Retail Rundown – September 9, 2019

Julia Raymond:
Our guests today include, Ed Kennedy and Ricardo Belmar. Ed is the senior director of commerce at Episerver, where he has spent a decade designing and implementing E-commerce platforms for consumer brands, B2B manufacturers and wholesale distributors. 

Julia Raymond:
Ricardo is the senior director of global enterprise marketing at Infovista and retail influencer with 20 years of industry experience focusing on digital transformation. Ed, Ricardo, thank you for coming on the show today. 

Ed Kennedy:
Thanks for having us. 

Ricardo Belmar:
Thanks, Julia. Appreciate it. Thanks for having me. 

Julia: Raymond:
Great. So, the first bit of news we’ll dive into is Best Buy. Founded in 1966, the longstanding retailer is still making moves. Just last year it unveiled its new slogan, which is, let’s talk about what’s possible. And, what’s possible ,it seems, is that, Best Buy is making its way back into the big leagues. So, gearing up for the holiday season and competing with Amazon and Walmart, they just announced they’re opening three Metro E-commerce centers in Chicago, LA and the New Jersey area. These new warehouse centers are equipped with robotics and are part of their 11th hour strategy to modernize their supply chain and avoid extinction. So, it might not be too late for Best Buy after all. And with the new warehouse centers up and running, they’re readying to reach 50 million people with free next-day delivery. And, that’s obviously to better compete with Amazon’s same-day, one-day shipping programs. So, considering this news and Best Buy’s near demise in 2012, so, not long ago, where do you think Best Buy is heading now? I’m going to pass it to you, Ed, and get your thoughts on this. 

Ed Kennedy:
Yeah. I think they’re headed towards some good holiday season selling. They’ve obviously played catch up on the supply chain, which most retailers have spent way more money than they anticipated needing to spend to get fulfillment up to consumer expectations because Amazon has such a fast delivery expectation for consumers. So, everyone’s playing catch up there. But I like what Best Buy is doing specifically with their Geek Squad and in home advisor programs because, when they say, “Let’s talk about what’s possible,” the, “Let’s talk,” is the key piece. They’re creating a human connection in retail. So, it’s focusing on its people to bring in-home advisors into your home to help you with home appliances. So, I think that’s where they’ve got a one-two punch. Yes, that, they have to meet the expectations of the consumer for E-commerce delivery, but what they’re doing with their stores and the people in their stores, is what’s keeping them afloat and ultimately leading them towards more profitable quarters. 

Julia Raymond:
Yeah. So you said, a focus on the people and investments and the supply chain, and you said maybe, even they’ve spent more than some other big retailers on optimizing supply chain over the past few years. 

Ed Kennedy:
I mean, they’ve doubled what they spent over the last two years on their supply chain. They’ve doubled their capital X expenditure. And I think, most retailers, I think, if we pulled back the income statements from Target and Walmart and others, it’s easy to launch an E-commerce website relative to getting your supply chain, right, to deliver a physical good to anywhere in the US within a day. And that’s where there’s such a significant cost and effort and mind share that’s gone pouring into that area of commerce right now. So, I think that’s a wise move. It’s a good use of funds, but I don’t think that’s what’s going to accelerate their growth necessarily. I think that just keeps them on an even playing field. What they have to their advantage is the consultative conversations and relationships they’re building with consumers that Amazon just isn’t going to invest in. 

Julia Raymond:
Definitely. Ricardo, are you in agreement here, or do you think it’s a negative or positive path for Best Buy, moving forward? 

Ricardo Belmar:
Yeah. I really think this is a positive. You look at the… With these three new warehouses, it’s a clear next step and a big step in improving the supply chain. And, I think I even saw some reports on this that, they’re going take customer orders as late as 8:00 PM, one night, and still be able to fulfill a delivery the next day, out of these. So, I think this is clearly a responsive shot across the bow, right, towards Amazon. And, they’re increasingly fast delivery that consumers are really starting to expect. And, I would argue, Best Buy really is a fantastic comeback story for retail. They really were grasping, I think, for a while there, at the bottom, like you mentioned it at the start. And, Hubert Joly really did a great job, I think, turning things around. They did a lot of investment in the store experience, to start with. 

Ricardo Belmar:
I remember in that timeframe, everyone I knew would talk about going to Best Buy and lamenting that, “Oh.” It would be a terrible experience if you had to actually talk to someone in the store because they just didn’t know anything. All you could find out is what was printed on the product box. But now, you look at it today, and I think, Ed, mentioned this too, they’ve clearly invested in-store associates at Best Buy. You go into a Best Buy store, and I myself have a great example of this, I was there not too long ago comparing different smart thermostats, and one of the Best Buy’s blue shirt employees did a great job helping me identify some distinct differences in a couple of different models that I was looking at, and I made a purchase. So, I didn’t need to go off to Amazon to buy it, and I was able to get it at Best Buy. Obviously, they have great price matching capabilities as well. So, I think they’ve eliminated all those early concerns they had about showrooming back in the day. That’s one where I remember. So many other retailers in meetings would tell me that they’re so worried and concerned about showrooming, and I would always give them a response of, “Instead of worrying about it, why don’t you try to own it?” Turn the showrooming around. And use it to your advantage. And I think, Best Buy really exemplified that process. Right? Where associates, really, can turn this around and essentially encourage you to look up anything you want on your smart phone, and they can match it, and they can answer any questions that, maybe, you can’t find as quickly in a quick search online. 

Ricardo Belmar:
So, I think, they’ve really built up that in-store experience very effectively. Then they have things like, their store-in-a-store, with certain brands like Apple, or Samsung, what they’ve done in the appliances section. I think they did a great job converting that store-in-a-store concept into another revenue source because, they’ll actually get, essentially, a rental fee from brands. Right? For having this setup, in addition to the product sales. So, a lot of different components. When they acquired the Geek Squad and brought that in, that really helped elevate the relationship with the customer. I think, now, we’re going to see much more visible investment. Not that they haven’t been investing in it, but more visible investment like these E-commerce warehouses in the supply chain. Because, one of the things I like to claim is that, as much as we talk about Amazon as retail competition, at the end of the day, they’re really more of a logistics company. They’ve really mastered supply chain and that’s what gives them leverage.  And I think, Best Buy is recognizing that, as are other retailers, like Walmart and Target, a lot of the big box stores. And, I think they’re doing a great job in doing this. So, I agree with Ed. I foresee a good holiday season for Best Buy. 

Julia Raymond:
Yeah. So, it sounds like Best Buy, they are carving out that niche where they can have a pretty good distinction between Amazon. And, another note on that is just, as the connected home products get more technical, I think there is a good possibility that they’ll have more people taking advantage of their home advisor program. Because, I did talk to a few people who said, “Oh, well, they’re targeting more of an elderly demographic,” to come to the home and set up the Amazon Alexa or other products for smart home. But, I think, as we get more complicated new products rolled out, there might be more people that are going to Best Buy like, “Hey, come set this up in my home.” 

Ricardo Belmar:
Yeah. I completely agree with that. I think they’ll see, especially if they increase the level of expertise. Right? So that they can show you, not only how you go about configuring an Alexa device, but it’s really more about, “How do I use combinations of devices? How do I enable all of these things throughout my home?” And, I think that, the key factor that, it’s not so much about an elderly demographic or a less tech savvy demographic, I think it’s more about convenience. Even the tech savvy consumer that goes to Best Buy, I think, is going there out of convenience. 

Ricardo Belmar:
I mean, I saw a statistic recently, 40% of their online orders are for pick up in-store. It’s another area where I can attest to that. I’ve frequently bought things online from Best Buy, and I’d go to my nearby store and pick it up that same day. Even though I could have ordered it on Amazon, I’m a prime member, like, probably, two thirds of the population. Right? 

Julia Raymond:
Yeah. At this point. 

Ricardo Belmar:
But I still bought it from Best Buy because I could go pick it up at the store. So, it’s a convenience factor. I think Best Buy is also realizing that this home advisor concept, it’s not just about helping the not so tech savvy consumer, as it is delivering an added convenience factor. 

Julia Raymond:
Right. That makes sense. There is the convenience factor on top of everything we’ve mentioned so far when it comes to Best Buy. And I do know, I just saw this morning that, last week or so, the CEO told analysts that their leasing program, that they launched this February, is having a really positive impact on same-store sales. So, some other things that they’re launching that are doing well for them, different programs. So, it looks like it’s on the up-and-up. 

Julia Raymond:
Ed, did you want to add anything else before we talk about the next topic? 

Ed Kennedy:
Well, I think it’s important to note that, 10 years ago, Best Buy, you went in, because you, maybe, wanted to buy a smart phone or even a laptop, and the percentage of sales for home appliances and connected home products was nascent. And now it’s their fastest growing segment. So, I think, to Ricardo’s point about what’s happening with convenience, yes. And the consumer going to find products, that, it’s better to have them come into your home and help them set it up for you, that segment, the home appliances and connected home section of the store, is what’s expanding. 

Ed Kennedy:
And, as all the consumer electronics manufacturers and brands go direct to consumer, and they can sell smart phones or sell computers or sell even televisions direct to consumer with little friction, I think that’s where Best Buy is going to pivot, to the home appliances and home connected space. And you’re seeing that with these programs that they’re putting in place. So, I think their mix of sales and what people are going to go into the store for, are going to be driven around highly complex products that require configuration and they’re providing convenience and a service on top of it. That’s going to build loyalty. 

Julia Raymond:
Absolutely. And a Testament to Best Buy’s ability to adapt with this whole new sector of products that they’re really doing well with. So, that wraps up Best Buy. We’re going to move on to just the next piece of news, which of course we always talk about, but it is Walmart. While political pundits are still arguing over marketplaces and Medicare, retailers are crossing over party lines and rolling out their own remedies. So, Walmart is actually the latest retailer to expand its in store health clinic options. And this is for patients with and without insurance. And, its Dallas, Texas store, will begin offering appointments for x-rays and lab work, mental health counseling, hearing tests and dental work, starting September 13th. And their move past the general wellness checkups and into more advanced medical care follows what we’ve seen with CVS Health and their strides beyond pharmacy. As you know, they acquired Aetna last year, and it’s all about convenience and expanding the health hub and piloting these new locations. 

Julia Raymond:
So, with this, what do you guys think of the trend? And I’ll pass this to Ricardo first. Is retail care something we’re going to see in the future? I mean, it seems like Walmart’s expanding into everything. 

Ricardo Belmar:
I think we’re definitely seeing a trend here. And, it’s one that’s, I don’t believe is going to be a short lived one. The way I like to look at this is that, the whole medical care and medical insurance as an industry, right, or as a segment, is really ripe for disruption. It fundamentally hasn’t changed that much in decades, most likely, if you look at it, from a consumer’s point of view. So, in fact, it’s almost… It’s a very Amazon like thing to do, to take a sector that hasn’t changed much for a very long time and come up with a disruptive approach. So, we had things like CVS, originally, with their minute clinic expanding now into going beyond wellness and really delivering actual care. I’m not surprised, in a sense, right, to see Walmart doing this. Because, I think they do consider themselves an everything store. They are the retailer that’s going to take up the Amazon challenge and be that alternative everything store. 

Ricardo Belmar:
So, why not wellness and health care and things of this sort. So, I don’t think it’s a fad. I think it’s a true trend. I think I would give the CVS and Walgreens examples as well. I would not be surprised to see others follow afterwards. I think things like clinics, other health services beyond pharmacy, they serve from the retailers perspective, they add more layers of service to that customer relationship. It’s, in some cases, it may be addressing customers that aren’t able to get that type of care easily or readily through other means. But for those that have the means, it’s yet another convenience factor that, that brand, in this case Walmart, is delivering to them and it deepens the relationship. For Walmart, in particular, I think this is indicative of a trend. We’ve been seeing them, not just in healthcare, but, of doing things outside the box, from what we traditionally see Walmart doing. 

Ricardo Belmar:
I go back to acquisitions they’ve been making over the years, like Bonobos, ModCloth, even Jet.com, and you can have a discussion about how successful any of these individual acquisitions have been. But, I really see the strategy behind this and this sort of retail care, is trying to reach a new audience for them. If we think about Walmart’s traditional customer or stereotypical customer that people like to describe, they don’t necessarily reach what others like to talk about, a modern sense of a more urban progressive customer with lots of disposable income. That’s not who you think of as a traditional Walmart customer. And to some extent, I believe Walmart’s customer base is somewhat saturated and that, if they’re going to continue to grow, they’ve got to reach out to these other demographics. And, what a great way to do that than providing health services. 

Julia Raymond:
Yeah. So you’re saying, expanding their customer base, that’s probably one of the best outcomes from this expansion in their health clinic options in store. I just worry about the quality of care and the regulation aspect when you’re talking about mental health counseling. I just don’t know what that would look like. I mean, you’re going to Walmart to buy groceries, and then you stop by your therapist. I don’t know. So, interesting. 

Ricardo Belmar:
It’s a little tough to think about and get your head around. Right? 

Julia Raymond:
Right. 

Ricardo Belmar:
Because, we’re not used to the model. But, I think, at the end of the day, a lot of these things do have regulatory concerns that had have to be met. So, there is a minimum standard in there that the new retailer can’t avoid. So, if they’re going to go down this path, they’ve got to meet certain requirements, they’ve got to meet certain minimums. And, I think, a retailer may in this case have an advantage and that, they’re used to the competition for a level of experience. So they know that, if they just meet the minimum that regulations require, they can ask themselves, “Am I really doing something differentiated or different that a customer is going to want to come back and use this service again?” So, I mind that, a good retailer that does this will ask themselves, “How do I go the next step and make it better? So that I really do surprise people into coming to me for this kind of service, where they otherwise would have never thought to.” 

Ricardo Belmar:
And, I think that’s what gives a competitive advantage. I think it brings this competitive nature into healthcare industry, which in my opinion isn’t, frankly, all that competitive in normal circumstances. It’s very much a lot of sameness across the board that you don’t… And that’s why I said at the beginning, my feeling is that it’s ripe for disruption and this is the kind of disruption that we’re seeing. 

Julia Raymond:
Right. And if anyone’s going to have a great chance at being successful, it’s probably Walmart. 

Ricardo Belmar:
Probably. Yeah. 

Julia Raymond:
Yeah. Ed, do you have anything to add here? 

Ed Kennedy:
I think Walmart’s differentiator here is going to be that they’re going to try and drive down costs. I mean, that’s Walmart’s main value proposition to the consumer, is, everyday low prices. They’re an everyday low price retailer. I think they’re going to take that exact same approach to this. And, we’ve seen, even as early as last year, they were trying to buy Humana for $37 billion, and I don’t think it would be long until they actually do. So, I think they will probably buy a health insurance provider and integrate. They’re going to get full… They’re jumping with both feet into this. And, I remember when I use to shop at Costco, and you would get an air conditioner… There was always the air conditioner rep when you walk through, and I don’t know if you guys ever went to Costco, and there was always the… 

Ricardo Belmar:
I remember that. 

Ed Kennedy:
The store footprint was always used in that way. It was either when you were leaving or you were going in, there was, you could buy a jacuzzi and an air conditioner. 

Ed Kennedy:
Well, these store footprints are so large that Costco could do that. And such massive footprints, in terms of their square footage that, the marginal cost of adding that to their store was nothing. And I think, now that online retail has changed the dynamics of physical merchandise in Walmart stores, they don’t need to carry as much inventory, they can consolidate their footprint of the merchandise in the store, that leaves more footprint in the store available for healthcare. So, I think, we’re going to start to see larger entryways into these stores, into these Walmart’s, where it’s not just checkout aisles, there’s an entire set of services available. Which many Walmart’s already have, a lot of eyecare pharmacy built right in. But, now you’re just going to see that expand because they don’t need as much footprint for their physical stores because of what E-commerce has done to delivering products directly to consumers or putting that product at the front of the store so that the consumer can pick it up from an online order. 

Ricardo Belmar:
And you bring up a great point about the cost reduction. I’m remembering, not too many years ago, when Walmart announced they were doing a antibiotics for $4 prescriptions. And at the time, I think, everyone raised an eyebrow and thought, “Wow, how are they doing that? What’s going on here? Are they trying to disrupt healthcare?” And I think they were the first ones that did that. But, many others followed suit, where you could start to find these common prescriptions that people needed at a very reduced cost. So, I think you’re absolutely right on that one. And that, there’s got be a cost motivation here on how they’re going to differentiate. 

Julia Raymond:
But, with the Humana acquisition, is that something you think will happen in the near future? 

Ed Kennedy:
Yeah. It’s gotten cold. It was May of last year that they were looking at it. They were putting a PR push for Humana to sell. So, I wouldn’t be surprised if it did happen. But I don’t know exactly when. If not, I think they’ll go after someone else. I wouldn’t be surprised if they jump into this with everything they’ve got. They have the cash and, to Ricardo’s point, this is a space that’s ready to be disrupted. I mean, healthcare costs are high, the whole healthcare system is totally convoluted and confusing to consumers. Walmart can step in and provide lower costs and convenience and win loyalty that drives foot traffic into the rest of the store. 

Julia Raymond:
Absolutely. 

Ed Kennedy:
It seems to be a win-win for them, since they have the available capital to do it. 

Julia Raymond:
Yeah. So, coming months, we’ll look out for any big announcements from Walmart or maybe in the next year. But definitely, some opportunity for disruption, and we might be going to Walmart for health needs in the future. It’d be a totally new format. So, really excited to see what comes out of that. So, our last topic today is also about Walmart. As you guys know, there was some sad news the other month when 22 people were shot inside of the El Paso, Texas, Walmart. And, recently, they were tackling health care, but now they’re addressing the topic of guns, following that attack. So, they are going to stop selling certain types of ammunition at their stores. And, this is a big move from Walmart because it does impact their revenue. 

Julia Raymond:
Walmart CEO says the move’s going to reduce their market share of ammunition from 20%, so, it’s a pretty large share, to anywhere from six to 9%. So, definitely, some revenue loss there, but probably a smart move, considering all of the things that have gone on recently. And, with most recent consumer reports, and I know, Ed, your company actually released a report that backs this up. But, people are demanding that businesses take social and political stands. They want it to be part of what a brand represents. So, I’ll pass this on to Ed, first. How is removing the ammunition and the past moves Walmart’s done, in regards to gun inventory, going to affect its brand or its sales? 

Ed Kennedy:
Yeah. I mean, tragedies don’t change your political attitudes until it happens to you, and this happened to Walmart. And, I think this is, with zero response or a very marginal response, Walmart was probably quite pragmatic in this move. As much as it may be unpopular with certain demographics of consumers, 22 people died at a Walmart. And, if they did not make a response there… I mean, it’s quite sad to say it, but the ammunition they sold, how can they say that the blood is not on their own hands? 

Julia Raymond:
Right. 

Ed Kennedy:
 So, getting rid of the ammunition and getting rid of carrying in the store, are somewhat measured, even though, more steps, they’ve picked away at this for several years. So, I think they’ve waited long enough to take this harder stance, no guns in the store, not selling ammunition at all. And I think it’s because it could now start to negatively affect their profits. 

Ed Kennedy:
I don’t mean to sound so stoic and pragmatic and cold in the way that they may be calculating this, but I’m sure there’re many people that thought this was the right thing to do. But, inside that calculation, I think, is public sentiment towards this issue, is starting to tilt, where, I don’t think they’re going to lose consumers, necessarily, who will just choose to buy their ammunition elsewhere or choose to buy a firearm. Because, a lot of those are men and Walmart’s catering to the real purchase decision in the household, which is the woman who’s coming in, the wife who’s coming in and buying all these products. I think it’s actually a smart move to address that. Because, that demographic, female demographic, is more supportive of gun legislation and these types of moves. So, I think it’s quite calculated. I think, if they didn’t do something, that, they would’ve seen even more of a backlash about why they didn’t do anything. So, I think this is a calculated but smart move, on behalf of Walmart. 

Julia Raymond:
Yeah. Interesting. I like that you pointed out that their, maybe, target demographic is the purchasing decision maker of the household, which is more typically female. So, that’s a good point, in regards to this news. Ricardo, do you want to add anything here? 

Ricardo Belmar:
I think I agree, in the sense that, this is a smart decision by Walmart. They may lose some customers in certain geographic areas, but I really believe it’s more likely that, in the long term, they’ll win more customers over, or people who normally don’t shop at Walmart for various reasons, and now they’re more of a believer in the brand because of this type of policy shift. I mean, just anecdotally, I’ve seen over the past week, since this news broke from Walmart CEO, a number of people posting online saying, “I don’t normally shop at Walmart, but I will today.” 

Julia Raymond:
Oh, wow. 

Ricardo Belmar:
For every negative comment, I could see, anecdotally, I’m sure I saw at least five times as many positive ones in response to this. Obviously, not a scientific poll there, but I think it’s just indicative of general feeling amongst consumers and these kinds of very divisive political issues, that, of where a sentiment is going. 

Ricardo Belmar:
Walmart is not a brand that we’ve typically seen in the past taking positions on things like this. They’re certainly not, for example, like a Nike, who very openly takes positions on things. But, Nike has proven that they could be very successful doing that. 

Julia Raymond:
Right. 

Ricardo Belmar:
So, I think this idea, I’m in deference to professor Scott Galloway, calling on these woke brands that are starting to appeal to a broader demographic, probably from there, again, as Ed said, not to take a cold position on it, but these are retailers. At the end of the day, these are always going to come down to a financial decision, and I’m sure there was an analysis done that, even though they may lose share from this, and as you said earlier, 20% down to maybe 6% in this space, I suspect Walmart believes that by making this choice, they’re not only making a good choice, it’s a good sound decision to create a better shopping environment for the customers. 

Ricardo Belmar:
I suspect they also realize that they will win over some new customers and they’ll probably win them over in product categories and segments that are current growth drivers for Walmart. And, for example, look at grocery, right? They’ve become the number one grocer, I believe, from my last count, in the country. And that’s fueling growth for them. I’m sure there will be many shoppers who haven’t tried Walmart grocery or haven’t used any of their pickup or delivery service, from now might say, “I have a different opinion of this brand now. I’m going to give that a try.” And I think they’ll win people over that way, and that’s likely to offset any short term decline. 

Ricardo Belmar:
And, I know, I’ve seen some folks talking about or posting about brand boycotts for Walmart, in response to this. But, my feeling is either, frankly, these kinds of retail boycotts typically don’t work and they typically don’t really have any long term impact. I think, if you looked at, was it a couple of years back, when Dick’s did something similar, their sales went up the next quarter. 

Julia Raymond:
Yeah. 

Ricardo Belmar:
And, obviously, it was a completely positive impact. I draw an analogy to when CVS decided to stop selling tobacco products. 

Julia Raymond:
Yeah. It was huge. 

Ricardo Belmar:
I don’t think they are regretting that decision at all today.  

Julia Raymond:
Right. Exactly. And yeah, we forget about that, but that was a huge move. 

Ricardo Belmar:
Right. So, it’s not just brands like Nike. I think there’s plenty of examples, like, the CVS sticks where, making a choice that swings it up in a positive direction to consumer sentiment across the population, demonstrates that retailers are paying attention to the people that shop there and they’re trying to create an environment that makes people feel good about what they’re doing. 

Julia Raymond:
100%. So, I think it’s unanimous that, it’s a positive move for Walmart. And, in both areas, their decision to remove a good portion of their ammunition sales and then also their exploration into expanding their health centers. So, interesting stuff on both fronts, Walmart and Best Buy. I really enjoyed the rundown today with you, Ed and Ricardo. Thank you so much for joining, and I hope to have you guys as guests on one in the future. 

Ricardo Belmar:
Thanks Julia. I’ve enjoyed it. Happy to be here. 

Ed Kennedy:
Thanks so much.