Retail Rundown – Jan 27, 2020 – with guests Carol Spieckerman and Haniff Brown

Julia Raymond:
Today, we’re joined by Carol Spieckerman and Haniff Brown. Carol is the president of Spieckerman Retail, a globally recognized retail consulting training and speaking firm. Carol is also a trusted RETHINK Retail advisor and Rundown regular. Haniff is the founder and CEO of Fit:Match. Before starting Fit:Match, Haniff worked in private equity, where he evaluated new investments across the retail industry and helped existing portfolio companies to scale their businesses.

Julia Raymond:
Carol, Haniff, thank you both for joining today.

Carol Spieckerman:
It’s a pleasure.

Haniff Brown:
Thank you so much.

Julia Raymond:
Great. So the first topic of three we will go over today is Bose. They just announced they’re no longer going to be a physical experience, so the audio equipment retailer announced earlier this month it’s closing its 119 brick and mortar locations across not only North America, but also Europe, Japan, and Australia. They’re citing a dramatic shift to online shopping in specific markets as the reason for closing, and they will continue operating physical stores in select parts of Asia, including China, India, and the Middle East. For the rest of the world, Bose is refocusing its efforts on e-commerce and third-party sellers.

Julia Raymond:
Carol, during this time when retailers are becoming increasingly experience-focused, everyone says DTC brands are now opening stores, is Bose’s plan to cut its physical presence a smart strategy?

Carol Spieckerman:
Well, I’ve been saying for a while that the store is still the core. We found out, of course, that stores are no longer liabilities. They can be major assets for retailers that learn how to pull those synergies together between bricks and clicks. And they’re just a great way to keep your brand out there. But you may remember that back in the early ’90s when Bose went into this retail business, this owned retail business, they were framing it at that time as just an experiential opportunity, as a way to engage with their customers, a way to gather insights on new products.

Carol Spieckerman:
So Bose, by doing that, was basically tempering expectations that that would be a profitable operation, right? Well, 119 stores later, and the expectation starts setting in. So I think that’s what happened is initially, they started with a sort of flagship strategy and then they somewhat drifted into a larger scale operation and the expectations were heightened as a result. So I think that Bose would have been better served to stay with more of a flagship model, just a handful of stores to keep the brand out there and introduce new products and do events and that type of thing, and then to really double down on those wholesale relationships. Particularly, you look at a retailer like Best Buy that really is a flagship location for some of the brands that it carries, so they can pick up a lot of that way.

Carol Spieckerman:
But also too, the shift to online shopping, that’s a nice catchall explanation for closing stores. It’s a good go-to, but you have to also look at how Bose’s portfolio has shifted their product portfolio because they’ve gone from everything being so heavily weighted toward these big sound systems and solution sales that really benefit from demos and person-to-person interactions. And now they’re doing earbuds and headphones and things like that that can easily be sold in a digital environment. So I think just as much as anything, the shift in their product portfolio rationalizes cutting way back on the stores. But I think they probably never should have gone to that scale to begin with.

Carol Spieckerman:
But all of that said, we’re still going to be seeing these digital natives opening stores. Stores are still very important in the equation. Bose isn’t even getting rid of all of their stores, just primarily in North America. So the store is still the core, but that doesn’t necessarily mean that every brand has to have lots of them. And I think Bose certainly falls in that category.

Julia Raymond:
So Carol, what I heard you said is store is still the core. You’ve been saying that. You think Bose should have never gone to that scale to begin with, but there’s still a benefit to keeping a flagship model and you think maybe that’s what they should’ve done while focusing on their wholesale relationships.

Julia Raymond:
Haniff, do you agree or disagree?

Haniff Brown:
No, I totally agree. And Carol just mentioned something that I also want to reiterate where you see the headlines and you see some of these news releases and it seems like everyone is just copying and pasting the same rhetoric that it’s because of the shift to online shopping but not really sort of getting more specific. And while those macro trends obviously are there, I think it’s a much deeper issue. So as Carol mentioned, did they scale too quickly? Was the site selection as ideal as it could have been? Was it accelerated because of the shifts in product assortment?

Haniff Brown:
But when I think about just that category alone, when I purchase headphones, that’s an in-store experience to me, especially if it’s new headphones. The sound quality is very important. I cannot just read a review. Comfort for me at least is a big, big plus. That has to be sort of one of the most critical items that I check the box for before I purchase headphones and other equipment, and obviously style. So I do think that it clarity was a big strategic decision for them to close that many units in North America. And probably they do feel confident that they have strong relationships with their other wholesale partners. Maybe they’re going to expand store-within-store to get much more experience-based retail through their wholesale partners. But for the most part, it seemed like it was a confluence of issues rather than the headline press release would make it seem.

Carol Spieckerman:
Yeah, I think that’s a good point. A lot of these things become so black and white and they become pass or fail. Closing stores isn’t necessarily a failure. It can just be a shift in strategy. So totally agree with that. You have to parse all those details to get the full story.

Julia Raymond:
And I love how Haniff said audio is an in-store experience because I think a lot of listeners would agree with that and have gone into stores and tried out new headphones or audio equipment to get the experience before you buy. I will say, if you look at some of Bose’s competitors like Sonos, they didn’t even open their official store until 2016, a few years ago. All of their operations were through different retail locations like Best Buy, et cetera. So it’s interesting that Bose had so many stores to begin with like Carol said, but there was a bit of a tech boom I think in the 1990s, early 2000s where it made sense. And Carol, to your point, you said the equipment is just becoming smaller in some cases where a lot of the purchases people are making are earbuds and things you don’t necessarily need a personal selling experience to buy.

Carol Spieckerman:
Yeah, great call-out. Yep.

Haniff Brown:
I agree.

Julia Raymond:
So it’ll be interesting to see how they’ll keep driving awareness and what brand partnerships they will form because that was mentioned in their press release.

Carol Spieckerman:
Yeah.

Julia Raymond:
So the next retailer we’ll talk about made big news last year, Payless. It made history because it liquidated all of its US retail locations last year and that was 2100 stores, the largest liquidation by store count in US history. A recent press release showed that they are shaking off their bankruptcy blues and reportedly planning a return back to the US retail landscape. I don’t know exactly what that means yet, but it’s interesting to note they still have a presence in South America, Southeast Asia, and the Middle East, where the company has collectively sold 25 million pairs of shoes over the past 12 months. So Payless’ new leadership team says it’s focusing on efforts on new technologies and streamlining and optimizing customer experience.

Julia Raymond:
Haniff, I wanted to pass this to you first and ask what challenges do you foresee Payless facing as it attempts to reenter the US market, and what do you think this will even look like?

Haniff Brown:
Yeah, I mean, it’s such an interesting story. Clearly their bankruptcy was large and prominent, and so you wonder as others emerge from bankruptcy, what their playbook will also look like. So I do think that it is almost a … People are watching and seeing how this one goes because they know there are a few others in their shoes that would want to reenter the market. I do believe that Payless is such an iconic name where there’s sort of this embedded amount of perceived value and where I think about value right now and the concepts and the retailers that are doing very well, on the value end of the spectrum, whether it’s a TJ Maxx or Target or whatever it may be, I do think that there is space for them still in the US market.

Haniff Brown:
However, I think as they reenter, they really do have to think about doing things differently in terms of, for one, reducing their square footage. I do believe that the Payless experiences that I remember, it just seemed like a lot of inventory, and as you think about retail of the future, it really should be about three things in my opinion. One is showrooming, right? And decreasing your inventory counts, really giving the customer a showroom of inventory. Two is about the experience and educating the customer through that experience in really data-driven ways. And three is fulfillment, so your story, your four walls should really be used to drive your fulfillment on the back end, not necessarily be used as a vehicle to deliver inventory to customers.

Haniff Brown:
And so I think if they take a very aggressive look at decreasing that square footage and focusing on those three areas, they already have such an iconic name and an embedded amount of perceived value in a macro environment that really supports value at this point that they should emerge successfully as long as they don’t go too quickly because of the halo of the brand name.

Carol Spieckerman:
Yeah, that’s a great take. And Haniff I think hit on the keyword, and it’s also the word that Payless is using, and I think it points to the direction that they’re going to be going, which means they won’t be competing in the same arena as they were before, and hopefully not making the same mistakes. Haniff was saying it’s an iconic brand, and it’s interesting. Payless keeps using that term as well. And you also look at their choice of their CEO. Now, this guy came from a mega licensing company. Again, there’s a lot of talk about branding in their releases and that’s just what you think about is how good is the brand. So to me, this points to Payless taking a licensing and intellectual property monetization approach. I think that’s what’s going to kick in next and that’s going to be their next chapter.

Carol Spieckerman:
And this also would point to them, I think, having a much more efficient business model to where they can re-energize the brand through partnerships rather than attempting to rebuild their physical scale. I really don’t see them doing that. So they can let manufacturers or even other retailers serve as their licensees. They can license the Payless name for various categories. They can do shop-in-shop concepts, any number of partnerships with others that already have the physical space. And then they can just watch the guarantee and royalty checks roll in. I mean, at least I think that’s going to be a big part of their strategy.

Carol Spieckerman:
But also speaking to what Haniff was saying, hey, it’s a well-known brand. Everybody’s heard of it. I think they’re going to have to strike while the iron is hot. Memories are short and consumers move on to other brands. So while they do enjoy that recognition, I think they’re going to want to launch this next stage strategy sooner than later.

Julia Raymond:
Certainly. And I think you had a really smart point about the CEO and his background that tells us a lot about what might happen. I love your prediction that they’re going to take the licensing and IP approach and potentially have store-in-store formats, and I love, Haniff, what you said about retail of the future, decreasing inventory count and focusing on customer experience and fulfillment. I think those all will funnel into what Carol said in terms of not making the same mistake and competing in the same arena as they were previously.

Haniff Brown:
Yeah. I think another analogy to this is the recent Toys R Us comeback and how they came up with sort of this re-energized new format still using the iconic nature of the company to drive momentum, to drive press, to drive awareness and still use all the relationships that they once had with those toy vendors to present something new to the market that could be scalable. I know it’s early days, but at least that’s an analogy as to how using a strong brand name could really be reused almost with the right strategic context to give a very value-add experience in this new age of retailing.

Carol Spieckerman:
Well, what’s interesting is, I work a lot in the licensing world and have for years, and it really speaks to a shift in the licensing world too because it used to be all about creating a cool brand and then putting it out there and signing up licensees in various categories and then expanding those categories. Well, now you see the licensing industry sort of taking over as a next stage strategy for some of these defunct retail brands. So it’s changing the intellectual property world and it’s also becoming a completely different strategy for some of these retailers that haven’t made it in the brick and mortar space or have had to scale way back. So it’s going to be really interesting to see what they do with it.

Julia Raymond:
And Haniff, you made a good point about Toys R Us because they are making some changes, especially in the US market. But I do note, I was speaking with the director of marketing for Toys R Us Canada, which a lot of people don’t know is separate, and they are doing really well with their stores, and Payless is still having operations in South America, Southeast Asia, Middle East and doing well. So I think the licensing approach is good, but what about margin, Carol? Is that a concern? And are they still going to be able to offer the competitive price points that they’re known for?

Carol Spieckerman:
Well, that all depends on who they partner with. The licensing model, when it’s humming, is pretty great. You don’t own the inventory, you can forge these direct relationships, other folks have to hold the inventory and manage all of that. And again, you just sit back and collect the guarantee and royalty checks. I don’t mean to oversimplify it, but that’s why we saw the emergence of so many pure brand marketing portfolio companies several years ago, and some of them are now having to recalibrate their strategies because it just became such an efficient model to just own the intellectual property and then have everybody else carry the burden of inventory and so on. But I think it is not going to be the entire strategy for Payless. But again, hiring that powerhouse licensing CEO really does point in that direction or that being very heavily weighted toward that strategy.

Julia Raymond:
Absolutely. Well said. And I’ll quickly move to our last retailer we’ll discuss. It seems a little unfair how much we have them on the Rundown, but it is Amazon. So we are talking about their product, the Ring, which is their video surveillance company, and they had last December marked their biggest sales month to date. It grew in the US by 180% compared with year over year. So the news comes amid a slew of reports highlighting the problems they’ve faced with hackers and growing public concern over the privacy issue. And we attended NRF earlier this month and data privacy are still even more so on top of everyone’s mind. In fact, they even had former speaker of the house, Paul Ryan, there to talk on the matter. Carol, as the world becomes increasingly more connected, how much privacy are consumers willing to sacrifice when it comes to tech?

Carol Spieckerman:
Well, unfortunately, I think the question assumes that consumers are still in the driver’s seat. I think the problem is that a lot of consumers don’t know how much privacy they’ve already sacrificed and how far things have gone beyond permission and how many decisions have already been taken out of their hands. So to me, the Ring story, yeah, it’s interesting by itself, but it really is more than just sort of a cautionary tale about privacy and transparency. For one thing, it does speak to something I’ve been talking about for a while, the growing scrutiny around Amazon in general because Amazon, one of the doggone unfair things about Amazon is it’s not just a retailer. It’s competing. It has so many other pieces and its portfolio, so many other business models and it has its tentacles extended into all kinds of things.

Carol Spieckerman:
So for them, Ring isn’t necessarily a profit center. Of course it’s just a blip and their overall story. But it is a critical link to things like facial recognition and other capabilities that Amazon is harnessing for government contracts and all kinds of things. So to me, this isn’t just a consumer privacy issue or even a data privacy or transparency issue. It’s quickly evolving into having concerns about tracking and even surveillance. Not to be alarmist, but you may have seen that the New York Times has actually been doing a series on that and how far all of this has already gone and it extends way beyond just concerns about retail.

Carol Spieckerman:
So I think on the consumer side of things, unfortunately, I think it’s going to take more of a form of backlash and reaction as consumers gain awareness of what’s already happening, more than it’s going to be proactive decisions, or let’s just say that any proactive decisions that consumers make frankly might be sort of meaningless or a little bit too late. And I don’t mean to be doomsday about it, but I think things have progressed beyond what a lot of folks realize. That’s not to say that retailers don’t need to give a nod to transparency, they don’t need to play along with that from an image perspective in the retail space.

Carol Spieckerman:
But I want to hear from Haniff, because I think when we were talking earlier, Haniff, if you were saying that you had some really interesting statistics on how new generations of shoppers are perceiving all that, and that’s really going to dictate where it goes next.

Haniff Brown:
Yeah. Well, I do agree with you that part of the issue is that a lot of us don’t know how much data is being collected and where data really lives. So I’m founder and CEO of Fit:Match, and we basically are an online, offline sort of omnichannel technology platform that uses biometric data that we collect in very sort of high experienced AI fit shops across the country at the retail level. So we actually focus 99% of our time and effort on understanding data and providing through a value exchange biometric data of our customer base very privately and safely to brands. And those brands now have incremental information on the customers that we provide them with to target them based on biometric data.

Haniff Brown:
If you really think about it, when a brand spends dollars advertising on Facebook and Google, they really don’t know anything about on the biometric side in terms of the body shape, the fit profile, the fit preferences of the customers they’re targeting. And so we’re using data to ease that friction so that the brands can actually target people based on their fit.

Haniff Brown:
And so we’re seeing some really interesting stats and behaviors. And one of the biggest things that we’re seeing is a generational gap. Typically, our average customer today is 22 to 24 years old and she, because it’s majority women right now, she has sort of grown up in an environment where there’s not a mistrust of technology, where there’s not concerns or so forth around data protection. And so we’re getting very little friction from the Gen Z/millennial market.

Haniff Brown:
And one of the biggest things is that they’re saying, “Look, if I can interact with this platform for three to five minutes out of my life and you guys are going to connect me in this very unique way to brands, that’s a value exchange and I’ll sign up for it any day of the week.” And when you frame it like that to them, there is basically no friction. And for us, we have to be very upfront around the data we collect, the fact that they’re signing up and giving us this data. But the biggest takeaway for us is once there’s real perceived value exchange, issues around data and data privacy and protection, especially for that Gen Z/millennial market, really isn’t as massive versus other generations and age groups where there I think is still a larger mistrust of data and technology.

Carol Spieckerman:
That’s interesting. So you’re saying the awareness is there. It’s not like they’re blindly saying, “Oh yeah, I trust you. This is cool. I’m in.” You’re saying they’re very aware and they’re still opting in.

Haniff Brown:
Exactly. So we expected about 30% to opt-in. We’re seeing numbers at 80 to 90% based on the demographic are opting in. But they understand by opting in, they expect the value exchange, right? So it’s one of these things that if that value exchange isn’t perceived clearly by them, then yes, there’s issues around, “Well, what am I doing? Am I giving too much? What will you use it for?” Once you can clearly articulate that, you can break down a ton of barriers in terms of what they’re willing to sacrifice and their perception of data transparency.

Carol Spieckerman:
Well, I think too though, when you’re looking at your business as kind of a very self-contained ecosystem, that’s one thing. And I love your terminology, talking about value exchange. I think that’s something that every retailer should just really be thinking about, like, what are they truly giving of value back for what they’re asking? But when you look at a platform like Amazon to where it goes so much further and there really isn’t the full awareness of how far it goes, I think that’s where the scrutiny is really starting to flare up and perhaps for good reason, because again, Amazon is not just a retailer. So when you’re talking about Amazon, it goes way beyond just a conversation about retail and privacy.

Haniff Brown:
I totally agree. They don’t like to be surprised is sort of my biggest takeaway is that yes, they know that that’s happening. They’re signing up for it, they’re signing up for Ring security at home, all that stuff. But the minute that you say to them stuff like, “Okay, well, we’re actually using it to track something else,” that’s when the red flags go off and then they start to perceive the entire system negatively.

Haniff Brown:
Another example of this really quickly is Ancestry DNA.

Carol Spieckerman:
Yep.

Julia Raymond:
Guilty.

Haniff Brown:
Yeah. And so they’re sharing now really valuable data with these large pharmaceutical companies that I assume will not only use it and aggregate that data to make better drugs, but will actually start in very similar ways to how we are doing things, targeting people individually based on things that they’ve noticed in, let’s say, your DNA composition, right? That puts you more at risk. And I think I read somewhere where they said like 80% of the people who do it agree to share their data with these big pharmaceutical companies. When the article came out, everyone was like, “Wait, what’s this?” or whatever. But when you actually ask these customers, they’re like, “Yeah, I did it because I sort of knew that it was going to an advantage.” And so that’s what we’re seeing is that you have to be completely transparent, not surprise a customer, but that value exchange education is so important.

Julia Raymond:
Absolutely. And personally, back to just the clothing fit example that you gave from your background and your company, I would personally love for there to be a time where I can do online shopping and see what the clothes would look like on me instead of the model that they’re showing. So I think potentially that’s where we’re headed. But Carol, your point on Amazon, maybe having … You didn’t say this exactly, but the way I interpret it is it could be a long play with Ring because that probably is not a profit center for them right now. But imagine how much data that they’re collecting. I don’t think people truly understand, when companies talk about the data marketplaces and third-party sellers and anonymizing the data, there’s so much data, even though it’s anonymous, they can almost track back to [inaudible 00:30:41].

Carol Spieckerman:
Right. Yeah, it’s all part of it. Amazon, to their credit, they don’t dabble in things just for grins or even just to grab a little bit of market share here or there. It all fits into a larger story. It’s a small jigsaw piece that’s part of a larger story or they wouldn’t be doing it. I’ve been saying for a while that there was a … For many years, poor Walmart got all the heat, everything from putting companies out of business and even some data concerns and all of that. And now, wow, is that shifting. Amazon is finally starting to get some of that scrutiny and people are starting to realize just how those tentacles extend into other businesses and what the ramifications of that might be.

Julia Raymond:
I mean, they can track how many times you come and go out of your house or anyone that lives in your house, the number of visitors, the number of deliveries from competitors because they are competing in that space as they have their own fleet in some areas. So yeah, really interesting stuff. And I just wanted to end the Rundown with, it sounds like you both agree, but if there’s any disagreement, let me know because our recent guest on the show, Jacob Pat, CIO of Champion Pet Foods, previous CIO of Canada Goose, he said, “If you talk to some of the millennial generation, they’re willing to sell absolutely everything they have on themselves if it can make their life better. And if you can give them a positive experience, they’re like, ‘Okay, thanks. Great.’” Do you guys 100% agree with that? Is there any disagreement there?

Haniff Brown:
So personally, I have to be a little bit careful on how I answer this one. I do believe that, as he puts it very well, they are willing to actually do that data exchange, a value exchange with you and go to an extent that I think a lot of people don’t think they will go to if it is clearly articulated to them the benefit. So in a very roundabout way, I do strongly agree with what he’s saying.

Carol Spieckerman:
And as for me, I’m wary of generalizing statements like that, that are sort of unequivocal, because I think anytime you generalize about any group of people, and especially even from a generational standpoint, there are always going to be exceptions and mitigating factors, but I think Haniff has talked really articulately about those mitigating factors and how to mitigate the concerns that might be there, even if it’s with a small minority of these new generations of shoppers and to troubleshoot on those factors and to simplify the language around it to where it doesn’t become overly complex and throw up even more flares. But I think by and large, yes, I think this new generation of shoppers are definitely much more, in a sense, transactional about it. You give me something, I’ll give you something, done deal.

Julia Raymond:
Well said. Definitely. Carol, Haniff, we had a great show today. Thank you both for joining and sharing your insights on these three topics.

Carol Spieckerman:
It was a pleasure. Great to be with you. Great to meet you, Haniff.

Haniff Brown:
Of course. Same here. Likewise, Julia and Carol. This was fantastic. Thank you.