it’s going. It’s now an event. And the thing that’s missing around Prime Day is the events around it. And the sort of theatricals, which I think are great. It’s a celebration of just being you. And I think that’s okay. American brands did about $5 billion in this particular Singles’ Day with the leaders being Estee Lauder, Levi’s and Nike. And we found that small DTC brands that are participating and getting a ton of support from Alibaba.

Christine Russo:
So Allbirds had their first Singles’ Day and had a ton of, during COVID, support from Alibaba, doing live selling on their platform like we have here with Facebook. And so there was a buildup of brand recognition, but if you have a brand and you want to be throughout China and you don’t want the expense of building brick and mortar, you do it with Alibaba and you do it on Singles’ Day and it’s built into your whole digital strategy for there.

Christine Russo:
So I believe it’s really important… it’s like saying, I don’t want to participate in Black Friday retail. We have our history and they have their history with it. So I think that it’s really critical. And I think for brand, in order to penetrate the market, it’s a it’s a bar none. There’s probably no other better way. And then I think also the doubling of the volume that they did this year is because they too have pent-up demand, most of those purchases would have been made in our brick and mortar stores if they could have traveled here.

Bob Phibbs:
Well, calling Nike is successful at anything as proof of something is really… That’s like painting the Lily in my book. Nike’s an amazing commerce generator for millions of reasons around the world. So we agree to differ on this. I just don’t think Singles’ Day is going to get leveraged in the States. Plus the name of it is going to be problematic. I think.

Christine Russo:
I would agree with you on that. I just want to make one more thing. As much as we may think that Amazon may be broken up, the strangest thing was that the Chinese government wanted the world… They wanted Singles’ Day to be huge. And it was huge, double the amount of volume from the year before. They wanted to show the speed and strength of the recovery of the Chinese economy post COVID. And on the same day, they put a crackdown on this very businesses that were running on the platform for Singles’ Day, with a lot of anticipation coming that they too will be broken up very dichotomous, very strange timing of events and both agendas were accomplished very well. Yes, they’ve recovered. Yes, they’re that massive consumer and yes, the Chinese are watching every company within their four walls and they’re preventing any kind of monopoly.

Julia Raymond Hare:
And just a final comment I will add to both of your thoughts is I’ve been interviewing people for our luxury series. And a lot of the consultants who cover the APAC region and luxury retailers I’ve interviewed based in China have said that there is an element… I think they did use this word of Chinese nationalism. And so they said, at least for a more luxury brand, there is a whole strategy behind breaking into the market where you really do have to have elements of local that you show to consumers there. And that was just their advice that might just be luxury. I think your example with Allbirds shoes and their DTC movement there in the live streaming is positive and shows that there might be a space for certain brands in that area.

Christine Russo:
Well, actually to your point, very interesting. Allbirds did a special Singles’ Day shoe with a history tied to something local region to that special shoe. That is, I would guess, an important component to making that psychological connection to the Chinese customer.

Julia Raymond Hare:
Wow. I didn’t know that. That’s really cool, Christine. Well, great comments. I really loved hearing from you guys today. Bob, it’s always a pleasure. Christine, it was great to have you on the show and I hope you come back in the future as well. And let’s have a great week in retail. There’s a lot of good news going on.