Retail Rundown – April 13, 2020 – with Gary Newbury, AJ Mak and Ricardo Belmar

Julia Raymond:
Today we’re joined by Ricardo Belmar, Gary Newbury and AJ Mak. Ricardo is the senior director of global enterprise marketing at InfoVista and a retail influencer with 20 years of industry experience focusing on digital transformation. He’s also a RETHINK Retail advisor. Gary is one of Canada’s top internationally seasoned end to end retail supply chain executives. AJ is the founder and CEO of Chain of Demand, a predictive analytics company that uses AI algorithms to minimize inventory risk and maximize margins for retailers. Thank you all for joining today.

Gary Newbury:
Thanks.

Ricardo Belmar:
Thank you for having me.

AJ Mak:
Thank you for having me.

Julia Raymond:
It’s great to have each of you. And let’s just kick off here with some general thoughts. I want to pass it to Gary first and get your take on the pandemic and any insights you might have specific to the Canadian market, how spending is changing, what retailers are closed. What are you listening to right now?

Gary Newbury:
Yeah, well the epidemic, it kind of has a number of kind of starters around about how we reacted as consumers, how we reacted in the retail community, how the government reacted. So there’s lots of things going on and all acting at different times. So it became sort of public knowledge there was something going on and something might need to change and everyone was starting to get a bit worried. So they went out and bought lots of toilet rolls because they saw it on social media and whole areas of stores became vacated, shelves became vacated very quickly. And that triggered a reaction of grocer to say, “Oh my goodness, we have to do something around.”

Gary Newbury:
And then all of a sudden the ones which were heavily affected by it, which was typically for grocers pulled in lots of people. The warehouses went into 7/24 operation, extra shifts and whatever. And I reached out to a whole bunch of retail for leaders to say, “Okay, I want to examine the components of the supply chain, how risk needs to start to be a re-evaluated. But I want the context of this. What do we think? How do we think consumers might react? And what are the kind of time periods over different levels of confinement, the financial risk, et cetera, exposure to COVID-19? How will that impact our consumer’s mindset? And how will that then drive buying habits, which will then drive retailers response?”

Gary Newbury:
So what is kind of flushed out at a very high level is that we’ve been quite lazy thinking in terms of the supply chain. We’d like to think that the grocery and the food supply chain is very lean. And it’s been leaned down, stock has been removed, which allows us to sell stuff at dead cheap prices. Well, what this had kind of opened up is the fact that our business continuity plans have been quite flawed because nobody actually evaluated the risk by whichever may have caused it, but the risk of borders closed and what happens next. When we single source into Wuhan or China or Vietnam or wherever else is on an extended geographical basis. What happens when there’s a break in the continuity And then extended break in the continuity. What happens next?

Gary Newbury:
So I have issued some sort of general advice as to what things that retailers should be doing. And when I talk about retailers, and I’m going to be very Ontario centric, we announced a state of emergency, which gave the government powers to demand certain areas of businesses to close down now and certain behaviors of consumers, people, to not go here now or to impose social distancing. And that’s actually been quite effective. Their first attempt to define an essential retailer or essential business as call it that way was very long. And I looked and I said, “If I was an apparel retailer, I’d be feeling a bit slighted because many of my other categories, how can that be essential? So how are the big box stores still open?” Until Sunday last week when big box stores apart from grocers were all close. So you could only be a grocer or a pharmacy and you were essential. So that’s really focused both for supply chain activity and also open up opportunities for other retailers to continue a revenue stream.

Gary Newbury:
So yeah, consumers are still, they’re still in this honeymoon period, they’ve had this fun. We’re watching Netflix we’re popping out to the grocers now, we’re having these cute funny cues that we have to stand six feet apart, it’s great fun. But if this goes on for another month, two months, it could be three months, who knows? We don’t know. That’s the uncertainty that will start to impact on people’s perception. Their perception of time is now going to be quite distorted from a normal routine. But they have the honeymoon period. But at some point it will start to dawn on them and people who’ve got exposed to Boris Johnson being taken ill It’s like we may not know anybody but L but we do know maybe, certainly I do know the prime minister of England or prime minister of the UK. Now slowly it’s becoming more real now we’re probably feeling we’re confined and now we haven’t got very much money. Now how does that play out in terms of consumer behavior?

Julia Raymond:
Good point. Scary on the supply chain, the impact to the consumer mindset, and some specific things too on Ontario where you’re based. AJ wanted to pass it to you because we’re really interested in how the economy is recovering and Hong Kong and greater China and what you’re seeing there.

AJ Mak:
Sure. So in the past few months, particularly in January and February, the overall retail sales in China dropped almost 21% compared to a year ago. We’ve seen some retailers who have experience sales reductions of up to 70%. So the short answer is that the impact was hugely negative on the different retailers in the nation.

Julia Raymond:
Wow, up to 70%.

AJ Mak:
Yes. So you can imagine the kind of layoffs that would be required to sustain that kind of business. While the economy is starting to resume activity. Overall, I would say consumers are still very cautious about how they spend their yuans because there’s still a lot of fear and uncertainty about what’s going to come next, whether it’s going to be subsequent waves that the virus, a global recession, which is going to affect everyone. But also their spending power has taken a huge hit. So people, consumers, they are expecting to have lower incomes in the coming year from at survey of different consumers only 8% said that they would spend more after the outbreak. So that means 90% are going to either continue to spend the same level, but most of them would say they’re going to be more cautious about how they spend their money.

Julia Raymond:
Wow. And did you say 90% are cautious? Is that the number I heard?

AJ Mak:
Yes.

Julia Raymond:
Wow, nine out of 10, that’s huge.

AJ Mak:
Yeah, it’s definitely a major shift in how consumers are going to behave in the coming quarters. There have also been about 8 million people who have lost their jobs in China and that’s only in February.

Julia Raymond:
Potentially have gone up since then, you think significantly?

AJ Mak:
Yes, for sure. And that doesn’t take into account the number of people who are on unpaid leaves.

Julia Raymond:
And are you seeing any retailers that have taken interesting tactics or strategies during this time? Is there anyone that stands out? I know it’s probably more centered around the grocers, but just in general.

AJ Mak:
I’ve seen some retailers actually from the US that have been working closely with their supply chains to come up with innovative ways to navigate this crisis. But in terms of the different retailers in China, a lot of them have been focusing more on eCommerce as well as social selling. So that’s been a trend for a lot of the companies. Whether local, I mean domestic or international brands, it’s become a trend that started with the coronavirus, but I think it would definitely be more of a focus even afterwards.

Julia Raymond:
And when you say social selling, do you associate that with influencer marketing or is it separate?

AJ Mak:
Yeah, I would include influencer marketing. It also includes live streaming, which has become very popular in China even before the virus. But now we see either international brands doing more live stream events and I think this will be the way forward for a lot of brands in China.

Julia Raymond:
And for your company, do you focus at all on supporting social selling? I know it’s probably a bit difficult for companies to have really strong analytics behind social selling at this point.

AJ Mak:
Oh we do because we do take into account social media data. Especially your four brands that we work with that sell on eCommerce platforms. So besides tracking the eCommerce data, we also track how different events that they may be hosting or a different social media posts that they have been posting online and how all that relates to the different effects on sales.

Julia Raymond:
Because I do wonder if many companies have those capabilities in place just yet. Now would be a great time to have them. Are you going out AJ? Are you back to business as usual? Or are you and your family kind of still staying in?

AJ Mak:
We’re still staying in. Our team is working from home and we have been for the past few weeks and we expect to do so for the next few weeks until things change, especially how the government determines what companies should be doing. We do have very strict social distancing rules, but that doesn’t mean we can’t go out and meet our friends and family, have dinner outside. We just have to be cognizant of limiting the number of people that we gather each time and making sure that we’re not too close to other people, other groups in a particular restaurant, for example.

Julia Raymond:
Okay. But it sounds like restaurants are back open and people are meeting within their families and friend circles.

AJ Mak:
Yep.

Julia Raymond:
Great. Well AJ thank and for everyone listening, AJ is joining late at night his time, so we really appreciate him being on to share some insights from the APAC side. And Ricardo here in US I wanted to ask if there’s anything that you found surprising during the pandemic so far in terms of the impact your retailers or how retailers are responding?

Ricardo Belmar:
Yeah, there certainly is a lot happening. I mean, I kind of sum this up as, this is becoming a tale of extremes where you’ve got obviously an unpredictable environment. You can’t pick any element of this that you can safely say any retailer could’ve planned for at this point. And I’d say that’s true, whether it’s large retailers or down to small independent retailers. Everyone’s having a challenge here, particularly when you’ve got, I think it was just realizing the other day that a lot of things have been posted about the off-price apparel stores. And how you know what we come out the other side of this, they’re just going to have this bonanza of ability to buy so much discounted apparel that manufacturing brands are going to need to get rid of somehow to decrease inventory or that department stores won’t have a use for.

Ricardo Belmar:
But then I just noticed, for example, the latest a note from TJXs CEO, that they’ve not only shut down their stores, but all of their distribution centers are currently shut down so that they’re not asking any of their employees to risk coming to work for the near term. Which has the side effect, right, that means their sales are down to zero. Granted there they were not a very large eCommerce set of brands to begin with. Marshall’s only just started theirs last year. I think they have home goods they have I think they claimed three of their brands have eCommerce site. So it wasn’t a big percentage to begin with. But they’re facing a reality of, at least for now, zero sales. So how do they come out of that and what’s their ability going to be to then look at a market that’s looking to them and saying, “Hey, we’ve got all this great inventory from you.” Will they be able to ingest that into their own distribution or are they just going to have to be choosier about what kind of merchandise they pick up. Which may have an uplift in and of itself.

Ricardo Belmar:
But that then leads you to the discussions of, which I’m sure we’ve all seen plenty of in social media is, is there really going to be a pen up consumer demand a few months from now? Or our lost sales just that, lost sales? I’m in the camp really that a lot of these things where we’re asking the question, will there be pent up demand? It’s seasonal in nature to begin with. So the fact is were essentially skipping a season on the apparel market right now, so if we come out of this and it’s after spring, are you still going to be suddenly in the mood to buy a lot of spring clothing? For most consumers probably not.

Ricardo Belmar:
So I really think that lost sales or lost sales and it’s going to be more a question of, what of this can a brand save for a year? Can they bring it back out and it’s still be all right next spring? I expect we’ll see a fair amount of that.

Ricardo Belmar:
And then when you get down to the level of independent retailers or restaurants for example, I have been impressed with some of the creativity that’s starting to show up.

Ricardo Belmar:
Just today was reading about restaurants who are kind of turning into these sort of pop up bursary locations because I originally hadn’t seen a lot of talk about this, but if you think about the restaurant industry, there is a lot of food supply chain there that’s dedicated to restaurants. That’s not the same people distributing food products into what consumers have access to. Well with restaurants closed for dine-in, there’s a lot of supply that that’s potentially going to go to waste if it’s not moved in a different way. So you can see restaurants trying to turn things around, and some cases I saw partnerships with H-E-B grocery store, where they’re taking things from their menu and repackaging them for sale in the grocery stores. So, at least at a local level, people who are familiar with those restaurant brands can still find those menu items at the grocery store. And then, the restaurants themselves taking things and taking some of that product and converting it into just pure grocery sales on make-shift tables they may set up out front outside the restaurant itself.

Ricardo Belmar:
So, I think a lot of creativity around controlling waste, how can I keep those lines of communications with consumers and customers, those are the things that have impressed me the most. And then, probably also that we haven’t had enough discussion, I think, about what this trickle-down effect is going to be into the supply chain and into the manufacturing of all of these products that we’re all so used to seeing all the time.

Julia Raymond:
Mm-hmm (affirmative). And that’s a great segue because we’re going to dive a little bit deeper into the supply chain next with some news. So, last week, Nestle’s CEO, Mark Schneider, warned that the business must get ready for a big storm. He mentioned supply chain challenges that are expected to intensify amid this global pandemic.

Julia Raymond:
And in the US, the Institute for Supply Chain Management, they put out a survey last month revealing that nearly 75% of companies are experiencing supply chain disruptions due to transportation restrictions related to COVID-19. So, there are a lot of supply chain problems being reported that maybe weren’t just a month ago. So, I wanted to throw the question out there. What challenges are retailers facing because of this? Are these long-lasting? Are there changes that they need to be making? And I can throw this out. Who wants to take on that first?

Gary Newbury:
If I can just jump straight in, because I think retailers, and this is just in general, have been… I want to say, benefited from people who are really good at moving things around fast. I mean, the whole supply chain is supported by bunches of people, normally in silos doing logistical things. So, there’d be people placing orders on the suppliers. They’re people in supplies, sending orders to the manufacturing plants and stuff like that. And people in the warehouse picking stuff, putting them on trucks.

Gary Newbury:
But we don’t always get a picture of it’s a horizontal process and it should be really joined up. So, if I’m an average typical retailer, the only time I come into contact with supply chain is when it goes wrong. So, I’m running a promotion that I haven’t got the stock in place. It’s not in my stores for sale. It’s in the flyer, but the stock’s not on the shelf.

Gary Newbury:
And I run down to the warehouse and say, “Get it fixed!” And the guys in the warehouse go, “Al right. Okay. Order a truck. Get to the supplier.” And running around like crazy people, headless chicken almost, because they’re brilliant at firefighting, and that’s one of their… I wouldn’t say benefit, but it’s a double-edged sword because they fix things a lot. It disguises the fragility of the overall structure, the scope of the supply chain.

Gary Newbury:
And that’s another thing, that the retailer won’t see the whole size of the supply chain because it partitions parts of it into different parts of the business. So, in merchandising, you may have a re-plan team. That’s actually supply chain. That’s all part of this process for getting stuff to the shelf or into the customer’s hand at residential address.

Gary Newbury:
So, what would trigger a reinvention of supply chain if it isn’t COVID? Well, if we just follow that same pattern and think on a day-to-day basis, they’ve run down into the warehouse and pointed a finger and shouted at somebody, and it gets done. So, this is just a bigger version of that. Is it big enough for people to say, “Oops! I haven’t really understood this thing. I haven’t really had much of an interest. I just go down and shout and point the finger and the things get done, and my shelves get full. But my shelves aren’t getting full. Is it those bonker people in the supply chain just aren’t very good at what we need them to do?”

Gary Newbury:
And I think there’s a paradigm shift that retailers have to go through, which says, okay, the world has been formed since 1927, based on this guy called Paul Mazur, that the only things that count in retail, in our stores are merchandise. Everything else is peripheral. It just gets done somehow.

Gary Newbury:
What I’m saying or what I think about as I think on and reflect on this, there’s two important functions. There’s the supply chain, if we can actually see it and scope it properly, and marketing, because it’s marketing’s job to actually reposition ourselves so that our supply chain, our ability to deliver value to the customer through giving them… And I’m talking about bricks and mortar now, pride in the product of them wherever they want it. At home, at points of convenience, click-and-collect or in store. We need to realign that whole thinking process.

Gary Newbury:
Now, which retailer is going to put a hand up, it’s like a Turkey thing for Christmas, which one is actually going to say, “I’ve got this wrong. I’ve been in retail for 30 or 40 years. I’ve fundamentally not understood this world. And COVID is a great thing that’s made me have this revelation.” Now, I don’t think you’re going to find that.

Gary Newbury:
And as a result of that, I think that when we think about the redesign of the supply chain function or activity or stream or value stream, if we could call it what it is, I don’t think it’s going to be a much of an appetite. It’s going to be, get over the hill of COVID-19 and go back. Try and recede back to some kind of version of normal and still not deal with the issues that they’ve never dealt with, because they’ve got no interest, are not paying attention or they don’t understand.

Gary Newbury:
And it’s a bit like digital transformation. We don’t really understand it. It’s like those bright young things down in the IT department doing for us, are not sent to do the website and stop them, we’re digitally transforming. Brilliant. But when we think about the supply chain, I think the same level of apprehension, lack of knowledge, or the fear of actually dipping in and going, “I didn’t realize.” They’re not inclined to want to do that because it will expose the paradigm they’ve been living with for many, many years, and have been rewarded for having that paradigm for a long time.

Gary Newbury:
So, my thought is that I’d loved a retailer to put a hand up and say, “We got it wrong. Well, not that we got it wrong, we know where we’ve got to move and we’ve got to physically transform this whole thing, this whole thing we call retailing, into something new that’s going to be fit and proper for the new world we’re facing.”

Julia Raymond:
Absolutely. I like how you mentioned the paradigm shift and how it’s going to be difficult for a lot of retailers to admit that they need to focus on this.

AJ Mak:
I think the points where the current crisis is going to force a lot of retailers to look deeply into their supply chain is a very good thing. So, the COVID-19 situation has exposed just how globally connected all of our supply chains are.

AJ Mak:
So, about a month ago, we saw that there were a lot of retailers trying to move the orders out of China and move it to their other suppliers in Southeast Asia or if it is in Europe. But what they found is that because a lot of their raw materials may be coming from China, trains might be coming from China, they’re also having difficulty to deliver on the goods or the POs that have been placed by the retailers.

AJ Mak:
So, that is in line with the statistics that you gave from the ISM survey about a month ago. But what we’ve seen in the past two weeks is that China’s production capacity has gone back up to about 60% to 80% of the original capacity. And what we’re seeing now is that retailers are actually trying to cancel as many orders as they can from their Chinese suppliers. So, now we have another issue. It’s not the fact that the Chinese supply chain cannot deliver the goods, it’s because there is now a greater supply than they meant.

Julia Raymond:
Wow! 60% to 80% back at the original capacity and yet they’re being pushed down a bit because of the supply dropping and retailers pausing orders, it sounds like.

Ricardo Belmar:
Well, that’s interesting,

AJ Mak:
There’s a lot of retailers, especially even in Europe and US, that are trying to cancel orders left and right. And I think it’s just like a ping pong effect, where the supply chain was hit and supply was below the net. But now that the virus has hit the demand side, switching has changed to where there’s not enough demand for the supply that has been recovered in the past few weeks.

Julia Raymond:
And what are some strategies to solve this down the road in a few months when… I want to say a few months, but whenever things get back to normal, is there going to be… We talked about there’s probably not going to be pent up demand specifically for apparel. Are there other categories that are safer?

AJ Mak:
In terms of what retailers can do, we have been recommending them to work more closely with their supply chains. I think so far, that is the best way to get through this crisis together, working with their suppliers as a partner instead of trying to cancel the orders or to delay payments or to ask for extended payment terms. Because that would just force the suppliers into bankruptcy if we’re going to shut down.

AJ Mak:
So, one of the more innovative solutions that we have heard is that for fabrics that aren’t cut, the retailer is asking their suppliers to change short sleeve T-shirts into long sleeves, so they can then still keep the orders that were placed but basically transforming them into goods that could be sold for the fall and winter season.

Julia Raymond:
So, these are some of maybe the short-term actions that retailers could be taking to not further disrupt the supply chain and the suppliers they’re working without China or other regions.

AJ Mak:
Yeah, I think that’s just one example of what could come out of a closer collaboration with the supply chain. There is definitely going to be a lot more other examples of creative solutions, but the prerequisite is that you have an open channel for suppliers and a mentality that you want to work together to get through this. And I think that is the only way for the industry to get through this.

Gary Newbury:
As you talk to your colleagues out there, AJ, do you think the threat of localized production, the switch from the very extended supply chain, and I’ll probably come back to some of my views around that, to a much more localized solution, which is more responsive, shorter lead times, etc. Say, in Canada and certainly in Ontario, the premier of Ontario is very pro getting that manufacturing up and going again because it got decimated about 12 years ago, 10 years ago, whenever it was through the great recession. Lots of manufacturers just went by the wayside.

Gary Newbury:
For the manufacturers that survived, very quickly retooled themselves to help with respirators, with PPEs, with hand sanitizer. And so, again, this is what we’re going to do. Within a week, they’ve retooled and they’re producing. The fact that they can do that, would also indicate that they’d be willing to do more to probably build more capacity, to set up more factories, do more things that people in Canada want to do, which would displace the demand of products coming from China or at least the finished goods if not more of the elements of the supply chain.

AJ Mak:
Sure. One of the effects that we see coming out of this virus in terms of supply chain is that retailers and companies will focus more on speed-to-market production lines. So, that’s where producing closer to where your market is, is going to have a huge benefit.

AJ Mak:
The difficulty in that is the time that it would take to move a certain percentage of your production away from the Far East and back to a localized production facility. The second issue would be the price and the cost. It always comes down to the price. When we’re producing from Far East, it gives you a cost advantage but it may take longer. So, it’s going to be that balance of costing that retailers will have to do to optimize the percentage that they produce onshore and offshore.

Gary Newbury:
Could I just step in here and just say that 20 or 30 years ago, 10 years ago, when production was done more locally and the retailer was given a bill for local production, and then their purchasing team went off and said, “I can do it for 10% of that cost.” And when we just look at that comparison, of course, why wouldn’t we shift production, just stop using that local supplier and go to that one over there kind of thing, because it’s cheap. It’s a lot cheaper. And our financial systems reward that kind of perspective on numbers.

Gary Newbury:
But when we think about the situation we’ve been in, borders are closed and all of a sudden we’re exposed. We can’t get hold of what we need when we need it. And then, we start to think about how much inventory we’ve got invested in this supply chain. We think we’ve leaned down, but actually we’ve got a pipeline of 4, 6, 7, 12 weeks maybe.

Gary Newbury:
So, if something happens today, some trend I want to deal with today, I’ve now got to put my POs and send them across there. And it could be 12 weeks before they can respond to that. And yet if I had a local supplier who was capable and flexible, I could say, “Look, since you’re going on to my market, can you do [inaudible 00:33:54] tomorrow?” And they say, “Yeah.” “Can you get it straight to the residential address?” “Yeah, I can do that as well.” So, I’m certainly speeding up the thing. I’m maybe building cells, which when…

Gary Newbury:
Beaten up a thing. Maybe building cells, which when we look at the whole business case, not just the one invoice compared to another, we actually look at the whole scenario, take a holistic view on this. We may actually find that there are benefits in actually say onshoring or making it somewhere maybe within North America. Because there must be lots of factories that we’ve capacity that can gear up to do things relatively quickly, versus you know thinking about taking the plants across, installing them, creating a little kind of ecosystem around that.

Gary Newbury:
Because I know that Obama said it, even if we wanted to come out of China, it would take us two years to set up a factory in [inaudible 00:34:42]. It’s not the factory. That’s the easy thing that can be done in the week, but the actual infrastructure around that, to feed that factory will take another two years beyond that to get up and running. But I don’t think we need to be that purist about this. I think we need to see what’s possible with what we’ve got, take bits of it and realize this is a longer-term project.

Ricardo Belmar:
I kind of think too that if there are positives to come out of this, there may be three things that have come to light in my mind. One is this level of detail that’s now being paid to supply chain in general. How many times can you remember in the past having such broad discussions and detailed analysis of supply chain? I think Gary, to your point, right, when retailers thought this before, it was just something that worked. I knew if I pushed a button somewhere, the supply chain guys, whoever they were to care of it. And now there’s a renewed interest, I guess I shouldn’t even say renewed, there’s a new interest in really deeply understanding in intricate detail, all aspects of that supply chain. And what’s interesting to me, I think as well as that now this isn’t just within people that are industry insiders and it’s not just within these organizations. That even consumers, public at large has this new level of understanding of what a supply chain means and just how complex today’s modern global supply chain really is.

Ricardo Belmar:
I think there have historically been a lot of assumptions that people may be incorrectly made about how simple it was. So again, you know what Gary just said. The hard part isn’t necessarily putting up the factory. Sure there are some aspects about tooling it and how investment’s made and how the actual production lines work today versus five years ago. But it’s everything that surrounds it and feeds into it, which are all moving parts in this intricate supply chain that few people really had a detailed understanding of before. So I think that’s a positive that has come to light that more will now have an understanding of what this supply chain is like. And it’s not a matter of answering questions that people may have thought were simple to answer before. Does it need to be localized? Have we gone too far at offshoring production?

Ricardo Belmar:
Those aren’t really the questions that we need to be asking. It’s more a question of how are we using the resources that are there. Certain parts of the world have better expertise today than other parts of the world at different parts of the supply chain overall. And everyone now has an interest in finding the best way to use those components to accomplish the moving of the right types of goods when needed. And it’s not just as simple as saying, “Do I produce it over there? Do I produce it over here?”

Ricardo Belmar:
Those are simplistic questions that aren’t the right ones to ask now. And then along those lines, I think two of the other things that have come from this is this sense of agility. We weren’t talking before about how agile can we make these changes?

Ricardo Belmar:
I think we’ve all just kind of gone through this in the discussion is do I need to take these POs that I’ve placed in one country with one supplier and suddenly do I have to reallocate them elsewhere? How quickly can I do that? I don’t think enough people were thinking of those things before, because no one envisioned having this extreme level of challenges in their supply chain before.

Ricardo Belmar:
And I think that’s another conversation that wasn’t happening before that’s a positive one that will come out of this process. I’d say the third piece that’s been important here is just around communication. I mean, Gary, I think you hinted at this too, that there’s a new level of communication that’s happening now between different previously siloed parts of the Read Thoreau’s organization that relate now into the supply chain that need extra visibility. And I think those types of discussions and communication will change. And then also of course with communication to those suppliers. And farther and farther and deeper into the supply chain, there are more levels of communication that have to be extended now in order to have the agility that you need to be so adaptable. And I think all of these things are areas that will improve now coming out of this that people hadn’t really been thinking about previously.

AJ Mak:
To Gary, and Ricardo’s points, I couldn’t agree with you guys more. I think one of the biggest hurdles in moving production away from China is the infrastructure that it has built over the past 20, 30 years. So now when we talk about the possibility of onshoring again it will come down to communication and a healthy mix of whether raw materials would be produced offshore, and holding those fabrics in your onshore factories so you can be very agile and to produce on demand and increase your time to market. I think that may be one of the benefits of the current crisis, where we start to look at how we can balance onshoring, offshoring to give businesses the highest agility to responding to varying demands and fast changing consumer demands as well.

AJ Mak:
So it’s really not about just the FOB costs, as Gary mentioned. We are strong supporters of looking at the whole business and looking at the total value costs of everything you’re producing. So besides the FOB cost is actually just five or 10% of the total costs of each item. The biggest cost is your holding costs, your markdown costs.

AJ Mak:
Those costs arise when you have an imbalance of inventory compared to the math. So when companies start to explore this issue in more detail, we hope that they will be looking on a more holistic view, which includes the different cost benefits in getting your goods at maybe a higher FOB, but because you can fulfill consumer demand quicker, you also improve your margins.

AJ Mak:
I think one of the things that will really facilitate this transition is data. It’s really because, especially in the fashion or apparel industry where data is not connected between the band of supply chains, suppliers and retailers aren’t able to come together and say, “Okay, this is the best kind of attack. We should be making these kinds of fabrics because of predicted demands for this retailer in this region in this particular season.”

AJ Mak:
When you have transparency with data, then there’s a lot of things that you can do and it makes everybody that’s within the ecosystem more comfortable in holding fabric or holding raw materials or preserving production capacity for a specific time, for specific a retailer.

Julia Raymond:
And that’s maybe why direct to consumer is in a bit of a better position perhaps than department stores right now, would you guys say that?

Ricardo Belmar:
I would say maybe it depends on the product category. I think even there it’s going to vary. I mean there’s no question to me department stores have an even bigger challenge than they already had coming into this crisis. Especially the ones like, Kohl’s, Macy’s for example, are so heavily dependent on apparel. But I think at the same time a lot of the DTCs, I’m not sure that they’re coming out that much better. It really, I do think depends on the product type and the category, particularly if it’s a product category where there are only a handful of DTCs. Maybe in some of these categories there’s been an explosion and there may be 20 of them. I think those more competitive ones, I think they’re going to struggle a little more. And then it also still comes down to, depending on that product category, where is it being manufactured?

Ricardo Belmar:
Where are the raw materials coming? I think there’s no doubt that this whole virus is disrupting them now, just as they were disrupting their category leader before them. Now, that’s what’s going to be interesting I think to see I don’t think I would make a prediction as to how these ETCs will come out as compared to department stores.

Ricardo Belmar:
I think the easy prediction is that department stores are going to be even more challenged than before. I don’t think anyone’s likely to debate that one. Maybe interesting to debate who’s better positioned than others within department stores. There are a lot of factors there just based on their financials coming into the crisis. But I don’t think there’s a clear winner out of those.

AJ Mak:
I think in terms of a comparison between the DTCs and department stores, they definitely both suffer from the same supply chain issues given the current Coronavirus. The one thing I would say that DTC has an advantage on department stores is that they have a lot more data to work with in determining the demand for their products. Because they’re online, they can track the Google analytics data, who’s looking at what in a much faster fashion than the proper stores.

AJ Mak:
The demand side would definitely give DTCs an advantage over department stores. And the second thing with department stores is that they have a much larger burden from the retail spaces that they operate. I think in terms of supply chain, yes, everyone is on the same playing field. But in terms of having the data and knowing what to produce, what decisions to make in terms of placing inventory, DTCs will have an advantage over department stores.

Julia Raymond:
Good perspectives, AJ. Thank you for adding that. Interesting to hear from you guys that you think everyone’s on the same playing field from supply chain, so that’s really good insight. I wanted to hop onto the last subject just really quickly because Amazon Prime is doing something they’ve never done before to keep up with demand for essential items. They are no longer offering the one and two day delivery for its prime members for non-essentials because of the pandemic. And a lot of people are saying, perhaps this is an opportunity for other non-essential retailers that are not Amazon to break into the BOPIS model-

Julia Raymond:
… Amazon to break into the BOPUS model and click and collect services. Do you guys agree with that? Is this an opportunity? There’s the whole thing of consumer demand being down in general.

Ricardo Belmar:
Yeah. I do think there maybe is an opportunity there. From my view, this was probably a great moment for Amazon to shine coming in to the pandemic and I’m not so sure I’d say they have. I’ve seen plenty of reports and stories, and sure they’re anecdotal, but I think it’s enough of them to be meaningful, that the way they’ve handled this hasn’t been the best.

Ricardo Belmar:
Even if you look at it strictly from a PR point of view, they’ve gotten plenty of bad press on a lot of things they either are doing or are not doing. Now granted, that happens a lot when you end up becoming this leader, you get people to really look at you under a microscope and they’re looking for things to be negative. But if you think about what has Amazon been strong at, they have historically been strong at communicating things in a positive way. They are, in a sense, masters at spinning things to make it look like whatever it is they’re doing has a positive benefit and outcome.

Ricardo Belmar:
I’m not so sure they did that. I think if anything that this is an example where the pandemic has shown us that everyone’s susceptible to making a mistake here because timing is everything with this, being agile enough to make the right moves. I think they made the right move to try to focus on these essential product categories to make sure that those they can ship out as quickly as necessary. I think that the volumes that they probably ended up facing with these specific categories and items are volumes that they just were not set up to handle.

Ricardo Belmar:
I think at the end of the day, where does Amazon shine? It’s the ability to move an incredibly wide variety of goods in individually low volumes at a high speed and get them to customers. Now, what are they being asked to do? They’re being asked to focus on a relatively small number of items at very high volumes to an equally high number of customers. I’m not sure their distribution was really optimized for that.

Ricardo Belmar:
And I think maybe they deserve a little bit of credit here for trying to move quickly enough to do that and making the decision that, “You know what? There are just product types that we don’t have to prioritize. They’re not essential right now. It’s okay for them to be delayed.” And that’s why now you go to a webpage on their site, you see delivery dates of April 29th or later.

Ricardo Belmar:
So I think it was a smart move to do that. But then you’ve also got the other things that they’ve gotten the bad press about on how they’re handling their workforce. The workforce has gotten almost, I’d say, as much attention as supply chains during this crisis. And while you maybe can give Amazon some credit in how they’ve moved quickly to handle the supply chain side of it and the distribution changes, maybe not so much on the workforce side, which, to me, is just second characteristic of them.

Ricardo Belmar:
So I would say when you take all of those things, yeah, there is an opportunity. I think Walmart’s been leveraging that opportunity to some extent. I just saw today, I think it was the first quarter 2020 report from E-Marketer about who’s in the top 10 on e-commerce and I think Walmart moved up the list, Target entered the top 10 for the first time in that list. Obviously Amazon is still at the top. I think all of these things aren’t necessarily going to hurt them in a way that’s going to cause them to lose a lot of market share, but if anyone had an opportunity to gain share, it was probably Amazon out of this. And I suspect that when we look back afterwards at who gained, Amazon probably came out around the same level as they came into it and everybody else started gaining at their expense most likely.

Gary Newbury:
Yeah, I think that’s a really great analysis, almost cold analysis of what’s going on. Speaking as a consumer, I do all my impulse shopping on Amazon. I don’t go to the stores to do that, I do it on Amazon because you can just look for anything and say, “Oh look, there’s something I didn’t know I needed. I better buy that.” And all the way up until about two weeks ago, I was still achieving next-day service. And all of a sudden, it went to next month and it’s like, “What happened?” And things that were freely available suddenly became-

Julia Raymond:
We had a thing going. Yeah.

Gary Newbury:
… Yeah. Unavailable and then it might be back in stock and if you place your order, it would be who knows when. So it took me a couple of days to kind of reflect on that. And then the changes in Ontario started to be announced about the restriction in who is a essential retailer and I realized all the big box stores would be closed. And I thought, “Well, some of them have got already existing click and collect solutions already in place. It’s not like a mad scramble to do this.”

Gary Newbury:
So I placed it, placed an order with one of our local providers, Canadian Tire, Home Depot, Lowe’s. And the experience has been absolute… Not just bad, and you kind of give them a bit of, “Don’t worry, it’s a mad scramble.” It’s actually bad. Appallingly bad. I ordered some basic building materials from Lowe’s on Tuesday. I still haven’t got them and I’m meant to be building today. So it’s crazy.

Gary Newbury:
So I contacted one of our sort of internal to Canada magazines that goes out to the whole retail industry and said, “Look, this is so on topic. My experience should guide us that this is a golden opportunity.” If we said a month ago Amazon are going to be in a situation, let’s not call it trouble, but in a situation that they’re going to say to customers who they’ve been delivering next-day to, “It’s going to be a month away.” Those people are going to want to find their needs met for relatively essential things from you guys, our Canadian retailers.

Gary Newbury:
So my experience informed me that we’re not very good at even click and collect. Then I said, “Well, if the customers aren’t able to come into the store, we have a great opportunity for the stores to use as much space in the store as they want.” But their stock should be static, so endure big stock count and actually put that up onto the internet and say, “Here you are, that’s our close to precise stock position. So if we’ve got six on the shelf, we think we probably have got six on the shelf, not four in Mrs. Jones’ basket yet to go through the till.”

Gary Newbury:
So I did a podcast with a colleague and the editor for Retail Insider and I would encourage anybody to go and listen to it if you’re in Canada because there is such a great opportunity for them to win here and to get ahead of Amazon. Because, all right, Amazon do the convenience of doing it to your doorstep but many people in Canada, we still kind of like going to go the stores. I’ve been in here seven, eight years, and I still can’t get over the paradox, they like going to the stores, they like the flyer, they like going to the stores. They still think the flyer informs purchasing decisions.

Gary Newbury:
So if that’s the case and retailers want to continue to build loyalty and have a revenue stream through this period, they must crack the code of click and collect. It can’t be that difficult. I know it’s not that difficult. But the way that they’ve presented them, those three retailers, and I’m not isolating them, it’s just my three attempts to use a click and collect service, this must be widespread across Canada. The people who run these, Lowe’s, Home Depot, large companies, they know how to do these things, Canadian Tire, they’ve got apparently world-class systems. But when the rubber hits the road, appalling, terrible performance.

Gary Newbury:
And I’ve been trying to coin the phrase that when you put your brand entirely online, when you’ve previously really done most of your sales in store, you’re putting your brand on the line. That experience I had with Canadian Tire, I go there every week and buy my [inaudible 00:59:32] and stuff. And I’m thinking, “I’m not going to do that again. If they treat me like that, why should I bother? I’m going to Amazon when they when they get back.”

Gary Newbury:
So this is a great opportunity for Canadian retailers and any other retailers who have kind of said, “Well, most of our sales are in store. Oh, we have to do this thing. Oh, now it’s our only revenue stream because we’re not going to really do home delivery. Certainly not in Canada, it won’t make sense. But we have to crack this. Bring them to the stores, big logo out there, getting out in front of this, revenue stream, keeping people employed who would normally have to be sent home and go on government assistance.”

Gary Newbury:
So this is like a win, win, win, win all over the place. And it’s only because Amazon have taken effectively a month off and allowed the Canadian retailers to stream in there and go, “Look, we can do this. We can make this work for our customers. We can do something here. We can win.” And that’s my message.

Julia Raymond:
Absolutely. And just out of curiosity, because it sounds like, Gary, you’ve had some experiences not so great. I know I ordered groceries online today through Instacart at Aldi up the road and it said, “No click and collect, only delivery. Earliest we can do is tomorrow.” Which was better than last time. It was three days, I had three days ahead-

Ricardo Belmar:
Running a week behind for me.

Julia Raymond:
Really? A week?

Ricardo Belmar:
Yeah.

Julia Raymond:
So I was going to ask Ricardo and then AJ, how are your experiences then with ordering online?

Ricardo Belmar:
At least for grocery in my area, that’s actually pretty recent that Instacart’s been doing delivery. Up until recently, we had the Wegmans chain that was doing curbside pickup with Instacart and then the others have only just recently come on. But every time I log in and I’ve been checking periodically and I hear other people around me doing the same thing, most of the time, and most I mean 9 out of 10 times that you’ll check, it says, “No times available.”-

Julia Raymond:
At all. Oh well.

Ricardo Belmar:
At all. For pickup. So you basically have to put your order in and wait to get notified when an opening comes up. And it has generally been running about a week behind. If you put it in, you’re going to expect to hear in a week that there’s a slot.

Ricardo Belmar:
Now, anecdotally I was just at the grocery store that works through Instacart here just yesterday and I happened to notice how many Instacart shoppers I saw in the store. Normally, I would have expected to see about 10 to 12 at any given time that I just run into in any given aisle. I only noticed two yesterday. So I do wonder if, at least in my area, if part of the reason for this week-long delay is that there just aren’t enough Instacart folks willing to go do the shopping.

Ricardo Belmar:
I think, though, on the flip side to that, our restaurant delivery places are doing great.

Julia Raymond:
It’s true. Absolutely. AJ, what about you in Hong Kong? Are you ordering groceries delivered? Or click and collect?

AJ Mak:
I think for local deliveries, whether it’s within Hong Kong or China, the delivery times have gotten back to normal. It is really the orders I’ve placed on Amazon U.S. that has been telling me two or three weeks for deliveries, which is much longer than I hoped. So, it is good to see that on this side, the logistics of e-commerce deliveries has been going back to the levels that they were previous to the virus happening. And it’s especially important because I do order food for my dog online so I cannot accept week delays for that. But overall, I think on this side is going back to normal. I just wish for Amazon to get back to their solid delivery times as soon as possible.

Julia Raymond:
Mm-hmm (affirmative). And I think we all do but it sounds like everyone agrees there is a bit of an opportunity for other retailers even though some are maybe flopping a little bit on that. So now’s a good time to increase their capabilities.

Julia Raymond:
I just wanted to say thank you, AJ, Ricardo, and Gary for the three of you joining today and discussing some of these topics during this crisis. I really appreciate your insights.

Gary Newbury:
You’re very welcome.

AJ Mak:
Pleasure.

Ricardo Belmar:
Pleased to do it, thank you.