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September 14, 2020: holiday shopping predictions, several off-price retailers continue physical expansion, Michaels unveils ‘test and learn’ concept.

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Hosted by Julia Raymond

Written and produced by Gabriella Bock

Edited by Trenton Waller

 

TRANSCRIPTION

Julia Raymond:
Welcome to the show. Today we’re joined by guest Laura Heller and Sucharita Kodali. Laura is an industry insider and columnist at Forbes. She’s a regular speaker and panel moderator at industry events like Shoptalk, CES and CommerceNext. She’s also the former editor for Retail Dive. Sucharita is a retail analyst at Forrester Research where she is an expert on E-commerce, Omni channel retail, consumer behavior and trends in the online shopping space. Laura and Sucharita, it’s great to have you back on the show.

Sucharita Kodali:
Thanks, Julia.

Laura Heller:
Yeah. Thank you.

Julia Raymond:
Great. So the first topic, we’re getting into the holidays already, there’s been some new announcements, it’s just around the corner. So I’d like to kick off by taking a closer look at what of a few big retailers in the space are planning for this season. First up, Walmart developed an online tool called Walmart Wonder Lab that lets children virtually unbox, test, and play with over 100 toys. And the little testers provide their feedback to Walmart, which helps Walmart determine which choice will require the most orders.

Julia Raymond:
Over at Target, the retailer plans to launch its holiday deals, starting in October. Target hopes this move will limit crowds by giving people ample time to complete their holiday shopping. And Home Depot last week, previewed its 2020 holiday shopping season on its website and revealed that it’s Black Friday specials will stretch on for nearly two months rather than taking place on a single day. And finally the behemoth Amazon, postponed its annual two-day Prime event, which is typically in July. And although an official date has yet to be announced, during an earnings call, Amazon CFO, Brian Olsavsky, said this year’s Prime day will happen sometime in the fourth quarter. Sucharita, with this year’s opportunity to move demand earlier than Thanksgiving, do you think we’ll see lasting changes in our holiday shopping behaviors and traditions?

Sucharita Kodali:
I think that it’s still a little too early to tell. The truth is, is that it’s not like this as a 20-year long trend where we’ve dispensed with Black Friday, it’s one year in a very unusual set of circumstances. So I think that retailers will likely try to resuscitate the concept in the future. I think that this is just an incredibly unusual year and they’re doing things as much out of necessity as anything. I mean, they can’t have crowds in stores and they need to space things out. And even in the case of Amazon, even though they don’t really have that many stores, they have to be worried about kind of crowding and the distribution center.

Sucharita Kodali:
And they were having a lot of issues even with getting orders out on time in April. So I have no doubt that those are weighing on their mind and part of the concerns around kind of having any definitive plan around Prime day that they’ve announced publicly. So I think that this is an unusual year. Is it going to continue forever? I mean, there are elements that will certainly continue into the future because we know that early sales, I mean, we’ve talked about early sales for years, so that’s going to definitely continue. But is this tradition of the doorbuster on Black Friday going to go away? I don’t think so.

Laura Heller:
I did a little Googling on myself before we joined today. And the first time I wrote Black Friday is dead, was in 2014. And I think I was kind of late to that bandwagon if you want to be honest. I feel as though and Sucharita you’re correct. This is a really unusual year and a very unusual approach to it. But I also think that there’s been a real effort over a long period of time to change the nature of Black Friday, specifically to drive even more of it online in the days, leading up to it and after. So I am curious to see how it goes and I don’t know that we will ever get away from the doorbuster deal. But I think that this is just accelerating the trend of trying to dial back that in person lineup in the pre-dawn hours.

Laura Heller:
But I also think that this early start is much about managing the supply chain and fulfillment as it is about anything else. Black Friday broke the best of them in a regular year and is particularly more difficult to serve this customer online with order fulfillment throughout the season. And so starting earlier, front-loading orders, giving retailers more time to adjust, to adapt, to fulfill, and to by the way, suggest the replacements that are going to be needed when people run out of items that have been ordered in the days before and after Black Friday. I just think that it’s a hodgepodge and it’s not going to be nearly as neat as people are hoping.

Julia Raymond:
Both good points that it’s really about managing the supply chain and fulfillment. And assumably a lot of the Black Friday doorbusters will move online this year. Whereas in past it was something where you would maybe go to the mall or to the store and camp outside of Best Buy waiting for your TV. Speaking of Best Buy, they have that new ship to hub model, so their products are coming from all over in order to get to the consumer. Do you think we’ll see a lot of curbsides happening on Black Friday? Or is it better for the retailers to keep it all delivery?

Sucharita Kodali:
I think we’ll see a lot of curbsides through much of Q4. I mean, to expect it to happen on just one day is an operational nightmare. So I think they’d have to be really, really careful about how they promise if they are promising curbside pickup for Black Friday specials. But I think that’s part of why you’re seeing, I think Home Depot announced that they’re not even going to do Black Friday this year. And other retailers will likely have to think about how do you spread out the orders or push people to e-commerce for online delivery? Or if they are going to come to the store, how do you make sure that the inventory is there and that a person isn’t waiting two hours in their car to get the item brought out to them? Because I think those are going to be the operational challenges for a lot of retailers.

Laura Heller:
Yeah. And I think it’s a really good opportunity for them to drive app usage. In Home Depot, I believe part of their announcement is that some deals will only be available on the app. And having customers download, install, and use the app is going to be very critical to managing the pickup. And I think the curbside pickup is going to be the primary thing that consumers will be pushed toward utilizing. Again, because it’s an operational nightmare otherwise.

Julia Raymond:
Absolutely. And before we hop onto the next segment, just one more question around Walmart. Is this something that’s really that new, the Walmart Wonder Lab?

Sucharita Kodali:
That’s a good question. I’ve seen startups try things like that. I mean, that’s been a pretty prevailing way that toy companies have experimented, but I mean, they haven’t made it that public. It would often be like a lab that employees’ children would be watched doing, or it would be a children’s focus group of some sort. But I haven’t seen it in this way. And I applaud them. This is essentially a skin of customer centricity that everybody should embrace. Now the question is, I am curious as to how correlated sales are going to be to the products that kids actually engage with in these experiments. If that ends up being kind of very correlated then that’s awesome. But there’s probably a reason that this hasn’t been that much more commonplace because it could be just a mishmash of random toys that don’t really ultimately resonate.

Laura Heller:
Yeah. The Wonder Lab raises more questions for me than anything else. And I think that one, there’s always this opportunity for Walmart now to insert itself into social media in a new way, with the toys. And depending on how they manage this program unboxing and kids playing with toys is a very big channel on YouTube. And it’s an interesting place for them to insert themselves here and a really interesting opportunity to take advantage of if it’s managed correctly. And I also kind of wonder about where Target is in this conversation because Target has sort of seated the toy space. And not for lack of effort, they just never really seem to get a lot of traction there between Walmart and Amazon. And in this type of environment, maybe there’s an opportunity for Target to come out in the coming weeks with a program of its own that is unique and on-brand for them, other than just trying to play against low price and inventory.

Julia Raymond:
Good point on target Laura. Great. Well, let’s move to a little bit of physical retail while, more shoppers are flocking to e-commerce than ever before a number of retailers are pressing forward with plans to open additional stores this year. As of last week, if we look at US retailers, there’s been announcements of 7,707 store closures and 3,344 store openings according to Corset Research. If we look at some of the retailers, discounter, Five Below is planning to open between 110 to 120 net new stores this year. And they plan to open more than 2,500 stores nationwide over the coming years.

Julia Raymond:
We switch over to off price retailer, Burlington. They expect to open 36 net new stores this year. And Ollie’s Bargain Outlet is planning to open around 50 stores. The retailer just had its best period in its 38-year history according to its CEO. Laura, I’ll pass this one to you first. What are your thoughts on some of these non-essential retailers expanding their footprint during the pandemic?

Laura Heller:
Well, I would first question what is essential, right? Life hasn’t and consumers have needs beyond groceries, up to, and including buying things to cook those groceries in. And so I would look at the types of retailers that are expanding. And here we see a long list of discounters, deep discounters, off price retailers. And this is the segment that expanded aggressively during the last recession. So it’s no surprise that they would be continuing to do so, and even accelerating now. It’s luxury and legacy businesses that are really hurting the department stores. But off-price and bargain dollar stores are really essential retailers in this environment for sure. I think they’re taking advantage of opportunity and coming off of a long expanded period of strength in their own businesses.

Sucharita Kodali:
Yeah. And I would add that, there was news from Ikea this week that was similar in nature that they’re actually buying some real estate in dense urban centers to build out some city center stores. I think it’s all part of the same trend, which is basically the CEOs that are bullish on the future of retail and they’re bullish on recovery. And if they are right, and these are all smart people who are helming these companies. I don’t think it’s kind of plays of naivety. I think that they are truly looking. They have access to data on how their stores are doing and how consumers and their communities are feeling. And if the sense is that recovery is kind of a few quarters away, that’s a good thing. And they’re taking advantage of have lower real estate prices kind of in the midst of that. And they are going to be well positioned.

Sucharita Kodali:
And I think that kind of as an observer that should give all of us optimism because that means that we should be recovered in like a year. And retail will probably have some really, really good outcomes, especially because they’re dealing with such low comps that they’re up against right now this time, next year. So, hopefully, that actually comes to fruition and those 7,000 store closures will actually be a shakeout of some of the weakest performing retail, which is what we really need to happen anyway.

Laura Heller:
Yeah, absolutely. I mean, I remember back in the early aughts, after the dotcom bubble burst, right? The CEO of a national retailer was getting a lot of pushback on an acquisition they wanted to make. And his response has always stuck with me. And he had said, “If you manage your business well during the flush times, and you go into the downturns in a position of strength, this allows you to make these kinds of business decisions to grow often at the expense of those who squandered those salad days.” But this is, I think what we’re seeing a lot of. There’s the shakeout of the weakest and the expansion of the strongest. And this is not a new cycle in retail, but it is a really dramatic one at the moment.

Julia Raymond:
It sounds like both of you are optimistic about this bit of news. And like Sucharita, you mentioned Ikea and what they’re testing out with their announcements last week. So let’s move on to our last segment of the day. This one’s interesting. It’s the retailer, Michael’s, arts and crafts. Last week, they unveiled two new test and learn concept stores in Texas. And their re-imagined stores tell an enhanced shopping experience. It’s complete with new in store layout. It has inspiration hubs and innovative checkout design. It includes a newly launched maker-space and this is where they let customers take classes, watch instructor led projects on display screens, or use the space and supplies all free of charge.

Julia Raymond:
The newly updated checkout system leverages advanced technology to facilitate shop and scan capability and is designed to serve as additional storage for things like curbside delivery and buy online pickup in store orders. Sucharita, prior to the pandemic, Michael’s had lost somewhere around 93% of its value over the five prior years. Do you think that this new concept it’s unveiling will help revitalize their brand?

Sucharita Kodali:
It’s interesting because I think that a number of the issues that Michaels has had probably been more inventory and discounting related more than anything. But kind of the concept of some of these operational approaches that are fresh and new, I don’t think that any retailer that invests in them is going to regret those learnings because they’re incredibly insightful. But my hunch is that Michael’s challenges have probably largely been due to perhaps not being on point with inventory or not resonating with customers from a product standpoint. And if those are in fact, the underlying drivers of challenge, no amount of operational change is going to necessarily impact that unless they fix their merchandising and kind of the store product layout first.

Laura Heller:
As a consumer, I’m so rooting for them and for the entire arts and crafts in that sector. These were retailers that argued, they were essential even during the early days of the pandemic. And there are people who believe that and need these things. And in particular crafts now have seen a resurgence amongst the population. And all of these store changes are really necessary for Michael’s in particular. Joanne Fabrics some years ago had a similar program they we’re starting to test and learn and roll out to stores that seems to have stalled. And I would hope that the current situation is sort of helping to resurface some of these and accelerate the test and learn into adoption.

Laura Heller:
I am skeptical because again, as Sucharita pointed out the challenges for Michael’s specifically are different than just the interaction between customers and products. But I would hope that they could revitalize the store experience and have the merchandise paired just to match that newly revitalized experience. Because I think there’s a lot that can be taken advantage of, especially during this time with this particular consumer. And I’m one of them, right? I’ve gone into Michael’s many times during the past few months looking for things it’s small, it’s crowded. There isn’t a lot of space to lay things out and interact with products. And I think that those different modules that they’re using are good and can be applied throughout the chain.

Julia Raymond:
And back to what Sucharita said, inventory and discounting problems were probably contributing to that 93% number. I said a moment ago, and Laura, you echoed that and mentioned Joanne Fabrics, which is interesting you mentioned that because I just covered this not too long ago. And they re released a report alongside, I think IBM is their vendor, that their inventory inquiries rose four times above the 2019 holiday peak for this year, most recently. So huge demand increase.

Julia Raymond:
I’m a little hesitant to see if people actually go in store and engage with Michael’s in the way they are hoping. I think as a lot of us always say on the podcast, “It’s all about the execution.” So it would interesting to see how that goes.

Laura Heller:
It really is.

Julia Raymond:
Yeah.

Laura Heller:
As I’ve been in Michael’s stores in the last several months, they’re very crowded, and they often are they back good foot traffic, I don’t think they take advantage of it to the degree they need to. And Joanne’s have been ghost towns. And it’s a very difficult thing to get people to interact with fabric in a dark closed room. And I think that this is a segment of retail that is really right for some disruption. I think there is a good install customer base for it. And I think that that has grown over the last six months as people stay home and take on projects and busy themselves indoors. There’s a lot to be said for all of that.

Julia Raymond:
Absolutely. Well, Laura and Sucharita, both awesome to have on the show. And I really appreciate your time today and hearing your insights.

Sucharita Kodali:
Thanks for having us, Julia.

Laura Heller:
Yeah. Thank you.