Retail Rundown: Preparing for the ‘Retail Renaissance’ – with Peter Cohan & Andrew Smith

Julia Raymond Hare:
Hello and welcome to the Retail Rundown. I’m your host, Julia Raymond Hare. And today we are joined by my guests, Peter Cohan and Andrew Smith. Peter is the president of Peter S. Cohan and Associates, a management consulting and venture capital firm. He is also a Forbes contributor and columnists at Inc. Magazine. And he’s published not one, not two, not three but 15 books on the topic of entrepreneurship. Andrew is the co-founder of Think Uncommon, a retail consultancy helping retailers innovate. He is the co-author of the book, Retail Innovation Reframed, a how-to guide to implementing innovative capability in a retail business. Peter, Andrew, thank you for joining me today.

Peter Cohan:
Thank you for inviting me.

Andrew Smith:
Yeah, it’s great to be here.

Julia Raymond Hare:
Thanks. It’s great to have you. Peter, can you tell our listeners a little bit about your newest book?

Peter Cohan:
Yes. My newest book is called Goliath Strikes Back. And it’s about how large and coming companies are competing with upstarts and e-commerce players, and covers six different industries, including consumer electronics. And so when we’re talking about consumer electronics, I’m very happy that I had a chance to really investigate how Best Buy was able to reposition itself under its previous CEO, Hubert Joly. And now it’s setting the stage for its great turnaround. And in that same chapter, I have sort of an in-depth investigation of why Circuit City went bankrupt. And it’s really interesting to contrast.

Julia Raymond Hare:
I love all of those points, especially because to our listeners we’re discussing Best Buy today. Electronics retailer, Best Buy, was in the news last week. It notified store workers it would be cutting some jobs and hours as the big boxer doubles down on its digital efforts. As Peter mentioned, they’re huge turnaround effort. And back on it’s November 2020 quarterly call, their CEO, Corie Barry said the chain is evolving the way it is, “Positioning employees to serve customers based on need, irrespective of channel.” Barry said, “It has cross-trained 450 store associates as help chat associates and another 5,000 are being trained to flex into digital sales if needed based on demand.” That was also according to Ms. Barry. Best Buy is also transforming roughly 25% of its U.S. stores into online order hubs. You may have remembered the little bit about their strategy on micro fulfillment centers. Peter, I’ll pass this to you first. What are your thoughts on Best Buy’s strategy to increase its focus on digital interactions, as mentioned with the chat?

Peter Cohan:
Well, I think what’s really clever is that Corie’s predecessor, Hubert Joly, who was a former McKinsey consultant, went in and realized that there was a big need for a turnaround. And his primary focus was on looking at the whole company from the perspective of the consumer. And also critical was the relationship between people who are interacting with consumers, their employees who work with consumers, and the consumers themselves. And what the consumers are looking for is the opportunity to compare the different electronics products they want to buy. Put together a system with help from the Best Buy floor employees, and then make the purchase, get a very low price, get the sort of internet price, and then be able to pick it up very quickly.

Peter Cohan:
And so when the pandemic hit, Best Buy had a competitive advantage over Amazon because of the stores. 70% of Americans live within a 15 minute drive of a Best Buy store. So they could order it online, pick it up outside the store, sometimes in the same day. And that is much more reliable delivery for the consumer. So it’s just remarkable to me how, a so-called dinosaur-like Best Buy was able to become much more responsive to consumers than Amazon, which is considered to be the giant killer.

Julia Raymond Hare:
It is. And thank goodness in some ways. I mean, I love my Amazon, but I also like to hear about sort of the underdog in a way coming back. Andrew, do you have any comments on, on Best Buy and how they’ve been operating in the past year?

Andrew Smith:
No, I agree entirely with Peter to be honest, I was a little surprised, I look at retailers a lot and the processes they have in place for innovation and their ability to change quickly. And the fact that they were able to adapt as fast as they did in 2020, I think is better than would have been expected. I also feel they’ve got some industrialization to do though. I think like many brands getting the experience out there was one thing that strengthening it beyond a sticky tape and string style deployment is probably another thing. So I think they’ll probably be focused on that from now. But I think it’s what comes next for them in the post-pandemic world that I think would be really interesting to watch. If they have changed the operationalization of their stores substantially, but whether they can step up the role of stores, and the role of physical stores for their brand story, I think will be really interesting.

Julia Raymond Hare:
You said they have some industrialization, is that the word you used?

Peter Cohan:
That was, yeah. Just essentially in 2020, when you have to move at pace, you roll that innovation fairly quickly. And a lot of the time it means you don’t get the kind of robust solutions that potentially you’ve built over a multi-year transformational program. So, I call them sticky type and strings often it’s not meant to be offensive. It’s messy. That’s what innovation is and it’s meant to be. So, the next focus for a lot of retailers at the start of 2021 is to look back at what they’ve built and how can they make it stronger and a more clean experience, a more efficient, productive experience for the brand as well.

Julia Raymond Hare:
And I think that’s a great point. And also to Peter, your point about 70% of Americans living 15 minutes from a Best Buy, and that really helping them during the pandemic to deliver the electronics consumers needed. If we take a bird’s eye view, Best Buy was almost out of business in 2012. Do you think that they have enough momentum to really keep transforming and compete with Amazon?

Peter Cohan:
Yes. There are so many things that they did when Hubert Joly came in in 2012, when they were in deep trouble. So they’ve really had about nine years since then. And they spent a lot of time transforming their operations and the way they treat their people. So one of the things that you were reading about before is other cross-trained employees. So they can interact with consumers in the different ways that they want to interact with Best Buy, whether it’s the online, through chat, the different quartering it online and picking it up in the store, all the different options. And I think there are also, in the context of industrializing, to use Andrew’s term, they’re kind of really rethinking their supply chain and how much of the items that they’re going to be giving to those consumers are physically in the store versus having to order it from a warehouse.

Peter Cohan:
And I think it’s very interesting that something like 300 stores they’ve got are located near suppliers. So they can kind of have a lot of the floor space with the things that then the customers are going to pick up. And those can be places where consumers can kind of reliably pick things up more quickly after they order them. So I think the interaction between not only the way that they train the people, and what they can do, and their computer systems, all the different platforms in which they interact with consumers, and the location and design of the stores are off to be really well integrated in order for it to work smoothly. And I really think they’ve spent a long time doing it, and they’re still trying to make it better.

Julia Raymond Hare:
All good points. And I wanted to ask both of you because you have retail clients, do you think that the trend of chatbots, and then SMS marketing, will that continue in a big way?

Andrew Smith:
I look at it from a consumer point of view. There’s a lot of digitally native consumers out there that are the main drivers behind the uptake in technologies like that. And I think they’re going to continue to push for it and as brands do it really well, that’s going to reset expectations for consumers in every brand experience they have. So I think yes, that they’ll still continue to be that momentum. But it can’t be at the expense of the remainder of your customer segment that’s looking to use your stores or your digital assets in different ways, based on their own comfort with both digital and physical. Not to mention physical is a really fabulous experience. Humans are a pack animal and we still have a craving for those experiences that we get there.

Andrew Smith:
So the convenience element of retail that’s existed since the Istanbul Bazaars will still drive a value proposition that means retailers have to use those kinds of technologies to ensure that they are convenient and easy to approach. But, is it the core of the story post-pandemic? I kind of feel like it will play a cast role with the main stage event being some bigger experience shift in the physical estate, and the bigger digital trends like live streaming and things like that.

Julia Raymond Hare:
Mm-hmm (affirmative). Good points.

Julia Raymond Hare:
If I had to place some bets, I think the Geek Squad, because they did pivot, we talked about Best Buy on a rundown. I don’t know, probably a year ago. And I know that there was some discussion around how the team pivoted to become basically connected home experts, and they were helping a lot of people get everything connected and get the hubs set up in their homes. And I think as technology becomes even more complex, I mean, I have the Alexa, the Google Home, the Philips Hue, it’s crazy. And I think that’s going to only become more complex.

Peter Cohan:
Yeah. Well, I just wanted to comment on that whole thing about the salespeople being systems integrators for the consumer. You know, I think that is a very big insight that Best Buy had when Hubert Joly came in, which was the idea that people on the floor who interact with consumers have a tremendous amount of a very important role in the company in terms of establishing a good relationship with those consumers, making sure they have a good experience, making sure that they can buy everything they want to buy in Best Buy, and created an integrated system for them that works in their home.

Peter Cohan:
So this idea of them being kind of consultants for the consumers who are buying is a critical factor. And it’s really interesting in my book, I contrasted that with what happened to drive the bankruptcy of Circuit City. Which was when the CEO, Philip Schoonover, in 2007 thought he was going to fire 3,400 highly paid and experienced sales floor people, and replace them with 2,400 hourly wage people who had no experience at all. Which led to hundreds of thousands of customer complaints, leading to lots of unsold inventory causing him to go bankrupt.

Peter Cohan:
So just not recognizing the importance of the salespeople on the floor, and the relationship that they have with those consumers in terms of causing those consumers to come back, and also buy everything they need for their home entertainment or whatever system it is from Best Buy. I mean, it’s just critically important.

Andrew Smith:
That’s such a good point, Peter. If I can build on it, the idea of humans being a systems integrator, I think is a really smart way of wording it because what we’ve all learned over time is that if you’re only in a game to cut costs, then you’re in a race to the bottom, and it’s never going to go well for you. And the experiential side, we know that comparative to humans, technology is still learning and still is pretty terrible, comparatively at upselling and cross-selling and building those relationships. So technology can kind of get you so far, but then that relationship side, the human side of what retailing is and has been at the entire existence, you just lose it and from that you’ll lose customers. So I think that’s beautifully said, Peter, that whole idea of using humans as systems integrators to make sure your company remains human, and delivers those great customer experiences.

Peter Cohan:
Well, I mean, another thing that really struck me, which is this concept of showrooming, which is something I’ve done a lot. In showrooming, you go into the store, you look at the product and you decide whether you want to buy it. And then you make the actual purchase online usually with a cheaper price from some other vendor. And this is a huge problem for Best Buy when Hubert Joly got there in 2012, people on the floor were telling him this is a catastrophe for our company. And he came up with a great idea, which was we will just match the online price, and they would match the online price. And they might get a lower margin on that particular item.

Peter Cohan:
But because of the fact that they were talking to us and these systems integrators, that the person would sell them other things that they needed. You know, for example, if you buy one of those flat screen TVs, you need a table to put it on. You might need some other things to go along with it, and you would get sort of a complete purchase. And I think it’s more profitable if they can sell multiple items to a consumer and kind of link them all together. So they were able to sort of kill the showrooming. They got more revenues because they were able to match that online price. I thought that was great.

Julia Raymond Hare:
Absolutely. And that also capitalizes on humans’ impatience. They want it now. And if you can get it now for the same price, why not, and with expertise. And I love Peter, how you said system integrators for the consumer. That’s a great, concise way to say it. So, we touched on Best Buy a bit. And I was going to turn over and talk about some news that we’ll all be happy to hear, which is that the reported COVID-19 cases, at least in the U.S., fell to their lowest level in nearly four months over President’s Day weekend. And although we are still a ways away, a return to normalcy is seeming like it might be on the horizon. So, I wanted to ask in a broad sense, what do you think the post-pandemic retail landscape will look like? We’ve talked a lot about this. I know it’s a lot of speculation, no one has a crystal ball, but what are some things that are really standing out for you?

Andrew Smith:
I think for mine, there’ll be a lot of elasticity in some markets. And again, I’m always worried about saying, “Hey, this is what consumers in retail are going to do,” because it’s just way too big a segment to predict behavior of that en masse set of humans. But I think in a lot of markets, if I think of things like grocery, the experiences of buy online, pickup in store kind of delivery, those kinds of things that have really shot through the roof in 2020. They’re probably going to be less elastic. They’re probably going to kind of stay that way.

Andrew Smith:
I think you then have on the other end of the scale, particularly as we enter a kind of K-shaped recovery, that’s existing as we exit hopefully with the good news on the horizon, the COVID kind of world that we’re in. Though the different markets are all going to see different experiences of people coming back to stores spending more than they did before, versus some markets where they’ll be spending less, or even shifting to more value-based brands depending on the segment.

Andrew Smith:
So it’s going to be really interesting to watch that’s for sure. I think there’s a couple of contactless, and the technologies around contactless in store. I think that is a trend that’s going to continue. And you’ve got some pretty great brands out there setting some pretty high expectations from customer experience in contactless that I think others are going to have to keep up with. And then the data availability, personalization stuff, I think there’s a lot of maturing to do there in terms of using AI and machine learning into a pretty human business-like retail. I think there’s a lot of maturing to do, and that’s what the technology can do. So I’m excited to see that. But for me, I think probably the number one is we’ve kind of cemented now in the retail industry belief mindset that stores’ role has changed.

Andrew Smith:
They’re not what they used to be. We can’t measure them on comp sales anymore. They’re a completely different value calculation now from a consumer’s point of view. So, we need to adapt how we use them. If we go back to our Best Buy, for example, what an incredible asset to be sitting on with those stores in a 70% I think it was, Peter, within a 15-minute drive, with this huge floor space that they can use to not only have stock on hand so that they can ship to customers last mile real fast, real efficient. But also think of the experiences they can set up. Think of the Instagrammable moments they can create, think of the real connections. If Showfields can do it with beauty, if Lululemon can do it with active wear, if CAP can do it with toys, Best Buy has an incredible product catalog to create some amazing in-store experiences that will really drive home that they are the people you go to, to discover what’s new and find new things. Something that, again, the internet is not great at.

Peter Cohan:
Well, I just think that if you look at what Best Buy is saying, what Corey was saying in the latest earnings report, they were about how people will not go back to the way things were in 2019. And I tend to agree with that because I think what’s happened is that you would expect the younger generations of people who were sort of iPhone native to try to minimize their store experience, and just order something online and maybe not even bother to drive, just have somebody delivered to their house. But what you’re doing is, because of the pandemic, you’re exposing older generations of people who hadn’t started doing this, now are quite used to the idea of ordering online and picking it up in the store. Or just spending less time in the store process. So I think they’re set up to do that and set up to be flexible.

Peter Cohan:
What really strikes me as kind of interesting is that what’s going to happen when people are now getting out of the house. They’ve been cooped up for a year, two years. I don’t know how long it’s going to be before we can get out of the house. I expect something like the Roaring Twenties where people are going to get out and travel, and they’re going to go to restaurants, and they’re just going to party and do all this stuff that they haven’t been able to do for a couple of years. And maybe they’ll stop buying so much stuff to put into their man and woman caves in their houses. So I wouldn’t be that surprised if people stopped buying as much stuff that’s like Best Buy. And maybe they’re just out there buying experiences that they couldn’t get. So that’ll be an interesting trend as well to see whether that happens.

Andrew Smith:
I think that’s a really smart point. I think it was 70% of millennials are looking to purchase access, not ownership, so they’re trying to get to an experience level. Something that is both an incredible story to tell and something that they can share of course, as well.

Andrew Smith:
And I think the idea of the Roaring Twenties coming back is a fabulous image for anyone who’s been cooped up in their house for a couple of years. But build on that, what retail can do to be part of that. And how can you embrace a different role for your physical space that can allow people to participate in this Renaissance of being set free.

Peter Cohan:
I think people are going to get out of their houses. I think just bringing all this pent up energy to get out in the world.

Andrew Smith:
Absolutely.

Peter Cohan:
Hopefully it will happen soon.

Andrew Smith:
Absolutely.

Julia Raymond Hare:
Amen. I’m ready to get out and travel. Gosh, you think about all the trips that you would have had and all the conferences you would have been at, and it’s a bit depressing. But like you said, Peter, there is some risk and opportunity for Best Buy. I know that people have been spending their discretionary income on electronics. Will there be a shift at least for some cohorts where that goes to experiences, and the Roaring Twenties is mirrored in a few years? We’ll see.

Julia Raymond Hare:
You said something interesting, Andrew, you said you can’t measure on comp sales anymore. And are there measurements that you, Andrew or Peter, are using in your consultancies that are newer, that are replacing comp sales in terms of measuring success?

Andrew Smith:
It really depends on the segment. But, in the most part, you’ve got to look at market for a start. So, stores play a really important part in the ecosystem of your brand, in a marketplace. Digital, obviously for some brands of all bodes, as an example, stores are there to acquire new customers and then shift them towards digital purchases for the remainder of the customer life journey. So I think that’s exactly how they measure their stores is acquisition of new customers. The idea of keeping store people focused on what they’ve been focused on for the last 10 years just doesn’t make sense. And it’s not a great business practice because it’s not driving the behavior you want in market from your assets that are your stores. So, usually it’s market share, obviously customer experience up in the air. And I could debate and rant for hours on what are the best customer experience measures and which ones are just genuinely terrible.

Andrew Smith:
But at the end of the day, your physical estate is there to grow your brand, to tell your brand story, and to acquire customers and depending on your segment, potentially provide high-level support. So you’ve just got to make sure that your metrics shift to be pointed at that. And that will enable you to grow all channels of your business. It’s kind of archaic that we think humans are a machine built around efficiency. We compartmentalize, and we build our organizational structures to follow that level of efficiency, that compartmentalization. Digital, that’s the thing I need to grow here. Digital human, you go lead the digital business. Physical store person, you keep working, running your physical store business when customers and the money that they’re bringing in don’t think that way. So we have to work out how we can measure everyone in a new way that is aligned with the way customers want to give us their money.

Julia Raymond Hare:
Mm-hmm (affirmative). Absolutely.

Peter Cohan:
I would like to talk about that concept because in interviews that I did for my book, I really saw how important it is for executives in places like Best Buy and Walmart, to make sure that there isn’t an internal competition between the digital side of the business and the store side of the business, that they are all cooperating and having an incentive to work together to improve that customer experience. So one way to do that is to tie their compensation to measures like how high the net promoter score is, and how likely that customer is to refer other friends, other people in their networks to the company. The customer retention rate, something called the net, what is the word? It’s a measure of how much people buy from your company over time, how much more they bought from you compared to the year before, and also obviously the lifetime value of the customer.

Peter Cohan:
So if you maximize all those measures and people, and the stores are incentive-based on how those measures improve, then I think you get the kind of behavior you want where you’re not having internal competition among the different ways of fulfilling the customer experience. But you’re asking them all to work together to maximize those customer satisfaction and customer results measures.

Andrew Smith:
Couldn’t agree more. Plus, you also get this additional benefit of that alignment of both, not only KPIs, but the way you’re thinking about the business and the way to grow the business means that your innovation pipeline’s got less friction in it as well. Because you’ve got less competition around if I introduced innovation thing A, that’s going to impact person A’s KPIs, but not person B’s in a positive way. In fact, it might even be negative. And therefore person B is stepping out of the innovation cycle and not helping you, they’re essentially hindering you. So you get that added benefit that not only operationally are you more efficient and you’re pointed towards growth from an operational standpoint, you’re also going to remove friction from your innovation process.

Peter Cohan:
And I’ll just add one other thing, which is that the culture is sort of the meta concept here. But you have to fix the culture before you can start fixing the measures of performance. And when a new CEO comes in, when a company is in trouble, when a company is getting close to being in trouble, and then a new CEO comes in. They have to take a strong, hard look at the culture and figure out what it needs to be in order to focus on the customer. And I think one of the things that really struck me again from Best Buy was when Hubert Joly came in, he was trying to find a way to connect the employees in the store to the mission of Best Buy, which was essentially to make the lives of the consumers better.

Peter Cohan:
And he had an example of a store manager in Woburn, Mass., which is North of Massachusetts, not too far from where I live. Where this person in the store, this employee said to the manager, I would like to buy a house. And the housing prices here were and still are pretty expensive. And so what they did was the manager gave this employee a career path where he could take on added responsibility to get more skills and rise to the point where he could afford a house. And I think that that action, that repeated over and over again, what that does is it creates a tremendous amount of identification between the employees and the mission of the company. And if you can really get people emotionally aligned in that way, forcing them to, or just asking them to act according to these key performance indicators, becomes a much more natural thing to do. If they’re not buying into the culture, if they don’t feel that there’s an alignment between the mission of the company and their lives, then they’re going to be less excited about being measured on these KPIs.

Julia Raymond Hare:
And I love how you said it, Peter, you said that culture is the metaconcept and you have to fix the culture before you fix the measurements of performance. I think that’s a key insight for any execs who are listening. And Peter and Andrew, I feel like we touched a little bit on brick and mortar strategies. Especially Andrew, when you were talking about the role of the store is to acquire new customers and then in a way, funnel them towards the digital channel as well. Is there any last words you want to say before we wrap up today’s episode about brick and mortar strategy in 2021 and beyond?

Andrew Smith:
I would say there are so many myths that exist around what physical retailing and digital retailing and blah, blah, blah. It’s just retailing for a start, there’s myth number one. But there are so many myths around it right now that need to be overcome so that people can start shifting their energy away from this persistent negative narrative. And the physical store estate is an incredible asset that can absolutely in a lot of brands be made more efficient. But it’s an incredible asset in explaining to customers why they should give you their money. Increasingly we’re seeing people wanting to feel good about who it is that they shop with, and they need to feel emotionally connected with who they shop with. And physical store estates and the real humans that exist in them who are your best brand advocates are just an incredible way to do it.

Andrew Smith:
So having to not only rethink the role of stores from an operational standpoint and in last mile, and in acquisition and all of those kinds of business-y terms. There’s a real emotional brand storytelling element of the physical store estate that’s incredibly important. That if you rethink what it can do, the space for you and for your customers and for the community around them, et cetera. And link that back to your core purpose for why you exist, it doesn’t have to be we donate 10% of profits to organization A. Purpose can be anything. Disney’s purpose is to be the premier entertainment company in the world, and it’s a massive for-profit enterprise.

Andrew Smith:
Just have a really clear, actionable purpose and then live and breathe that through the way that your stores are represented. I think there’s a really healthy way for us to return physical retail, to the Renaissance that I was talking about earlier. It’s like we can have that retail Renaissance of what the physical store experience can be. And I think for the how can I turn that to be helpful? I would say most people know what to do and have ideas of that. But innovation and shifting and an increasing rate of change is not retailers’ first language. Our first language is executing processes.

Andrew Smith:
So rethink about how your business operation needs to change, your capital allocation process needs to change, how your stores are run, your digital channels are run, et cetera, to be able to remove friction every way you possibly can so that your business can change quickly. Because that agility and ability to change at pace is kind of the biggest existential thing facing retailers right now. So come out of the what a little bit, spend a bit of time in the how, and just really rethink what that store could be. If it’s going to truly tell your brand’s stories, and your brand story and your brand purpose.

Peter Cohan:
There are two things that strike me that are important about the stores. First of all, there are many products where a consumer needs to have a physical contact with a physical product in order to decide whether to buy it and which one to buy. And at the same time that’s happening, you need the advice of the consultative salesperson, the systems integrator at Best Buy. And second of all is to speed up the delivery process. Both of those things give a retail store, a store based retailer, a competitive advantage over somebody like Amazon, which is promising you two-day delivery. But may or may not be able to pull it off. And you don’t get to have a physical interaction with the product before you buy it on Amazon. So in that sense, I think if you can make the store responsive and allow consumer to order and get delivered the right thing that they want faster than Amazon, you’re going to have a competitive advantage over Amazon. And you’re going to see that Goliaths are fighting back.

Julia Raymond Hare:
Peter, where can our listeners go if they want to go ahead and get a copy of your book?

Peter Cohan:
They could get it on Amazon.

Julia Raymond Hare:
Perfect, wonderful.

Peter Cohan:
Nice segue from the previous point too. It’s like talking about Amazon, it’s like, “Hey, both of our books, by the way, are available on Amazon.”

Julia Raymond Hare:
That’s right, Andrew. Could you go ahead and remind our listeners of what it’s called?

Andrew Smith:
Sure, it’s Retail Innovation Reframed. We wanted to create something that’s helpful. So every chapter is full of exercises and tools to use to improve innovation efficiency in your business. So check it out, let me know what you think.

Julia Raymond Hare:
Excellent. It was great to have you on the show today. Peter Cohan, president of Peter S. Cohan and Associates, and Andrew Smith, co-founder of Think Uncommon.

Andrew Smith:
Thanks so much, Julia. Great to chat.

Peter Cohan:
Thank you, Julia.