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For Retailers, BLM Should Be More Than A Hashtag

Chicago retail, including other iconic shopping destinations, looked like a war zone this week – not a major market poised to re-open after months of closures. This week was supposed to be the next re-opening phase in Illinois – not another setback that some retailers will not survive. The stark image of damaged and boarded storefronts all across the country is hopefully the nadir from which we all rebuild.

Retailers as a whole have not historically been ones to champion social causes of this magnitude. Silence on social or civil unrest was often the preferred decision by management teams. This is no longer an option in our view. The retail industry touches almost everyone, and we’re witnessing a change that is likely permanent.

Brian Cornell, CEO of Target, issued a public statement to their huge workforce, “…as a team we’ve vowed to face pain with purpose.” And backed up his words with actions in the form of first aid supplies and essentials to the heaviest damaged areas and reassurance to employees their wages are safe even as stores are closed temporarily. Cornell went on to say, “… the safety and well-being of our team, guests, and the surrounding community will continue to be our paramount priority.”

Many retailers and consumer brands are responding similarly, but this feels different. This feels like a permanent change in how we choose to shop for and buy necessities and frivolous products alike and how retailers proactively give back to their community.

Consumers are demanding their favorite brands to speak out, and those who do not risk damage to their brand and future. Consumers will hold us accountable, and winners and losers in retail will increasingly be defined by their social and community positioning.

Posting a dark screen on Instagram will not be enough. “Consumers don’t care about corporate solidarity. They want donations,” according to a story on Vox from yesterday. “As brands rush to speak out, many statements ring hollow,” states a headline on Business of Fashion from earlier this week.

Small mom and pop retailers are most vulnerable, and many will not survive the double whammy of 2020. “Big retailers say they don’t mind the looting. It’s different for small businesses,” explains Cathaleen Chen on BoF.

From our vantage point, we closely monitor the “acceleration of trends,” and never has it been more critical for businesses to focus on building lasting relationships and less on the next transaction.

The long uphill battle ahead may be best exemplified by small retailers. They are at their best when customer relationships are strong – and nurturing such connections is more elementary for business now than ever.

Your voice matters, retail. As do all voices, big and small, that we have witnessed and support in peaceful demonstrations. Let’s look back on the second half of this year as a positive turning point – a time when the healing began. It starts with all of us.

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How Will DTC Fare During The Pandemic?

What the last recession can tell us about this one…

The Covid-19 virus has stressed – with a few notable exceptions – all retailers. Over the last decade, Direct-to-Consumer (DTC) brands were heralded as successful disruption stories that lay bare the inadequacies of stale legacy retailers. But in the last year, the frailties of DTC brands came to light. Ironically, both Casper’s IPO and Brandless’s bankruptcy showcased the same challenges; high customer acquisition costs, financial and operational difficulties managing returns and the difficulty of bringing digital intimacy to the physical store front.

These “blocking and tackling” challenges are exacerbated by a lack of differentiation within the DTC cohort. As multiple brands chase the same category, the founder story of graduating from business school and starting an authentic company in an apartment is only exciting so many times. The indistinguishable look and feel of these brands does not help.

Every Font Tells a Story, Associated Press

Writing in Adage, Erik Spooner pointed out that DTC companies share a similar fingerprint. Whether hawking khakis, libido-enhancing medicines or mattresses, their hallmarks include “product photography where the object of desire is shot isometrically askew; solid background colors that are predominantly neutral; copy that has an ironically familiar tone—and is nearly always set in that eerily similar, playfully bold, geometrically designed sans-serif typeface.”

Already facing these challenges, what will Covid-19 do to DTC brands?

At first blush, DTC retailers could see opportunity. E-commerce channels remain open for business. Browsing is a go-to for boredom. And digital customer acquisition costs may drop as businesses sprint to reduce their advertising budgets.

A look back at past recessions provides additional insight – and some hope. In 2008 and 2009, spend on categories that often include a strong DTC presence in 2020 – such as beauty and pet care – grew. Unfortunately, categories with the DTC stalwarts of apparel and home furnishing shrank.

With DTC brands predominantly single category players, the performance in the last recession provides a clue for this recession.

But all is not lost for the apparel and home furnishings brands. Peeling back another layer of sector performance shows hope for apparel – and indeed most – DTC brands. The recession of 2008 and 2009 gave an early indication of the struggles mid-tier retailers would face in the future. Discount was an unsurprising winner, but premium apparel and luxury retailers also outperformed the mid-tier.

The extremes won in apparel; the struggles of mass predicted the future.

Amazingly, premium even outperformed both discount and mass in food and grocery.

Premium food retailers and brands maintained a strong growth trajectory.

According to a 2019 Forrester study, the DTC consumer skews to higher income, 18-35 year-old males in urban centers. While the gender skew and 18-24 year old cohort could be questioned, the higher-earner characterization certainly applies. And if premium categories did well in 2008, then there is more hope for DTC in 2020.

Yet for all of the comparison to previous recessions, Covid-19 has created behavior changes that were previously unheard of – and will leave all retailers wondering “what next?” Early indicators – such as waits of up to five weeks for delivery at Peleton or “join the waitlist” for Concept II rowing machines – say that home fitness and corresponding fitness accessories are beneficiaries. More broadly, self-care – including the home furnishings market – may be stronger than the previous recession.

But these consumer trends – normally a strong indicator of which retailers win and which lose – are insignificant compared to cash-on-hand and access to capital. If those levels were already low, then Covid-19 will drown even the brands that had their consumer clearly in their sight. News that Purple, Everlane, Cuyana and more are laying off or furloughing workers indicate this is already happening.

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Retailers Pivot To Feed And Protect America

This week the impact of shifting consumer spending during COVID-19 resulted in a new wave of massive employee furloughs in non-food retail sectors.  For those retailers still open for business, the employees working on the front line have become increasingly anxious about their own health.  COVID-19 infections on-site have forced closures of some stores and food production facilities raising food supply chain continuity concerns.  In response, we’ve seen another week of quick, innovative actions from the industry focused on new partnerships, offerings and charitable contributions:

  1. Open innovation coalition – started by Rothy’s early this month, this is a group of brands and suppliers working together to help the COVID-19 response. To date, brands like Third Love, Marine Layer and Lucky Brand have been involved to provide the materials and capacity to make protective equipment for front line workers.  Read more about this here.
  2. Partnering up – continuing the trend of retailers that are coming together to help, by the end of last week Crocs, in partnership with Famous Footwear, had donated 240,000 pairs of footwear to healthcare workers.
  3. Direct donations – countless retailers and brands have set up programs to donate a portion of their revenues to worthy causes such as the American Red Cross or local food banks. Dwell published a list of 50 retailers that are giving back.
  4. Individuals stepping up – celebrities have partnered with retailers in creative ways to help the needy. A few examples:
    • Tyler Perry teamed up with Winn Dixie and Kroger to purchase groceries for customers in New Orleans and Atlanta;
    • Brad Paisley and his wife teamed with Belmont University and Second Harvest Food Bank of Middle Tennessee to open The Store—a free grocery store that delivers in Nashville that serves individuals and families experiencing food insecurity and financial hardship;
    • Actor Ryan Reynolds is donating 30% of online sales of Aviation Gin to the United States Bartenders’ Guild (USBG) to support on-trade members affected by COVID-19.
  5. Customer service for just about anything – Zappos extended its “Delivering Happiness” mission enabling customers to call for service about anything, such as help getting groceries delivered, movie recommendations or whatever is on your mind. The free service is available 24X7!

Stay healthy!  Please send any tactics that should have a spot on our list to info@mdretail.com.

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Changes In Food Retail Foot Traffic During COVID-19

With the CDC now reporting over 300,000 COVID-19 cases and shelter-at-home orders issued in 40+ states (as of 4/3), every citizen and sector of the economy is being affected by the epidemic. By analyzing changes in foot traffic across food retail, we can monitor the shifting dynamics of shopping and stockpiling behavior to try to understand what may come next.

Placer.ai collects precise geolocation data across millions of mobile devices and uses it to estimate retail foot traffic (see more at https://www.placer.ai/covid-19/). From their data, we can see an immediate ramp up in year-over-year foot traffic in the period from late-February to mid-March across food retailers. Foot traffic peaked the week of 3/9, particularly on that Thursday and Friday.

The highest comps were in Club Stores and Traditional Grocery stores, with Mass retailers and Specialty Grocers falling behind. This demonstrates that Club and Traditional Grocery are top-of-mind for consumers who are stockpiling necessities. While we can safely assume the bulk of these consumers went in to buy food and household supplies, The NPD Group also reports increased sales in general merchandise categories related to sheltering-at-home: office supplies, toys, consumer tech, and small appliances (link). The prime example is the breadmakers category, which was up +804% in March vs. last year.

After the peak in the week of 3/9, Traditional Grocers mostly stayed above last year’s foot traffic levels for one more week before plunging down to negative comps. (The exception is Wegmans whose foot traffic levels dropped earlier due to its footprint in NY and the surrounding heavily-affected areas). Club retailers (not pictured) followed a similar pattern.

The Mass Channel had much smaller peaks than Traditional Grocery or Club, and both retailers were negative by the week of 3/16. Target declined more quickly than Walmart after the Hoarding stage, perhaps demonstrating Walmart’s status as the food and essentials destination in Mass.

Specialty Grocery had relatively low peaks and the steepest declines during late March. Specialty Grocery stores are usually a destination for add-ons, not bulk buys or household necessities, limiting foot traffic during a Hoarding Phase.

Although results for the last week of March are only available from Monday 3/30-Thursday 4/2, we analyzed Mon-Thurs numbers for the week of 3/30 vs. the prior week to try to understand foot traffic dynamics after the steep declines.

Foot traffic comps from the week of 3/30 show that across most retailers, there have been even further declines in foot traffic from the previous week. However, over this full week Nielsen reports that in-store CPG sales are still $3.2B above where they were last year (link). This could mean larger basket size during less frequent trips and/or fewer family members going on each trip to the store to minimize exposure.

An interesting discovery in these preliminary findings is that while Mon-Thurs foot traffic the week of 3/23 showed minimal or slightly declining trends as the week went on, traffic during the week of 3/30 showed relative growth M-T, with comps becoming less negative as the week went on. If this preliminary trend holds, it could mean one of two things:

  • The foot traffic valley of the week of 3/23 was a result of a post-stockpiling timeout: Having taken a week off and gone through some of their stockpile, consumers then gradually resumed their regular shopping trips, and will establish a new short-term equilibrium in foot traffic and sales. Regular (if reduced) shopping behavior is aided by the extensive steps stores are taking to make shopping safe and convenient, along with the shift in spend from food out-of-home to in-home.
  • The steadily growing comps the week of 3/30 are the result of renewed stockpiling behavior: Messaging from the White House has increased in severity, stressing the importance of sheltering-at-home over the next 2 weeks. On Sunday (4/5), Dr. Deborah Brix, the coronavirus response coordinator, even recommended that people forgo non-essential trips to the grocery store and pharmacy until the number of daily cases peaks. The week’s trends may just represent late adaptors and last-minute trips before truly hunkering down. If that’s the case, the following weeks will again show declining comps in foot traffic.

Whether the renewed growth in foot traffic holds or bottoms out, the next few months will be very uncertain. How will conditions vary for grocers across channels? What measures and innovations can retailers keep implementing to minimize disruptions to their business? How will medical and epidemiological factors play a role? The 2nd week of March saw an 85% growth in online CPG sales- can ecommerce and logistical networks keep up with demand?

We will continue to monitor the situation from every angle we can and will publish updates accordingly. The next few weeks will be crucial for people and businesses across the world. Our retail experts at McMillanDollittle (https://www.mcmillandoolittle.com/our-retail-experts/) and our worldwide partners in the Ebletoft Group (https://www.ebeltoftgroup.com/) are happy to provide perspective and guidance during these difficult times.

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Retailers Settle In To Wave Two – “Almost” Normal But At Home

This week about 90% of U.S. consumers are under a “Stay at Home” order.  Most of these customers have moved beyond the hoarding period to the next wave of shopping behavior focused on limited trips to stores with increased purchasing on-line with home delivery.  In week three of our list of retailer actions we are seeing an enhanced set of tactics focused on controlling shopper flow in-store during those limited shopping trips as well as innovative ways to keep business going and product flowing:

Protecting shoppers and store associates in store

  1. One-way aisles – to enforce social distancing, in addition to setting limits on the number of shoppers in store, retailers are guiding shoppers through the store with one-way aisles and other techniques. ShopRite taped out large arrows to help shoppers understand the new shopping pattern, reducing in-aisle congestion.
  2. Plexiglass shields – many grocery retailers and clubs have placed clear plexiglass between the cashier and the customer as a layer of protection for both.

Creative offerings to serve the customer at home

  1. Activities for kids – our favorite is the DIY doughnuts offered by a New Jersey Dunkin’ Doughnuts franchisee.  These kits include plain doughnuts with several frosting and topping options and instructions.
  2. Helping teachers look great for their on-line sessions – Draper James is giving away dresses to teachers across the country with their new “Draper James Teachers” initiative.
  3. Partnerships to reach the “sheltered at home” consumer – this week Walgreens announced a partnership with Postmates to offer expanded on-demand delivery to service customers nationwide. Postmates will deliver health and wellness and convenience items as well as a limited number of OTC medications.
  4. Virtual stylists – Evereve has come up with another great program: offering virtual 30 minute styling appointments that are conducted via FaceTime or phone with free shipping on all items selected during the session.

Repurposing space

  1. Malls transition to health care centers – now closed for regular business, many malls are becoming centers for community support to help battle the virus. Mall of America is hosting a series of blood drives for the American Red Cross on April 7, 8, 17 and 18.  Others are becoming Covid test centers like the Provo Towne Center Mall where the large parking lots provide plenty of space for drive through testing.  In some cases, vacant mall spaces are being repurposed into temporary hospitals.  The state of Tennessee announced that to add hospital capacity, The Gateway Shopping Center in Memphis will become a 170 bed hospital.
  2. Seasonal retailers opening up D.C. space to support food distribution – this week, the on-line retailer Balsam Hill announced they were repurposing some of their warehouses to ship overstock bulk nonperishable food from restaurant partners to serve those in need. Launched as “Balsam Provisions”, the company will be donating all profits to charity.

Preserving loyalty

  1. CEO updates – retail and brand leaders are wisely continuing to correspond via email, apps and social media with customers to provide updates on their company’s response during these difficult times.
  2. Extending status! – ok, we had to sneak this in here although it isn’t exactly retail – good news for all frequent flyers on Delta and United – both airlines are extending elite status for an additional year.  We expect other similarly impacted airlines, hotels and membership programs to follow suit soon.

The agility and creativity of our industry should be a source of pride for us all.  Stay healthy!  Please send any tactics that should have a spot on our list to info@mdretail.com.

 

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Retailers Are Moving Fast

With jobless claims spiking to 3.3 M last week and more states moving to “Stay at Home”, Covid-19 continues to wreak havoc across the U.S.   Many retailers have displayed agility and innovation to quickly implement new tactics to keep business going as well as contribute to the broader community response.  As a follow-up to our list last week, today we bring you the top positive actions we’ve observed from our industry to serve both customers and employees:

  1. Pitching in – retailers and brands like Gap, Neiman Marcus, Jo-Ann Stores, Canada Goose and many others, are shifting capabilities to help the front lines of health care workers by making masks and other protective apparel such as scrubs and gowns. CD One Price cleaners is providing free laundry services for first responders and health care workers and Starbucks will provide free coffee for this group through May 3.
  2. Upscaling our videoconferences – West Elm, Behr paints and others are offering free virtual backgrounds for Zoom conference calls – helping us all to look more professional while working from home.
  3. New channels to serve the customer – companies are rapidly pivoting to serve customers at home. Farmer’s Fridge provides fresh and healthy food to consumers through automated vending machines located in convenient locations throughout major markets in the U.S.  Over the weekend Farmers Fridge implemented a home delivery program to provide products to customers unable to get to a vending machine due to shelter in place requirements.
  4. Profit sharing with staff – our most popular Instagram post this month featured the take-out meals offered by Chicago’s Michelin 3-Star restaurant, Alinea. The wildly popular program has allowed the restaurant to hire back staff with the intention of sharing profits evenly among them with ownership forgoing salary.
  5. Virtual events – from Chipotle to Nike, retailers and brands are providing activities to enhance engagement with isolated customers. Chipotle is offering daily Zoom calls to hangout with celebrities.  Nike is offering free membership in the premium level of Nike Training Club.  This app offers virtual workouts for strength training, cardio, and yoga and is aligned with the “Play Inside and Play for the World” ad campaign. Michael’s Stores has a Face Book live craft event weekly for shoppers using curbside pickup.
  6. Stocking up…on cash – retailers are closely scrutinizing cash requirements to ensure they can fund on-going operations through this uncertain period. Many large retailers accessed credit facilities in the last week to borrow including L. Brands, JCPenney and Ascena.
  7. Helping with customer payments – auto companies like Hyundai, are covering up to 6 months of lease payments for customers that have lost their jobs due to Covid. Companies such as Mariano’s (Kroger) and Door Dash are waiving pickup or delivery fees.
  8. Accepting new payment types – to make it as easy as possible to pay, retailers are expanding on-line and mobile payment options. Starbucks will be accepting Bakkt cryptocurrency on the mobile app.
  9. Offering premium solutions for high end customers – luxury sales are projected to decline significantly in the coming months. Companies in this segment are focusing on their top customers with personalized offerings and exclusive events.  The Dorsett hotel chain is offering 14-day and 27-day Quarantine packages at their luxury hotels that include medical care and food delivery.
  10. Cross retailer co-operation – this trend, noted last week in Europe, is now here in the U.S. where companies are working together to address key challenges like workforce stability. Albertson’s announced a partnership with 17 other companies where they will hire furloughed workers to fill part-time roles in busy Albertson’s stores and distribution facilities.

We believe this is just the beginning. Creativity and innovation will be the hallmarks of companies who can successfully navigate this crisis.

Please send any tactics that should have a spot on our list to info@mdretail.com.

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Retailers Step Up During An Unprecedented Week

What a week!  Covid-19 reaction hit the tipping point in the United States.   As of Sunday, March 22, one in four Americans is required to stay at home unless seeking or providing an essential service.  Most consumers in the rest of the country are voluntarily adopting the same behaviors.  The impact on the Retail Industry here has been uneven and unprecedented.   Retailers, suppliers and other partners have had to adopt a new playbook to keep business going.  Starting today we’ll be providing a weekly summary of tactics that retailers are implementing to respond to this evolving situation.   This week’s top 10 focus on retailers’ positive actions to serve both customers and employees:

  1. Contactless delivery – as widely reported, thousands of stores, malls and restaurants in the U.S. have closed, shifting business on-line. Where possible, stores have continued local delivery or pickup.  For many retailers pickup has shifted from in-store to curbside.  Local delivery conducted through Instacart, Dominos and others have “leave it at my door” options for customers so they can eliminate direct exposure to delivery personnel.  At Petco, for pet parents with a sick animal, the company has implemented new curbside hand-off processes for Veterinarian visits supported by text notifications.
  2. Store hour adjustments – retailers remaining open from Home Depot to Walmart are reducing store hours to enable time for employees to restock shelves as well as conduct enhanced cleaning and sanitizing. Many grocery and mass retailers such as Whole Foods, Publix and Target are offering specific shopping hours that are available only for older or immunocompromised shoppers.
  3. Covid-19 specific processes in store – stores that remain open have instituted new procedures to enhance the safety of employees and customers. At Costco for example, employees wear gloves, shopping carts are sanitized after use and are distributed by an employee individually to shoppers as they enter the warehouse, signs remind shoppers to maintain social distancing and employees remind shoppers throughout the store. Best Buy is limiting the total number of shoppers in store to 10-15 to enforce social distancing.
  4. Extended return windows for items purchased in store – Sephora was one of the first and now most other retailers with extensive store networks have changed return policies allowing shoppers that purchased goods in store to return products once stores reopen. For Sephora that means extending the returns to 30 days after store reopening date.
  5. Free shipping and returns for items purchased on-line – On-line fees for shipping and returns have been eliminated by most retailers. Styling fees for subscription programs such as Trendsend by Evereve have been significantly reduced where the fee is now $1.  Return windows for on-line purchases have also been extended.  Sephora has extended the on-line return period from 30 to 60 days.
  6. Purchase limits on key items – We’ve all laughed at the memes on toilet paper hoarding. As a result of these behaviors, retailers have implemented purchase limits on high demand items such as bottled water, paper products, fresh meat and disinfectants.
  7. Prioritizing essential items – Amazon has suspended shipments of non-essential items into its warehouses to focus resources on high demand household staples and medical supplies. In Italy and France, Amazon has temporarily stopped taking orders for non-essential items.
  8. Expedited hiring and cross-company sharing of workers – While jobless claims jumped 30% this week, retail employers in food and consumables are facing a labor shortage. Amazon announced plans to hire 100,000 workers and has implemented expedited hiring practices to get new employees on board quickly.  Walmart has announced the need for 150,000 new workers and 7-11 is adding 20,000 jobs.  For immediate help we’re seeing the emergence of cross retailer cooperation:  Aldi in Germany is using displaced McDonald’s employees as temporary workers.  The arrangement will allow the fast-food workers to return to their McDonald’s jobs when things return to normal.
  9. Paid leave or bonuses for employees and partners – To keep workers on the job and motivated, retailers are increasing wage rates, providing bonuses or paying bonuses early. Target announced it is temporarily raising pay by $2 an hour until at least May 2, and giving bonuses to 20,000 hourly employees.  They are also providing paid leave for up to 30 days for employees in high-risk categories such as over age 65, pregnant or with underlying medical conditions.  Leading Retailers that have closed store based operations such as Nordstrom, Macy’s and REI will continue to pay store personnel during the shutdown period.
  10. Shift from promotional to informational communications – CEOs and business owners have been reaching out to customers and employees this week with messages detailing their responses to the pandemic.   These range from reminders about enhanced sanitation procedures to store closures or changes in the retailers shopping experience.  Our favorite, below, is from a local restaurant that includes a reminder to customers to be patient and kind during this difficult time.

Please send any tactics that should have a spot on our list to info@mdretail.com.

Applause to all of the hard working associates and their leaders who are taking time from their own families and friends to keep us supplied with food and essentials.   Stay healthy out there!

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Retail In the Age Of Coronavirus

Unprecedented.

In my over three decades of covering and working in the retail industry, we have never seen anything like the impact of Coronavirus on the global retail scene. 9/11 temporarily ground business in the United States to a halt as fear and uncertainty gripped the country. Fortunately, it didn’t last long and the anecdote to terrorism was a resumption of daily life. The Great Recession of 2008-2009 hammered consumer savings, crushed the credit market and stopped future retail growth for several years. Consumer spending slowed, particularly for non-discretionary items, but the economy moved forward, albeit at a much slower pace. And, it was the consumer that led us out of recession as spending led to the economy’s recovery.

This, however, is something entirely different. The macro-economic conditions were fine. This is a global health crisis that is leading directly to an economic crisis as large portions of the world’s economy effectively shut down. And, in this instance, it is the right thing to do. Shutting down activity is likely the right response to blunting the impact of the virus.

The impact will be rapid and visceral. No NBA, or Masters, Final Four or Disney World. No conventions, South By Southwest or Broadway shows. Air travel and hotel business are slowing dramatically.

And, of course, retail must follow suit. In the last 24 hours, announcements came of temporary store closures of approximately two weeks from Nike, Lululemon, Apple, Lush, Urban Outfitters, Under Armour, Patagonia, among others. The giant King Of Prussia shopping center outside Philadelphia is one of the first shopping centers to close but there will be others; American Dream in New Jersey is delaying their long delayed opening in response.

And the restaurant industry is rapidly following suit. In the State of Illinois, all bars and restaurants will be closed for dine in customers until March 30th with the ability to remain open via drive thru, pick up and delivery. Many other municipalities are following suit.

Mass, drug and grocery retail have been early beneficiaries as consumers stock up on essentials and will likely to continue to see gains as life, at least temporarily, will be focused on the home for most families. But they are straining to keep up with their supply chain and will also face significant challenges in maintaining a work force.

Unprecedented.

Short term, the impact will be predictably grim, as billions of lost revenues immediately hit vulnerable retail, foodservice and entertainment sectors. Long term, we have simply no idea. It will largely depend on the length and severity of the outbreak. Assuming it is contained early, we might see a rebound analogous to 9/11 which experienced a V-shaped recovery as people resumed their normal course of life. If it extends for multiple months, it will be difficult for consumers and retailers to sustain a prolonged shock to the system. The government is now stepping in aggressively with assistance to the consumer, slashed lending rates and what will undoubtedly be sizable bail-outs for impacted industries and further aid to citizens.

Online retail, already booming, will grow even more as consumers spend less time in public. Expect massive gains in e-commerce delivery services for grocers and restaurants. And of course, the general retail market will continue to shift dollars on-line.

Retail, which had been on a decade-long growth spree, will likely show contraction for the first time since the recession. And this is the relatively positive scenario with a quick return to normalcy.

For now, we can only hunker down and shift to survival mode. Unprecedented indeed.

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Amazon Go Gets Going

There have been two major developments with Amazon Go in the past few weeks. First, they opened a “jumbo” sized store (at least for a Go) in Seattle. And, they just announced that they would make the technology available to other retailers and just named their first partner, OTG, an airport focused hospitality group.

The Amazon Go Grocery store opened in the Capitol Hill District of Seattle at the end of February. Unfortunately, Seattle happens to be the current epicenter for Covid-19 so there has been little attention after the opening splash. Why is this store significant?

  • At roughly 10,000 square feet, it is about five times the current footprint for other Amazon Go’s. While not supermarket sized (US markets are roughlt 3-4X larger), it is closer in size to an Aldi or Trader Joe’s. One of the big questions about the technology is whether it can scale up in size and handle a larger footprint. This store certainly represents a giant leap in potentially proving this out.
  • The mix has been expanded. While the original Go’s are essentially convenience stores with grab and go items and a limited selection of groceries, the new store is far more expansive in offer, particularly with the addition of fresh meat and produce. The complications here for tracking also get a lot more difficult. Can they track an organic avocado ($1.49/each) vs. a regular avocado (.49/each)—they sell both or be able to distinguish how many bananas (sold for .19 each) are in a bunch? There are also loose bakery items for sale which could potentially tax the system.
  • Other than that, the same system as for the other Go’s is in place—customers swipe their Go app and enter the store and exit by walking out.

If this is scalable, it potentially offers much broader usage for the technology, which is also available for other retailers to license. The Just Walk Out technology will show up at select CIBO Express Gourmet Markets, with the first set to open at Teminal C at Newark Liberty airport.

This is an interesting place to test this, since OTG has been a leader in creating a seamless experience. Terminal C is fully equipped with self-ordering kiosks for restaurants and self checkouts in the stores. Just Walk Out technology seems to be a natural and logical progression. The one change to the program will be that customers can use a credit card to enable the technology versus a dedicated app. This should make adoption faster and more intuitive, as Rick Blatstein CEO said, “We know time is critical for our guests and we are always looking to use best-in-class technology to create frictionless airport experiences, and really give them their time back. We are working with Amazon to leverage their proven Just Walk Out technology in our CIBO stores – so for us it’s all about offering travelers whatever they want in the easiest and quickest way possible.”

I’ve written a few times about Amazon Go and count myself as a fan. As I’ve discussed, once you get used to not having to wait at checkout, it changes your mindset. This is not dissimilar to TSA precheck or using a toll pass on the expressway. Once you have it, you will never want to go back.

Questions still remain about the scalability and cost of the technology, its accuracy (go scour YouTube to find people working hard to game the system) and ultimately, the societal ramifications of the elimination of clerk oriented jobs customer receptivty to a people free environment. For now, it’s clear that the technology (through Amazon, Standard Cognition and others) will continue to change retail as we know it.

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Art Van’s Furniture: From Powerhouse To Liquidation In Just Three Years

Less than three years ago, I was part of a consulting team that participated in a strategic planning retreat for Art Van Furniture’s senior management. At the time (mid 2017), the company was riding high: it was immensely profitable, growing fast, entering new markets and looked poised to double its growth and cement its standing as a regional powerhouse in the furniture industry. Last week, the company announced it is closing its doors forever.  It is now in the process of a full liquidation and becoming yet another footnote and cautionary tale for the retail industry.

So, what happened? While I hate to use the perfect storm analogy, a combination of poor decision making and bad timing took a once powerful company down.

  • Private Equity Ownership. Art Van was purchased by Thomas H. Lee Partners LP in 2017 for an estimated $550 million from the company’s founder Art Van Elslander. TH Lee saw opportunity to consolidate what has always been an historically fragmented industry. They also used a couple of widely copied pieces of the private equity playbook, including using debt to finance the transaction. Sale-leasebacks of the properties were used to fund the purchase price to the selling shareholders but did lead to higher rental rates on leased properties.
  • Management team turnover. It is always difficult to transition from a family owned business, but there was also significant turnover in the executive ranks by failing to secure the team (much of it non-family) that had achieved the prior success.
  • Rapid Growth Organically and Through Acquisition. The company then proceeded to grow quickly, as it tried to enter the Chicago market, grow its Pure Sleep mattress store brand and make bolt-on acquisitions of Levin Furniture in Pittsburgh and Wolf Furniture in Altoona, PA. Again, all likely strategically correct plays but poor sequencing and implementation of the plans above. My broken record of “too fast” growth (see Earth Fare, Lucky’s, etc.) spurred by outsized private equity expectations feels like a broken record.
  • E-commerce. Sure, let’s blame Amazon. Or, in this case, more specifically, the money sucking Wayfair business. In 2017, e-commerce was a relatively small factor in the furniture business. Today, it is roughly 20% of the market. Art Van tried, unsuccessfully, to quickly ramp up its e-commerce business. No doubt that e-commerce had an impact on the core brick and mortar business, but it cannot be the sole cause of blame.
  • Tariffs. For good measure, the furniture industry was also caught up in the U.S./China trade war. China was the top furniture exporter to the U.S. and initial tariffs of 10% were raised to 25% in May of 2019 after trade talks stalled. This undoubtedly had an impact on margins.

In total, both internal missteps and external factors took a once great company to the brink in an incredibly short period of time. Fellow Forbes contributor Steve Dennis likes to say, “Physical retail isn’t dead. Boring retail is”. In this case, Art Van didn’t deserve to die. Hopefully, we can learn lessons from another sad retail tale.

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