Retail Rundown – Nov 18, 2019 – with Tony D’Onofrio and Carol Spieckerman

Julia Raymond:
Hi everyone. Today we’re joined by Tony D’Onofrio and Carol Spieckerman. Tony is the CEO of TD Insights, a respected industry futurist and recognized global top 100 retail influencer. Carol is the president of Spieckerman Retail, a globally recognized retail consulting, training, and speaking firm. Carol and Tony are also both RETHINK Retail advisors. Thank you for joining the show today.

Carol Spieckerman:
Great to be here.

Tony D’Onofrio:
Great to be here. Thank you very much.

Julia Raymond:
Great to have you. We have some good brands to talk about, namely Alibaba, Amazon of course, and then the Nike breakup. First we’ll dive into Alibaba. The Chinese e-commerce giant smashed sales records last week. November 11th, Singles Day reportedly brought in more than 38 billion in sales during the marketplace annual one-day shopping festival. There were over 200,000 retail participants, and Chinese shoppers spent the most on imported food supplements, cosmetics, toiletries, diapers, and baby formula. Brands L’Oreal and Nestle were also among the top event sellers, and Alibaba, to keep up with all of the deliveries, kept its e-commerce facilities open overnight and reportedly used high-speed bullet trains to move packages across the country. Singles’ Day widely surpassed Amazon’s Prime Day event, and although the American retailer hasn’t yet released their sales numbers from Prime Day, analysts are estimating the amount will take in roughly 5.8 billion. I wanted to ask Carol first, although Amazon and Alibaba operate on a little bit of a different business model, what do you think Amazon and the other eCommerce retailers can learn from this huge success we’ve seen with Singles’ Day this year?

Carol Spieckerman:
Well, it was quite impressive, right? Especially given that this year was kind of an anomaly with the trade situation, and there was some even anticipated backlash, perhaps, from Chinese customers against US brands. It’s going to be interesting to see how individual brands fared, not just Alibaba as a whole. The big learning to me is that retailers are going to have to keep brands interested in their platforms. One thing I talk a lot about is the fact that just a fundamental truth that retailers are no longer just places that sell stuff. They’re platforms, and those platforms now tie together brands and products and data and content, so they have a lot more to offer brands. And going forward, I think everything’s going to be about building platforms, leveraging platforms, and platform partnerships.

Carol Spieckerman:
In that regard, Alibaba and Amazon are all over that, right? They very much own their role as a platform. But Alibaba is really set apart, because it’s a gateway to a massive and complex market that would be really difficult for a lot of these brands to access any other way, and particularly US brands. And also too, the timing for Singles’ Day is interesting, because it gives these US brands a runway to the holiday season so they can test concepts, they can get that momentum going. When you contrast that with Amazon, Amaz Amazon starts to look more just like a distribution option. And something I think we’re going to talk about later, as a matter of fact, we see that brands, high equity-developed brands like Nike, are starting to opt out of the Amazon platform, and instead they’re building their own platforms and controlling their destiny by focusing more on their direct-to-consumer business.

Carol Spieckerman:
The upshot is that retailers… I think the big learning is that retailers and brands are, first of all, they’re going to be migrating in and out of these platform partnerships, so nobody should assume they’re going to last forever. And also retailers really are going to have to go beyond just being places that sell stuff, and start to frame their value to brands as being full-spectrum platforms. I think Alibaba and Amazon have done a pretty good job of it. Walmart actually is doing a really good job of making the shift.

Carol Spieckerman:
But Amazon in particular is going to really have to stay on its game to keep brands interested in the Amazon platform. And you could say that they’re sort of working against themselves as they continue to just blow up their private brand portfolio to where Amazon is competing against its own customers. I think you look at brands like Nike, and they’re increasingly thinking of Amazon not only as being too competitive, but perhaps being a more commoditized space, where they’re not putting their best foot forward. These brand relationships are really where I think the focus should be, and I think Alibaba is doing a really great job of wooing brands and creating a compelling proposition, and marketing its platform and its platform advantages to those brands.

Julia Raymond:
Absolutely. Tony, did you want to add to that?

Tony D’Onofrio:
Yeah, I just want to really, to meet China at the laboratory for what is happening to retail. And in fact, I use the Singles Day as my closing slides when I talk about the disruptive future of retail for a bunch of reasons, but I’ll point out only three here. And to me, if you look at China, really what you’re showing Singles Day repeated is the power of mobile. There are in China 500 million people that shop every month on a smartphone, and 83 percent actually make payments and actually transfer money. The mobile community actually facilitated all that commerce. That’s one. Two, it’s also how is advanced they are in ePay. The ability to pay with smartphones. It’s highly advanced. 900 million people actually pay with smartphones in China, and 60 percent of those are on mobile.

Tony D’Onofrio:
And three, what they’ve done extremely effectively in Singles’ Day is really made it into an immersive experience. It’s really a big party, and it’s really… You had Taylor Swift opening it up, and then you had Mariah Carey. Nicole Kidman, Kim Kardashian, and all chipping in into this one big shopping party that was maintained for 24 hours. And to me, those are all lessons to where the others need to look at in terms of how you changed retail for the new generations.

Julia Raymond:
Definitely. And I love the points that both of you made. Carol, saying retailers and brands are migrating in and out of these marketplaces. Retailers and platforms need to pay attention to what they’re offering brands, and the value, and Amazon, the issues with it being seen as competing a little bit against its own customers. And then Tony, you said the power of mobile, number one, how advanced they are in the Chinese market with ePay, and the fact they’re able to offer immersed experience. And you mentioned some of the American actors and famous influencers who were part of the day for Singles Day. Really some good stuff. Do you think we’ll see any of this translate over with Prime Day in the future?

Carol Spieckerman:
Well, Amazon has dipped a toe in the water in terms of event marketing and some of the things that Tony was calling out. But I do think that Amazon, in some cases, can get in its own way by thinking too much about algorithms and automation, and sort of ignoring that human side and that emotional side of the business. And that’s where Alibaba really again has a leg up as Tony was outlining, and what I was talking about in terms of platform leverage. A big part of Alibaba’s platform, yes, is the mobile capabilities, but it’s content marketing. In fact, a lot of the increases that they’ve been experiencing, some of those exponential increases in their business, they have directly attributed to their power of content marketing. That’s again another benefit that they bring to the brands that play on their platform, and it’s an incredible strength, and one that Amazon would be well to emulate.

Julia Raymond:
Mm-hmm (affirmative).

Tony D’Onofrio:
I do think also that there’s a difference between shopping and just buying. I think Amazon is too focused on the buying and not on the shopping. By that I mean, shopping to me is really the inspiration and the discovery and the journey and getting entertained along the process versus just the clinical, when they give you a place to go buy and I’m going to make it immediate, and I’m going to gratify you currently but I’m not going to make it an experience. I do think that’s what’s got to change, because I think that becomes even more important with the connected generations.

Carol Spieckerman:
Yep. I always sum it up as saying not every path is a path to purchase. Sometimes it’s a path to engagement that leads to purchases down the road. And I agree with Tony that that is something that Amazon needs to take heed of.

Tony D’Onofrio:
Yes. And one final comment only. It was good news, because actually they were worried that Singles’ Day was actually going to be a negative with the US because of all the trade war, and the Chinese were going to boycott the US, and that did not happen. The US was number two country in terms of contributing what was bought, with jewelry and apparel being the leading category, so that didn’t happen. But the final comment that I’ll make, Jack Ma, the founder of Alibaba, was not happy with Singles’ Day this year. So that tells you that there’s still got some lot of experimentation coming down the road.

Julia Raymond:
Oh, I don’t know if I saw that report. Did it say why he wasn’t happy, or the way that the operation side of it went?

Tony D’Onofrio:
It did not meet expectations is the way he put it. They had more aggressive plans that I think did not materialize. Now, he’s actually stepped away from the day-to-day, so it’ll be interesting to see whether they can maintain this fanatic growth. Because you think about it, they had in one day almost half of Amazon’s revenue does in the entire year.

Carol Spieckerman:
Yep.

Julia Raymond:
Mm-hmm (affirmative). Mm-hmm (affirmative). It’s huge. It’s hard to wrap your mind around, in a sense. Well, both good comments on the Alibaba Singles Day. I’m going to jump into our next topic, which is Amazon’s grocery stores. We’re not talking about Whole Foods. There’s been news released that they’re opening its own brick and mortar grocery store. It’s supposed to open next year in Woodland Hills, California, which is an upscale suburban neighborhood. And it will be actually taking the spot of an old Toys ‘R’ Us, so the building has 35,000 square feet. They’ve already posted some jobs for this new grocery store, and it’s supposedly going to be more like a generic market. They even are supposed to be granted permits to sell alcohol, and unlike the Amazon Go locations, it’s not going to have the cashierless purchase model. It’s going to have the traditional checkout lanes.

Julia Raymond:
Interesting that they’re opening what sounds like just a traditional grocery store, and I wanted to pass this to Tony first and say, what do you envision for this store? Is it going to be a struggle to attract consumers if the store is no different than your traditional grocery store down the road that you’ve been shopping at for 10 years?

Tony D’Onofrio:
First of all, this store cannot be the same as the other grocery stores. It really has needs to evolve the model. To me, what I’m seeing more and more across the world is that the clicks are buying more and more into bricks, and Amazon is just the latest example of that. And to me, grocery is really one of the biggest battles that is going to be fought. And if you needed a reminder of that, just listen to the earnings call from Walmart this morning, which really beat the expectations, and they cited food as really a key driver. But then on the other side of the breath, they said, “General merchandise, we need to do better online,” so they’re going after Amazon. Amazon knows that their weakness is food and they really need to do something different. To me, that’s something different.

Tony D’Onofrio:
They can go look at examples, and again, I’ll go back to China. Alibaba is opening a brand they initially called HeMa. Now they’re calling him Freshippo. They have 149 of them open, and they are again an experience center. They are not just a typical store. It’s an app-driven store. The app allows you to do all kinds of things to interact with products. You can actually get products delivered through your home, fresh food within 30 minutes. It’s really a fulfillment center, so that changes the game. It can be a fulfillment center, but also a place to go eat and enjoy fresh food, and it’s a full supermarket. And that’s really the examples that I think they need to look at. Not just make it a regular grocery store, because I think that sector, which is actually one of the largest in the world if you look at the global top 250 retailers, 55 percent of the revenue comes from food. To me, that is a key sector that will continue to get disrupted, so they cannot do the same as in the past.

Julia Raymond:
Absolutely. Carol, do you agree with Tony?

Carol Spieckerman:
Yes. I mean, US grocery shoppers are spoiled for choice. I mean, not only are there lots of really good operators out there in the dedicated grocery space, but everybody’s getting into grocery because it drives more frequent trips. And it brings a lot of benefits to these drug retailers, dollar stores, convenience retailers. All of them are doubling down on grocery. So yes, Amazon is definitely going to have to make this a set-apart proposition. And I think all indications are that that’s what they’re going to do. I can’t imagine they’re just going to open a generic grocery store, or else they could have just bought an existing chain. Instead, they’re building it from the ground up.

Carol Spieckerman:
But also, one thing that Amazon knows that doesn’t get talked about a lot is that Walmart has actually made a very big shift to where they now know that brick-and-mortar is no longer a liability for them. It’s an asset. And I think Amazon is realizing that true scale is no longer achieved in a single channel, and that includes digital, no matter how big you are. Brick and mortar isn’t a nice to have for Amazon, it’s a must succeed. And Whole Foods isn’t going to accomplish all of that for them. Amazon, in order to be successful, is going to have to focus on three areas and get them right, right out of the starting gate.

Carol Spieckerman:
They’re going to have to focus on convenience in all of its many forms in retail these days. That means clicks to bricks enablement. It means full mobile integration. It means easy to navigate layouts in the store. They’re going to have to have a full suite of convenience options. They’re going to be able to just pick and choose and try to steer their customers into one or another. Again, something they can learn from Walmart. Second, one of the hardest things to master is getting fresh right, but fresh is so critical to grocery success. It’s that first impression, and if you screw up your fresh offerings, then you don’t get the opportunity to sell anything else, and sometimes you don’t get a second chance. So they’re going to have to really bring on the quality and stay in stock.

Carol Spieckerman:
And then third, they really need to flex their platform, as I mentioned before, and make sure that there’s full integration with the Amazon platform, and also clear benefits. Right now, when you look at the Whole Foods proposition, frankly even now, Prime members shopping at Whole Foods, the benefits are kind of convoluted and a little bit puny. They’re getting better at it, but I don’t think the value proposition is that clear or as clear as it needs to be. People are going to need to see clear advantages, not to just shopping this new Amazon-branded store, but clear benefits to participating in the entire Amazon ecosystem that’s attached to it, because of course that’s Amazon’s end game.

Carol Spieckerman:
And we don’t have to look any further for a cautionary tale than looking at what happened to Tesco. Here Tesco was this very mature, very capable operator attempting to roll out a concept, Fresh & Easy, a small format concept in the US, and they failed at it. And a lot of it was getting those three elements wrong, and also sort of underestimating some of the preferences of US customers. And very quickly, I’ll add that one of those preferences is US customers are used to couponing and discounts and promotions, and that really is kind of anathema to Amazon and the way that Amazon usually thinks about the business. Again, it’s usually sort of quick and dirty algorithm-driven business. I think Amazon’s going to have to make some compromises and think about how people like to shop, not necessarily how it’s more comfortable doing business.

Julia Raymond:
Mm-hmm (affirmative). So taking some learnings from Tesco.

Carol Spieckerman:
Yep.

Tony D’Onofrio:
Yeah. I would also add that from my perspective, they actually have some assets going into this. To me, Whole Foods is an asset, because you do have to have some diversity in organic. Because I am highly disappointed in terms of what they’ve done with Whole Foods and Prime, so I’m hoping they get the formula better in these new stores. The other advantage, they’re just getting started, so they really don’t have a lot of technology that they need to walk through from a legacy point of view, which is really some of the challenges that all the other grocery chains have. They’ve been around forever. They have a ton of technology and legacy that they need to upgrade. They’re starting fresh, and they’ve experimented with things like Amazon Go, so they have a leg up. The question is going to be execution in terms of how to take all those elements and create a different shopping experience that I’m going to care about versus just going to Publix as I do right now.

Julia Raymond:
Mm-hmm (affirmative). So Amazon has a leg up in the digital space in terms of their capabilities, but the challenge will be execution.

Tony D’Onofrio:
Correct.

Julia Raymond:
Mm-hmm (affirmative). And I think it’s interesting to Carol’s point that they’re building from the ground up. They’re not just purchasing an existing store. It’ll be interesting to see how optimized the store is, but I do think that there’s also the growth of buy online, pick up in-store. I read that there’s a two to one margin with online grocery shoppers preferring to pick up in-store versus home delivery, probably because of some of the obstacles that we see with fresh produce in food. That’s probably something they need to focus on with their new store, I would say.

Carol Spieckerman:
Yeah, it goes back to that convenience proposition though. That’s part of the convenience proposition, but what retailers have learned, I call it the convenience conundrum. Because it would be really great if a single customer had the same preferences all the time and defined convenience the same way every time they shop, but unfortunately that’s not the case. It’s a moving target. Sometimes a shopper finds it more convenient to buy online, pickup in-store. Other times, depending on the category they’re shopping or even the time of the day, it’s more convenient to actually go to a physical store or to have it delivered to the house.

Carol Spieckerman:
Retailers now know that they can’t pigeonhole shoppers, and that’s why I was saying that Amazon’s going to have to go right out of the gate with a really compelling suite of convenience offerings, so that they can capture every consumer and every need state, and make sure they don’t jump off the Amazon platform in favor of someone else’s.

Tony D’Onofrio:
Yeah. I fully agree with that, because I think convenience to me translates to time. I think everybody’s getting to be time-starved these days, so they need to figure out how to optimize and how to make that engagement, and then how to figure out the online versus offline, and create a differentiated experience. And they do have the assets to pull together. They just, again, need to do something different. It cannot be, as you opened, Julia, to just another grocery store.

Julia Raymond:
Mm-hmm (affirmative). Exactly. And especially because their sales from physical stores, most of which are Whole Foods, actually declined 1.3 percent from last year. It’s not a huge dip, but we’ll definitely have to keep an eye out to see what they surprise us with next. And with that, I’d like to go on to the next topic. And I know it seems like it’s again about Amazon, but it’s more about Nike. The Nike breakup with Amazon is official. They had a two-year relationship. Nike announced they’re no longer selling its shoes and sportswear directly through the Amazon channel, and they’ll be terminating the limited assortment pilot that it launched in 2017. The news comes as Nike continues to move full speed ahead with its DTC growth strategy, and it follows Nike’s appointment of its new CEO John Donahoe. And Donahoe will begin his new role January 2020, and was the former CEO of eBay, and is actually Chairman of the Board of PayPal.

Julia Raymond:
I wanted to go ahead and pass this to Carol. With Nike finding success with its own direct digital transformation, do you think we’ll see other big brands that already have that equity follow suit, and what impact do you think this will have on Amazon?

Carol Spieckerman:
Well, it’s so interesting the way it kind of ties into what I was talking about with Alibaba, because these platforms, even when they’re creating their own private brands, even when sometimes they get a little bit over their skis in that regard, they need brands in order to be relevant. And I think this is a very significant development, because I think it signals to the market that Amazon is not a must-have, it’s an option. And I think that other brands are going to be looking at this and saying, “Well, maybe we don’t need Amazon, or maybe Amazon is becoming a little bit too much of a commoditized space. Maybe we don’t want to compete against Amazon’s private brands that Amazon can show favor to in the digital space anytime they choose.” Amazon can distort the presence or significance of brands at will, because it controls the platform, going back to that platform leverage.

Carol Spieckerman:
So I do think this is an important move, and Nike has a lot of momentum right now. I had forecasted when the leadership change took place that they would move head first at hyperspeed into their direct-to-consumer business. And it goes back to, again though, the fact that Nike, at the end of the day, wants to own and operate its own platform, rather than relying on platform partnerships. And we’re going to see more of this migrating in and out of platforms. In some cases, brands will participate in sort of a bridge strategy with another platform, and sort of get their sea legs, if you will. And then they’ll reserve the right to pull off of that platform and say, “You know what? We’re going to take it from here and build it out ourselves.”

Carol Spieckerman:
This is Nike saying, “We want to control our destiny.” And also, I think it’s an admirable step in terms of focus rather than being self-conscious and saying, “Well, let’s keep this Amazon business on the side.” They’re saying, “Nope. Let’s cut it off and let’s focus on this direct-to-consumer business that has such incredible upside potential for Nike.” And it’s especially interesting too, at a time when not that long ago, Nike announced too that they were backing off some of their wholesale relationships and sort of curating those down as well. I see Nike as being very confident, very strategic, and also very focused. And I do think it is sort of a clarion call to other brands to reevaluate some of their distribution choices, and perhaps even reevaluate the importance of Amazon as a distribution opportunity or sales opportunity.

Tony D’Onofrio:
Yeah, I fully agree with Carol just said. What I see in Nike is really what is happening to the retail industry in general. Aggregators really… And if you look at department stores and the Sports Authorities of the world that disappeared, those types of companies that were challenged… And they’re going to be continue to be challenged because brands such as Nike, that figured out that they have a very powerful story, will define their journey and will keep building on that journey, and will jump in and out of partnerships as needed. But ultimately, they know that the destiny of success needs to be in their hands and not in the aggregators and distributors, and that’s why you see all the focus on direct-to-consumer.

Tony D’Onofrio:
I’ve actually been involved with Nike for a long time, and I’ve been to their campus multiple times. And to me, from my perspective, they are a brand that really understands what it means in terms of creating value, linking it all back to the app, and then adding layers of technology. And if you want to experience it, just go to the New York House of Innovation. There you have a store where you walk in, and you have five different, six different experiences on six different floors, depending on what mood you’re in as a shopper.

Julia Raymond:
Mm-hmm (affirmative). And I love that you said it kind of reflects what’s happening with aggregators in the industry at large. And you both commented on the tech aspect of Nike’s ability to boost its direct-to-consumer model. And I think we see that with some of the really smart acquisitions it’s made with the Celect platform, which is an artificial intelligence platform, and then Zodiac, which is a predictive analytics company that they acquired, I think just last year. They’re really investing in the right areas, but I personally do not think we’ll see a huge drop-off in brands selling on Amazon, at least not within the next few years.

Carol Spieckerman:
Well, there’s only a few. You can count on maybe two hands the number of brands that have the kind of clout that Nike does to where they can show the hand to somebody like Amazon. Just the sheer numbers, I think, will bear out what you said, Julia, but I do think some of those big high-equity brands are now looking at Amazon as an option rather than a mandate. And also too, let’s not forget the data aspect of it. When you own the platform, you also own the data. And so those highly experiential flagship stores like Tony was alluding to, those are opportunities not just to engage and delight customers, but they can gather data on all that activity whether or not shoppers buy anything.

Carol Spieckerman:
Again, not every path is a path to purchase, but it’s all good because Nike can track that activity and parlay it across all of its different business models and all of its different ways of doing business within its direct-to-consumer business. It’s all good for Nike, and I think they’re highly experiential capabilities are actually reinforcing their decision to own that data and to own their destiny, and not cut anyone else in on it.

Julia Raymond:
Mm-hmm (affirmative). Yep. And not every path is a path to purchase, like you said.

Tony D’Onofrio:
Correct. And as I said, Nike is one of those brands that actually is understanding that the platform or their app .I fully agree what Carol just said. That is the future of retail.

Julia Raymond:
Mm-hmm (affirmative). Well, Tony, Carol, thank you both for joining. I loved our discussion today, and I hope to have you guys again on the rundown in the future. And as always, thank you for joining.

Carol Spieckerman:
It was my pleasure, Julia. Great to be with you again, and with you as well, Tony.

Tony D’Onofrio:
Thank you very much. Same here for both of you. I really appreciated the time, and very much enjoyed the discussion.