The Evolution of E-Commerce with Profitero's Sarah Hofstetter

Welcome to the Retail Rundown, your go-to weekly podcast where RETHINK Retail teams up with industry experts to discuss the news and trends defining the world of retail.

In this episode of the Retail Rundown, we talk to e-commerce expert and President of Profitero Sarah Hofstetter on the big opportunities for digital retail.

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Hosted by Julia Raymond Hare; Written and produced by Gabriella Bock; Edited by Trenton Waller; Social media by Natalie Arana

 

TRANSCRIPTION

Julia Raymond Hare:
Hi everyone, and welcome to the Retail Rundown. Today, I am joined by Sarah Hofstetter. She is the President of Profitero. Profitero is a leading eCommerce performance analytics platform. Sarah also serves on the board of directors at Campbell Soup Company and is the cohost of the BRAVE COMMERCE podcast. I don’t know how you have any extra time in your day, Sarah. That sounds like a lot.

Sarah Hofstetter:
Well, that is amusing. I don’t know that I do, but give a busy person something to do and they just figure it out, or at least that’s what my mom told me.

Julia Raymond Hare:
Well, that’s a good way to go about it, right? It’s like sometimes you actually just need more and it just keeps rolling. Speaking of which, as we record this show, the biggest event in retail, the flagship National Retail Federation, they’re doing their annual show and it’s virtual this year. So they’re currently in the middle of their third day, and our team has been doing some live coverage of the show, and of course, there’s a lot of hot takes on eCommerce. So I wanted to chat with you about eCommerce today because I know you are an expert in that area.

Sarah Hofstetter:
You could have been an expert a year ago and it wouldn’t even matter. Everything has changed, and I feel like it’s a constant learning journey. If you’re not, then you’re already behind the curve. It’s moving at such a crazy pace.

Julia Raymond Hare:
It really is. In fact, one thing that really stood out to me is our guest on last week’s show, Trevor Sumner. He’s the CEO of Perch. They do in-store displays and things of that nature, and he was saying that online shopping, we all know it hit a record last year, but it also hit a record in a transformative way because the stat was 42% of the online orders made were fulfilled or delivered by local stores and micro fulfillment centers, which is just a huge change in logistics, really. So what’s your take on that? I mean, what are you hearing from your clients?

Sarah Hofstetter:
It’s a great question, and I think that one of the things that has been almost not even talked about very much is how do you define what eCommerce actually is? If we were having this conversation a year ago and you asked most people who shop for regular goods and services, what does eCommerce mean, they would say, “Shipped in a cardboard box, landing at my front door within a few days of my ordering it.” Now if you ask people what eCommerce is, that could extend to DoorDash or Uber, Instacart, Prime Fresh, curbside pickup, whatever it is. So as long as the order is digitally initiated, it’s eCommerce. Now, I don’t know that everybody necessarily subscribes to that, but that’s the way I look at it. So if you talk about these last mile fulfillment houses, that is the way things are moving, and frankly it’s mirroring be consumer demand. So I think the big question to ask is, as the vaccine starts penetrating more, and the world moves more comfortably into shopping in-store, do these habits stick?

Sarah Hofstetter:
Do people go back to going to the supermarket three times a week? Do people not necessarily browse online, buy in store? Do you start seeing some of those old habits coming back? I think the answer is not that much. It takes a certain amount of time for habits to stick, well, it takes a certain amount of time for habits to be created and then for habits to stick. I mean, we’re talking in January. New year’s resolutions is an example of that, right? What do they say? I mean, it’s certainly by Valentine’s day, any of your new year’s resolutions, 90% of them just go out the window. So now that we’ve been living this COVID life for 10 months, the question becomes as we look forward, have people created these habits that they feel really comfortable continuing to do? If I would tell you a year ago, you’re going to be buying your milk and your ice cream and your avocados by eCommerce, you would say, no. I need to pick out those avocados myself.

Julia Raymond Hare:
I need to squeeze them.

Sarah Hofstetter:
Now I’m like, “I don’t care, whatever. I don’t care if they’re dinged, I don’t care. Just get me an avocado so I don’t have to go into a store.” So I think a couple of things are playing into these new habits. One is that I think people used to think that that luxury of being able to buy, let’s say more impulse purchases, like groceries. Not exclusively groceries. Beauty, drugs, whatever.

Sarah Hofstetter:
I don’t mean illegal drugs, just to say. But some of that ties to socioeconomic abilities like, can you afford it? Will you pay a premium to have somebody to do your shopping for you on a platform like Instacart, or will you take advantage of the massive convenience and affordability of curbside pickup? And then the other consideration is age. E-Commerce was generally done by the non-AARP crowd, and so with more older people being immunocompromised, they adopted eCommerce as a habit in March and April that I don’t know would have, that could have happened over the course of, not just that whole we accelerated five years in five weeks. it could have been a decade before that actually happened.

Julia Raymond Hare:
Absolutely. It just reminded me of a story. One of our advisors is from Italy, and his 90-year-old dad was ordering groceries online at the height of the pandemic in Italy, which is just insane. I mean, think about how difficult that would be, but it’s happening.

Sarah Hofstetter:
Yeah, for sure. I mean, my parents are 65 plus, just say, and my mother became an annual subscriber to Instacart. My dad was completely dependent on online grocery delivery. He was a big Shipt user. I mean, they just completely adopted it. So I think you started seeing eCommerce adoption broadening socioeconomically, at least age-wise, and already you’re starting to see new habits form. I don’t know that it’s going to be always at this level, but I think it’s now one of the new options, no different than the way Club evolved over the past, I don’t know. I guess when it really started taking off, what was it, 20, 30 years ago?

Julia Raymond Hare:
Well, do you think all retailers will? One example, a specialty outdoor retailer that is smaller, not the size of an REI, but even smaller than that. Do they path to eventually pick up curbside? Will it become a huge customer expectation for even local retailers? I mean, how far does it go is my question for you.

Sarah Hofstetter:
Yeah. I think a lot of it depends on what your considerations are before you purchase something, right? If you even look at the reverse behaviors of consumer electronics 10 years ago, they would research offline and buy online, and that’s what killed so many consumer electronics stores was that they were basically showrooming for eCommerce. So the question becomes, how much do you need to touch and feel something, and how much real estate do you realistically need? I think that’s just going to bury. That’s why I don’t think apparel is going to die anytime soon, or luxury apparel certainly is going to die in terms of brick and mortar anytime soon. I think people need to have that tactile approach. Talking about outdoor, outdoor retail I think is a very interesting one. Obviously many, many people bought bikes online.

Julia Raymond Hare:
Absolutely.

Sarah Hofstetter:
Because that was the safer method of transport. It was your new way to exercise. I mean, the surge in bike purchases online was a necessity. I don’t know if that’s necessarily going to be the new norm nearly as much as maybe other things. I think people have gotten comfortable buying furniture online.

Julia Raymond Hare:
Absolutely. The furniture is crazy, right?

Sarah Hofstetter:
I mean, not to the exclusion of brick and mortar necessities, because different strokes for different folks. But I don’t think people a year ago would have said, “I’m going to buy all of my furniture online,” at all socioeconomic levels, at all demographics.

Julia Raymond Hare:
And on a macro level, do you agree with some of the retail execs and thought leaders I’ve been talking to? They’re all saying smaller format stores, that’s where things are headed outside of your Target and Walmart, your huge big boxes. But is a smaller format the smarter move?

Sarah Hofstetter:
Well, I mean, real estate is pretty cheap these days, so I think you kind of have to look at the full economic consideration of that, but I mean, even the Walmarts and the Targets, I mean, how much of them are going to be functioning as dark stores? How much of that real estate is going to be converted into dark stores and micro fulfillment, right? Again, if we were talking a year ago, it was Amazon at the top of the list and every omni-retailer as a, you wouldn’t even call them a fast follower. Now you look at these guys that actually, their original liability of the real estate is a tremendous asset in terms of micro fulfillment. So I think a smaller footprint store may make sense for the consumer shopper experience, but it may be just a great reconsideration of purposing for last mile facilitation.

Julia Raymond Hare:
That always brings me To the topic of malls. I mean, where’s your standpoint on malls? Do you think we are going to see a huge shift to them becoming dark stores and fulfillment centers?

Sarah Hofstetter:
I don’t know. I mean, I’m of multiple minds. I also think I probably romanticize my childhood a little bit more.

Julia Raymond Hare:
Me too. I miss the malls, got to say.

Sarah Hofstetter:
Yeah. I mean, when I was in high school and college, that was a place to be. So not having that, it’s just odd to me, but that doesn’t mean that that’s the way behavior is today. So I don’t know. I think the jury’s out on malls, or at least in my head.

Julia Raymond Hare:
And if we come back to analytics, because it’s becoming so important for in-store retailers from bottom up and top down perspectives to create, I don’t want to use too much business lingo or whatever, but just to create the feedback loop, so you know what works, what doesn’t work. Do you think that retailers are expecting too much of their store associates when it comes to data and creating insights that really make a difference?

Sarah Hofstetter:
Well, I don’t know if that necessarily has to be the burden of the store associates, but it does have to be the obligation of the retailer. So where that sits organizationally is a good question. I have many friends that run small businesses, and they are getting these advanced degrees in analytics and continuing ed just by virtue of the necessity of it all. But I think it all ties back to the retailers’ mindset. Retailers with a growth mindset aren’t hung up on the past, almost like the way I was with the mall about two weeks ago, but we saw that even in, gosh, what was it? I saw a stat back over a year ago. So it was Q4 of 2019 where they were saying that Walmart had either reported, or it was a story that I read, that 30,000 Walmart associates were being trained to be online pickers, and that was another part of their job.

Sarah Hofstetter:
So if your question is along the lines of, are we expecting too much of store associates in general, because now their jobs are a lot different than what they were trained for, I would say maybe. At the same time, you’re upskilling people and making them more marketable for their next job. So I wouldn’t knock it at all, and I would say clearly Walmart had the right mindset to say, “This is something that we see coming.” Did they see it coming nearly as fast? I don’t know, but those retailers are also thinking about that new shopper journey. That new shopper journey starts in search more than it starts when you walk into the store. So if you’re not on page one of search results within that retailer, your brick and mortar equivalent is like being on the bottom shelf in an aisle that’s not your category. I had a client once tell me that the mafia could use page two of search results to hide dead bodies.

Julia Raymond Hare:
That’s funny. That’s a good analogy because I think it’s so true. I mean, I can’t remember the last time I’ve ever clicked on the second page of a search result.

Sarah Hofstetter:
Well, I have, and here’s why. Well, also, I like to walk a mile in my shopper shoes, but also because I don’t necessarily think that retailers have optimized the search experience that well yet. I mean, retailers just aren’t as good as Google at search optimization against keywords, right? So sometimes I’ll be looking for something, and I know the store carries it, and for some reason, it’s not showing up in search. So that’s an onus on the retailer, it’s an onus on the supplier as well to say, “Wait, I have to make sure I’m optimizing my content and I’m optimize my advertising.” So if you’re spending all your shopper dollars on floor decals and in-store promos and end caps, if the consumer is never walking into the store, it’s garbage.

Julia Raymond Hare:
Absolutely.

Sarah Hofstetter:
It’s creating that balance.

Julia Raymond Hare:
That comes back to marketing and advertising, but also their inventory management, which I think we’ve seen some stellar work from Target and the likes when it comes to that. But that’s another huge challenge. Have you heard a lot about that recently from a client?

Sarah Hofstetter:
Inventory management? Frick yeah. What are we talking about? I mean, it’s one of the biggest challenges because it’s the totality of the supply chain. And I also think that there’s a misalignment in consumer expectations to a certain degree.

Julia Raymond Hare:
A misalignment like it’s too high, or?

Sarah Hofstetter:
Yeah, it’s too high. So for example, let’s just say I was shopping in Target for, I’ll use my Campbell example. I’m looking for Campbell’s Signature Tomato Soup. I want to get tomato soup, and so I’m going to do a buy online pick up in store, or I’m going to do it through Shipt. Let’s say I’m going to do it through Shipt. So I put it in my cart and I go to checkout, and then the picker goes to go get it, and shockingly, it’s not there anymore. Why isn’t it there? Because there’s literally another human being walking around with a physical shopping cart that has already taken that off the shelf.

Sarah Hofstetter:
You can’t expect Target to have that can immediately picked off the shelf in a store where you actually have people shopping, and that’s the way things are turning over, and that’s why the product is turning over so quickly. So the idea of availability and being able to track availability in real time has been a major disappointment from a consumer perspective, but I don’t know that how you immediately resolve real time availability without it being an Amazon Go type situation that you immediately get charged the minute you take it off the shelf.

Julia Raymond Hare:
Yeah, that’s a tricky one. I have heard some people say, well, they need to just reformat their stores and make a section in the back just for picking with the highest purchased items or the most purchased items. That’s a huge overhaul. I mean, the cost is outrageous to do that for a lot of retailers.

Sarah Hofstetter:
Well, the cost is outrageous. It’s a reformulation. It’s going to be big cap ex to re-imagine what the store floor looks like, but that goes back to the question about real estate. That’s where data and analytics come in, right? What are the things that are being more frequently ordered online versus more frequently being picked up in store, and do we have enough seasonal data to know what that’s going to look like over time? So what worked for you in December is not going to work for you in January, because in December you were cooking for the holidays, and in January, you’re trying to be healthy.

Sarah Hofstetter:
So in even your analytics, you don’t have enough of a history of what’s more likely to be bought online versus in-store to be able to do that predictive analytics on saying, “Okay, so here’s what I should be storing in my dark store version of the store versus the showroom or the in-store experience.” But you’re right. You’re absolutely right in that that’s where we have to move to, but I think creating that balance is going to take a little bit of time, and consumers need to be educated on that kind of stuff.

Julia Raymond Hare:
They do. There’s a balance between being perfect and getting it right and moving quickly, and what would your advice be considering a retailer that doesn’t have that kind of historical data to do the predictive analytics and have great confidence in their inventory?

Sarah Hofstetter:
Well, I think that that is a little bit, it’s a job of different components of the industry, myself included at Profitero because we’re a data analytics provider, is to be working hand in hand, brands and retailers, to try to understand what that battle rhythm is, which we’re all getting different points of data. You’re getting EPOS, you’re getting in-store, you’re getting basket size, you’re getting a lot of information. It’s how you process it, and then how do you render that out to the consumer? I legitimately don’t know if it’s a question that the retailers don’t want to manage the expectations of the consumers too much because they don’t want to be at risk of disappointing them, so they’ll just go to a different retailer.

Sarah Hofstetter:
Let’s say that that whole experience of me buying tomato soup happens, but instead of me adding it to cart, I get a notification saying, “This is in stock as of right now. By the time to picker gets to it, it may not be in stock anymore.” I’m going to walmart.com, like that. But if walmart.com also says that, then we’ve created a unified expectation for the consumer. So I think that’s going to be almost industry momentum in order for us to get that happening, and I think we can all do a better job of trying to, like I said, walk a mile in our shopper’s shoes and think about what we need to do as an industry to make that experience as positive as possible, and that includes expectation management.

Julia Raymond Hare:
And when it comes to expectation management, and you said creating a unified expectation from customers because the retailers are saying the same thing. Hey, we don’t have the tomato soup, or we do, but it might not be here when the picker gets to it. Do you think there’s good momentum when it comes to retailers sharing data? Because I mean, when it comes to seasonal shopper data, I think in a lot of categories there could be overlap if you anonymize it. Is that something that’s happening, or is there too many rules around it?

Sarah Hofstetter:
That’s a great question. Gosh, how do I say this without offending anybody?

Julia Raymond Hare:
Just offend them, Sarah.

Sarah Hofstetter:
Okay. I’ll just go for it. So here’s the thing. I think that retailers right now are looking for lots of sources of revenue, media being one of them and data being another one. So sometimes that data is for sale, and maybe it should just be an expectation that that’s what you get when you actually put the money in. So the question is, who’s got the power in this brand retailer relationship? That’s been a power struggle for forever. I read this book, highly recommended, called The Secret Life of Groceries. It’s a geeking out kind of book, but I actually found out about it by reading the New York Times book review, so it can’t be that geeking out. But it talks about how everything, the origins of the supermarket and the origins of supply chain, and all these different components. Doing ride alongs with truckers and all this cool stuff that helps you get to this point. Yeah, you would totally geek out on it the way I did.

Julia Raymond Hare:
I’ll have to write it down. the Secret Life of Groceries.

Sarah Hofstetter:
The Secret Life of Groceries. I’m totally into it. It goes through that dynamic between the brand and the retailer, and who has more control in that relationship. Now it’s easy to see that control might balance a little bit better, but I think brands have always struggled with the fact that they don’t have the direct relationship with the consumer. Social media made that a lot easier to bridge that gap, but ultimately when it comes time to buying the product, you walk into that store and all the data is owned by the retailer. So do they want to monetize that data and sell it back to the brands in addition to the cost of distribution? These are all questions that have to get answered, and I think people are going to look to the left and to the right and say, “Hey, what’s that guy doing? What’s that guy doing?” And it’ll all work. I’m not going to say it’s all going to work itself out. And then you’ve got more newer, not necessarily retailers, but intermediaries like Instacarts and Drizlys and those guys definitely looking at the data as a revenue generation opportunity.

Julia Raymond Hare:
A thousand percent. I think about that sometimes when I’m using Instacart. Who are they anonymizing my data and selling this to about what I buy?

Sarah Hofstetter:
Everyone.

Julia Raymond Hare:
Yeah. Everyone, everyone and their mother.

Sarah Hofstetter:
Anyone who will pay.

Julia Raymond Hare:
But it is helpful in terms of creating the experience that consumers want. I’m blown away when I look at apps like Ibotta, which clearly they’re just paying you for your data. I’ve seen recently a few new ones pop up that people are sharing, and I don’t think, especially millennials, I don’t know about gen Z, but I don’t think they care. They sell their data left and right if you can get a $10 gift card for Amazon to upload your Publix receipt or whatever, wherever you shop.

Sarah Hofstetter:
Yeah. I think that it’s not necessarily generational, I think it’s just more about what’s in it for me. I mean, think about Facebook 10 years ago. It was very clear that your data was getting sold, but was the value exchange worth it to you? So it’s just all about, what is that value exchange? So whether it’s Ibotta or Fetch Rewards, there’s a whole bunch of companies like this, and the disclosure is pretty darn clear. Give us your [pre-II 00:25:04] and we’ll give you movie tickets or cash or whatever it is. I do think that there is a very fair value exchange in those kinds of things so as long as everybody’s above board about what you’re giving and what you’re getting. But that data, I think that data is super rich. I’m very much into that kind of stuff, again, so long as people are into it. But if you look at any of those, like a Fetch or an Ibotta, you see a lot of those members are middle America moms, who is your primary household shopper. So those are the kinds of people that brands want to be reaching.

Julia Raymond Hare:
I wanted to ask this question, when it comes to China and how retail is much different, much more tech-enabled there for many reasons, but how they’re using WeChat stores and creating these small communities in WeChat. It’s almost like reverting back to SMS marketing, because you’re part of this community in the store and they message you all the time. Do you think we’ll get to that here in the West?

Sarah Hofstetter:
I mean, I think as with most things that migrate over, whether from China or I often look to Korea and Singapore as almost a look ahead, could be 12, could be 18 months. It could be even longer to say what are certain trends, and what are the cultural levers that also still need to be in place for those things to take off? Privacy becomes the big question mark when you start moving from behaviors in China to behaviors, let’s just say in democratic states.

Julia Raymond Hare:
Especially in the EU.

Sarah Hofstetter:
Extremely the EU when you’re talking about GDPR. Not every behavior or technology will be adopted, because you can’t figure out a way to make that compliance if you will. So social shopping, which I think is the underpinnings of WeChat, I think for sure is here to stay. One of the things that I always find interesting when I try to explain to an old school salesperson, the difference between selling in-store and selling online is that there isn’t somebody that’s sitting at shelf that’s giving you feedback on the product like the way social media will, like the way ratings and reviews will, like the way contextual content will. That’s a big part of the whole social shopping experience that has thrived in China, and I think to a certain degree has been thriving in the States. I mean, gosh, if you look back to, gosh, it was at least 10 years ago, definitely at least 10 years ago. Do you remember eBags?

Julia Raymond Hare:
Mm-hmm (affirmative).

Sarah Hofstetter:
I mean, they were one of the first ones that really valued that feedback loop, and people would make decisions based on online reviews. Which does not seem like a radical concept today, but eBags took great market share early on because of that. So I think that there are definitely certain elements from China that I think will make their way over to the States, to the EU, to the UK, because that’s not part of the EU anymore.

Julia Raymond Hare:
It’s crazy.

Sarah Hofstetter:
I know. Different podcast. But I think that we just have to be mindful about what are the macro issues, that have nothing to do with what we do for a living, that would either inhibit it or adapt it.

Julia Raymond Hare:
That’s a good answer, and it’s just so different. Like you said, the cultural levers are huge when you look at any of these trends, and will they come here or not, and have that debate. Is there anything that you would say retailers should definitely be doing if they’re not already, given 2020 and 2021 as we’ve entered this also tumultuous year?

Sarah Hofstetter:
Yeah. I find it so hilarious when it was December 31st, when people were saying, “Can’t wait for 2021. It’s going to be so different.” I’m like, “Hi, why is it going to be any different? When you get vaccinated, it will be slightly different. When we have herd immunity, it’ll be a lot different, but that has nothing to do with what year it is.” But anyway, yes.

Julia Raymond Hare:
Yeah. It’s that mindset. We just think, “The next day. It’s a new year, new number.”

Sarah Hofstetter:
Yeah. Not happening.

Julia Raymond Hare:
Just not, as we saw.

Sarah Hofstetter:
Yes. I saw this great, maybe it was a meme. I don’t even remember what it was, but I saw this picture of the joker talking to Pennywise from IT, and so they had the Joker as 2020 and Pennywise as 2021, and it says, “Welcome to the neighborhood.”

Julia Raymond Hare:
Oh God.

Sarah Hofstetter:
Yeah.

Julia Raymond Hare:
That’s a good way to put it, and he’s in the gutter looking out.

Sarah Hofstetter:
Pretty much. It’s pretty awful. But I’m on a positive note. So looking out, I think what retailers really can be doing is having that growth mindset, in the same way that Walmart was looking in Q4 about how do we train people on click and collect. This is one of the hardest things for big dated companies to do is to say, if I were dropped on this planet today and I looked to the left and the right and I said, “What would I do if I was starting today?” And then say, “Okay, how do I figure out how to make that so within the confines of what I can do, versus how do I make these like little incremental changes?” We need to think exponentially.

Sarah Hofstetter:
The questions that you were asking earlier both about shopping behavior, dark stores, segmented stores, micro fulfillment. These are conversations that were theoretical a year ago that are mandatory now. So I think it’s just more a matter of figuring out how to have that growth mindset, not get hung up on the past, and not overshooting to the point where you say, “Oh my God, we need innovation at all costs,” and you forget about the fact that there still are plenty of people that will go into a store and purchase product. [crosstalk 00:31:47] In the eCommerce space, I’m also a realist that that isn’t completely subsuming brick and mortar. It’s just a bigger player than it was expected to be.

Julia Raymond Hare:
Right. You don’t have to think as big as Elon Musk getting us to Mars by selling all his assets, which was the latest news there. But I love what you said about if you were dropped on the planet today, what would you do? Because that question could span all industries, I think.

Sarah Hofstetter:
It’s a healthy way of not being held back by what seems to be possible.

Julia Raymond Hare:
That’s a great note. I think we can wrap there. Again, today’s guest, Sarah Hofstetter, president of Profitero. Thank you so much for joining the rundown and sharing your insights.

Sarah Hofstetter:
I’m honored to be a part of this. Thank you so much, Julia.

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