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October 12, 2020: H&M trims global fleet, Levi’s launches second-hand e-commerce shop, grocers prepare for second round of product shortages

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Hosted by Julia Raymond

Written and produced by Gabriella Bock

Edited by Trenton Waller

 

TRANSCRIPTION

Julia Raymond:
Hi, everyone. Welcome to the show. Today, we’re joined by guest Guy Bloch and Joey Petracca. Guy is the CEO of Bringg, a global technology provider. Bringg helps organizations improve customer experience by making fast, convenient and cost-effective deliveries a reality. Joey Petracca is the co-founder and COO of Chicory, where he leads business development efforts to implement solutions for grocery retailers, CPG brands and publishers. Joey, Guy, it’s great to have you on the show.

Guy Bloch:
Great to be here.

Joey Petracca:
Thanks so much for having us.

Julia Raymond:
It’s great to have you, and before we dive in, I just have to mention this because I saw it on your LinkedIn, Joey, you were featured as a Forbes 30 Under 30 this year for retail and e-commerce. Was it an overnight success or have you been at this for years? Because I know that sometimes people assume that it’s just quickly successful when really you’ve been working on it for so long.

Joey Petracca:
Yeah, that’s a great point. No, definitely not an overnight success. So my co-founder and I have been working on this since about 2013. We started it when we were seniors in college, so it’s been a very long road and a lot of late nights, a lot of hustle, and we felt very lucky to get that recognition. It felt really good, but it’s a very long road. It’s not like in the movies, where it’s an overnight success, so yeah.

Julia Raymond:
Wow. So yeah, you’ve been at this for probably about eight years then, so really cool. Congratulations.

Joey Petracca:
Thank you.

Julia Raymond:
All right. Well, the first topic of three that we’ll cover today is about Levi’s. The retailer announced that they are launching a second-hand e-commerce shop, so if you’re looking to make some extra cash this holiday season, Levi’s will pay you to let go of your old jeans. And sometimes we should let go. The new online store features gently-loved, pre-worn Levi’s apparel. This includes vintage items, which are sourced mainly from the brands own consumers. And those looking to sell their items can drop them off at designated stores. Levi’s professionally cleans the items and then they add them to the second-hand site. Pretty cool stuff. Joey, I’ll pass this to you first. What are your thoughts about Levi’s new second-hand initiative?

Joey Petracca:
Yeah. I think it’s a really smart move just from a personal and professional perspective. So if a thing is Levi vintage, Levi’s already been… They’re incredibly popular. They’re well-made, they fit into current denim trends and people are already doing this. I live in Brooklyn and if you go to any swap meet, or flea market, or anything, it’s filled with vintage Levi apparel and jeans. And so I think there’s kind of this idea of they’re latching onto this trend of this that’s already happening and trying to control that and capitalize on it, which I think is really smart. But the second half of all of this is just the idea, outside of the quality of their products, of encouraging people to thrift and encouraging people to adopt more eco-conscious habits in every aspect of their life.

Joey Petracca:
And I think it’s a really smart move for them to take and our background is in the grocery industry. And I think you can see similar trends there with companies like Misfits and Imperfect Foods leading the way. It’s not second-hand food, that’d be a little weird, but it’s the same sort of concept, where they’re kind of making it easier for people to be environmentally friendly with how they shop. So I think on both sides, both from a business side, and controlling that market and then from an environmental side, it’s a really smart move.

Julia Raymond:
Yeah, and I like that you touched on Misfits. It’s a really cool comparison to the grocery industry and I think you’re right. I think that’s part of the control you mentioned. It’s good for the brand control to manage their own second hand. Guy, what are your thoughts?

Guy Bloch:
When I think about what Levi’s just data, look at that from a couple of hats, and I’m looking at who is winning from this move. Typically, I will have more respect to companies that make moves that more than one entity wins. And in this case, Levi’s make so many participants in this market win. First of all, the global world and there’s sustainability. The fact that they are encouraging, and supporting and sponsoring a whole activity, where we can have people recycles their jeans, and at the same time also win some money for themselves. That’s a great thing to do and I think that’s a gift that they’re giving to the world. I think specifically for them, from a brand perspective, think about the message they’re sending that those… Their merchandise has a value and it’s a lifetime value.

Guy Bloch:
And Nike also has that. It played very well for them and those loyal consumers, they go after the second-hand market, so great move there. However, there is big but here and… By doing that, they’re actually moving into the online world. And online is very different than offline… Very different ball game and very different rules to the game. And those rules were dictated, but no other is that there’re large marketplaces we know, if it’s an Amazon and Instacart, and in the food industry. It’s like there are many of them now. And they set the bar very high and they said that for you to win in the online business, you need every delivery to be convenient, cost effective and fast.

Guy Bloch:
And if you cannot keep it, 70% of the people, that’s what they’re looking for when they buy. 84% of people will not forgive you, if you messed up their order. What does it mean? They have to move into that online and perfect that because they don’t want to lose the other end of that. And that takes technology and they takes also logistic network, and it all has to be digitized and controlled from one place. And that’s a digital transformation they will have to go through. So to summarize on one end, one, they made amazing moves on the other end, now they need all the help from the market to stand up to that from the ecosystem.

Julia Raymond:
Good points, Guy, around who’s winning from this, many parties are winning. It’s a win for sustainability, for the customers who probably will get… And I’m assuming here though, they might get more bang for their buck if they go directly to Levi’s versus sending it to another reseller platform, for example. And I think you’re right, the shipping is the hardest part. It’s going to be such a challenge for the upcoming holiday season because all the reports are saying most people will do their shopping online. I will say, I think that there’s still going to be, like every year, those last-minute shoppers that run to the store the day before Christmas… Shout out to my brother, but it’s definitely speaking to the strength of its brand. Patagonia can do this, Rainbow Shoes can do this, Levi’s Nike, as you mentioned, Guy, but not every brand can. And I think it’s important for the ones who can to really consider this because circular fashion is huge. So thank you for your points there. Did either of you want to add anything else on this topic before we move to our next?

Joey Petracca:
Yeah, as Guy was talking, I had another thought there just about how… I think this move by putting this thing that’s already happening online, yes, there’re a lot of these logistic challenges, but I think it’s really interesting because again, it’s already something that’s popular with their products in the offline world, and these secondary markets, and people doing it themselves. And what they’re doing, to a certain extent, is building equity in that process instead of having to go to these local markets and haggle for something, they’re making it much easier for any consumer to access, which I think is really cool. I hope we see a lot of other brands that have similar kinds of history and similar lifetime value products do this, make their products more accessible and build that equity into their business model.

Julia Raymond:
And actually, before I jump to the next segment, I’ll just mention that Levi’s does have a supercool store in New York city that Valtech helped built and it has customization options on-site, so there’s actually a tailor. When I was visiting, I met the tailor who was on-site that day and she was putting custom patches onto denim jackets. And it’s just really cool, so shout out to Levi’s and all of the amazing things they’re doing, both in store and now online.

Julia Raymond:
Let’s move to our next rundown. We’re covering a really hot retailer, it’s H&M. The Swedish fashion brand announced it’s planning to close hundreds of brick-and-mortar stores as a result of COVID-19 and the shift to online shopping.

Julia Raymond:
H&M’s competitor Inditex, the parent company of Zara and several other fashion brands also plan to close as many as 1,200 stores this year and next. Inditex said it expects online sales to reach more than 25% of its total sales by 2022. So that’s up from 14% just last year. 14% to 25%, that’s a huge jump and the company will invest in its existing technology platform to make it more agile and data-driven. Guy, I’ll pass this one to you first. What are your thoughts about H&M and Inditex’s decision to trim stores and ramp up their online efforts?

Guy Bloch:
Yeah, first of all, I think what we’re seeing here is a trend and it’s very important to pay attention to this trend. And obviously the pandemic, it accelerated that by far, but there are a few facts here. First of all, food traffic is down, decreased dramatically. People either don’t want to go into stores, or in some countries, like us here in Israel, we’re in locked down, we cannot go to stores. And that’s a major part of their revenue stream, they’re offline, and this is a challenge. And almost every company now is finding themselves, moving into online. When I looked at the Q2 earning and reports of the public retailers, you could see three-digit growth year over year on their online business. So I think this trend is happening. Another thing that is happening in the trend that consumers are being rewired.

Guy Bloch:
And over the last few months, we’re getting used to order food, and groceries, and commodities, retail commodities through marketplaces, through online. It became very convenient, very cost-effective, and very fast and we’re doing great. Post-COVID, I don’t think we’ll stay in this extreme, but we will not go back to what it used to be, which means… And that’s a very big message to the retailers, they have to move to online and they have to scale-up and optimize to do that. Now, specifically for H&M, I think by them trimming the stores, they have to… They’re taking liabilities on their assets. So they have to balance that with the revenue stream, but they have an advantage. And they have a very big advantage that marketplaces do not have, and that advantage is that they are closer to their customers, to their end customers.

Guy Bloch:
And by that they can actually provide so many fulfillment options and create such a compelling experience that they can differentiate themselves in the market. So if you’re a customer now buying online from the brand, they can do with the store, they can do buy, online pick up in stores, buy online, pick up in locker or curbside. They can do a home delivery, they can do returns and everything is in the neighborhood, in the town, in the city, and that gives them a very big advantage. So I think it’s a question of balance and understanding where the demand is coming from and where to place my stores, but at the same time, balance that with their own line strategy.

Julia Raymond:
And you made a good point about marketplaces and the growth there. Joey, do you agree with what Guy was saying?

Guy Bloch:
Yeah, and I think it’s even a little bit bigger than that. So I think, from my perspective, this is an acceleration of a trend that was already happening, which is no surprise. A. Consumers are moving online and making more shopping decisions there, at least to start. We live in an omnichannel world, but B… And I see this particularly with H&M, going back to the Levi’s discussion a little bit. It’s about consumer reaction and where consumers want to buy. So as consumers move online, there’s a lot more access to knowledge and information, and people are making much more informed decisions about what types of products and clothes, in particular, they want to buy. And so I think there’s also a rethinking of what is fast fashion becoming in an online world, in a world where there’s so many new companies out there that are either retail companies, or developing different supply chains and practices to develop their products and…

Guy Bloch:
Not that this is an inevitable extension of that by any means, them closing down these stores, but it’s a little bit where we were headed already. And I think what COVID has done in many industries from fashion as well as what we’ve seen in grocery, it’s accelerating trends that were already there. It pushed things forward that might’ve happened 18 to 24 months from now and it just made them happen right now. And so I think the smart businesses are realizing that and just reacting to it right now and being realistic about it, rather than holding on to things and thinking that things are going back to normal. This is the normal, this is the new normal, it’s not like things are going to go back to what life was like and in February, 2020 very quickly. And so I think this move speaks to that, to the reality of that situation and the acceleration of these trends.

Julia Raymond:
And Joey, you made a good point about the trend acceleration because for those of you listening currently H&M operates 5,000 stores, that’s a lot of stores. I would assume many of them are in malls and we know what’s going on with malls is a bit bleak, especially right now and looking into the future, so it makes sense that they’re trimming some of their fleet. They have maybe too many stores and I’m sure they’re making the right decision. I also do want to note that there is… It might be a Gen Z trend, it might be because of the pandemic and economics, but teen spending hit an all time low during the pandemic. And who knows when that will come back. So there was a report release, Piper Samuels, I guess, 40th Biennial Report, taking stock with teens. And it says that apparel spending fell about $507 per teen. So that’s 11% lower than 2019 and that’s probably where a huge portion of their revenue driver is, is with teens.

Julia Raymond:
All right, let’s talk about our groceries. So as consumers begin embracing for winter months, grocery stores are stocking up on items to prepare for a potential second wave of coronavirus. If we look to the U.S., the supermarket chain, Southeastern Grocers purchased it’s Thanksgiving turkeys and hams over the summer while United Natural Foods up the stock of its herbal tea and cold remedies.

Julia Raymond:
Over in the UK grocers like Tesco have already started to limit purchases of certain products in an effort to deter customer stockpiling. And supermarkets in the U.S. and even Amazon are already experiencing another shortage of paper products. Procter & Gamble reported to the wall street journal that there was a massive surge in sales of Bounty paper towels over the summer, and Clorox reported that its customers will continue to see a shortage of wipes and other products into 2021, so that is not a great outlook. I’ll pass those to you, Joey. Do you think we’ll see another round of major shortages like we did in March?

Joey Petracca:
Well, yeah, it’s hard to predict the future with some… That big of a question. I’d say at Chicory we’re kind of lucky because we basically sit on top of this network of 1,500 different cooking and food sites and connect all that content to grocery retail opportunities to allow people to go from content to converse very seamlessly. And so the insights that we’re collecting every single day and every single week essentially shows that… And the retailers noticed and the brands noticed, that this trend of home cooking and stocking up has not really slowed down. Yes, consumers are not panic buying, but we have not returned to, home cooking and food buying trends, again, that you saw pre-COVID. And so what that says to me is that this isn’t a secret, everyone knows that this is happening, everyone’s preparing for it.

Joey Petracca:
And again, it’s not like this is what we saw in February and March with these panic buy moments, but that the CPG community and the grocery retail community have time to prepare. And that speaks too that it’s not necessarily a bad thing. The consumers are buying more and many are practicing better cleaning practices, which is why they need more cleaning products to begin with. And so I think the pressure right now is just really on that the supply chain and the supply side, and not necessarily the retailers. And just to make sure that long-term, they’re meeting the demand that already exists today. The other trend that we’re going to see over the holidays is that all of the family events, and big cooking occasions and big grocery shopping occasions are going to look very different this year than they did in the past.

Joey Petracca:
And so we don’t know exactly what that’s going to look like. Again, at Chicory, we’re starting to see certain trends of how is what people are cooking going to change and what they ultimately shop for going to change, but we know that it’s going to be fewer larger events. And so I think that also helps to decrease pressure on the supply chain and on the entire systems. So I’m pretty optimistic that we’re in a good position for the holidays because things haven’t let up and it’s just going to look very differently than it has in the past.

Julia Raymond:
You said the pressure is on the supply side, maybe even more so than the grocery retailers themselves. Guy, do you agree with that?

Guy Bloch:
When I look at that situation and where we’re heading with the second wave… Here in Israel, it’s already the second wave and then the U.S., it might just get accelerated, but when I look at that, I think the smaller grocers… In general, the smaller retailers will always have that challenge because they are built to keep a very minimal in-house inventory. I think the larger chains like Walmart, and Target, and Costco and… These guys, they’re changing their inventory modeling. So it’s a very different ball game for them, and it’s a data game and they know how to prepare to times like that. So I think if we see a shortage, we’ll see a shortage in the local stores, but I think we’ll see more availability in the bigger chains. I think the other challenge though… And that’s very important, you might have the inventory, but to remember in times of COVID, people want to buy online.

Guy Bloch:
Even in post-COVID, people will remain on buying online, at least the majority. Why would I go and do errands of two hours to go to the grocery shop, if for the last year I did it on my phone and it just works great and I can use those two hours to run on my treadmill, just as an example, but… So what you think about their challenge, it’s not just to have the inventory, but it’s actually, can I get it on time to my customer, because you might have the inventory, but if it takes you two weeks or even one week to get to your customer, to them it means that you don’t have the inventory. And it goes back again to how do you scale up and how do you optimize your last operations? Even when you have the inventory available, you can make it accessible, available, and valuable to everyone when they order that and there is no delay there.

Guy Bloch:
And for that, we see many grocers spending a lot of effort on that we have customers like Albertsons, and Hy-Vee, and Metro that this is a strategic initiative for them. And they’re taking the time to understand the entire digital scene and what exactly needs to happen in order not just to have the right inventory, but also make it convenient, cost-effective and fast to all their consumers. So that’s how I always look at the grocery challenge.

Joey Petracca:
And I think that’s a really good point. And actually, if you look back at what happened in March and April, some of the grocery retailers that even we work with, they built… Their sites were getting slammed with so much traffic on a daily basis and so many people were trying to order that they actually had to build essentially, paywalls in front of their websites, whole other websites that almost put you on a timer and would text you, hey, in 30 minutes, you’re going to be able to be on this website for five minutes. And we got access to that because it kind of affected all of our integrations with all these different retailers.

Joey Petracca:
And so there was definitely a scramble and a lot of these retailers were absolutely not prepared from a technical infrastructure perspective to deal with that. I guess my hope is, as Guy said, with a couple of the major grocery retailer players in the U.S., that they’ve spent the last six months, and we know they have, building that underlying technology infrastructure. Grocery retailers are not technology companies, they’re logistics companies, they’re food companies and I think all of this has essentially forced them to become technology companies in a really positive way, but it’s a huge challenge

Julia Raymond:
It’s definitely a huge challenge. I do remember that happening where some grocers or delivery services would have that. You’re in line, basically, to queue and that happened with some friends in Europe as well. So is that something that’s still going on? Did they come up with a different solution, or did the queuing solution work and will continue to work if there is another wave?

Joey Petracca:
Yeah, so they all built a lot better ways to scale their systems. Basically, what happened around that time is, you’re used to… Just use some round numbers, a 100 people visiting your website an hour and suddenly, 10,000 people are trying to be visit your website in an hour. What’s going to happen? The website’s going to crash. And so that goes back to what I was saying of grocery retailers… And they want to get there, need to become technology companies. Then they need to work with vendors that can help them scale and they need to take the tech element of all of this very seriously.

Joey Petracca:
And I think they have, that’s not still happening. If you go to the grocery retailer websites today… And again, traffic is still up, they are still seeing massive increases in online ordering. This hasn’t slowed down, panic buying has stopped, but the move to digital and the move to online grocery has not really slowed down in a meaningful way, not back to where it was before and so they’re prepared. I think that already, we certainly have a lot of faith in our grocery retail partners and all the technical strides they’ve taken over the last six months.

Guy Bloch:
I’ll just say on that, and it’s a great point and I think we are at a very unique point of the digital consumer era, where I also expect the supply side of the equation to come together into an open network and be able stand up to the needs of the retailers because if things are moving online, those that really perfected them, it’s those large marketplaces like Amazon, and they’re using a lot of technology and they built a very smart logistic network. But if you look at the open market, in terms of all the supply forces that you have there, a consolidation of that will give the retailers so much more power in being efficient and be able to compete against other marketplaces. So it’s not only on the retailers, there’re two sides here. We always like to call it, at Bringg, as the ying and the yang. You have the retailers are dependent on logistics, and logistics are dependent on retailers. One cannot exist without the other. And both of them need to go through this digital transformation and be able to work in a very open network.

Julia Raymond:
And I liked that phrase. Well, today we had Guy Bloch, CEO of Bringg, and we had Joey Petracca, co-founder of Chicory. Thank you both for joining, super enjoyed your insights and I hope to see you back on the show in the future.

Guy Bloch:
Thank you so much.

Joey Petracca:
Thanks for having me.