The New Big 3: Hybrid Shopping, Sustainability and Purpose-Driven Brands | Karl Haller

Julia Hare: Hello and welcome to the Retail Rundown podcast. I’m your host, Julia Hare. Julia Hare: Joining the show today is Karl Haller. Karl is a partner at the IBM Consumer Center of Competency, where he leads a team of industry experts who develop transformational solutions and programs for leading retailers and CPGs across the globe. Before becoming a partner at IBM, Karl was a retail executive for flagship brands, such as Brooks Brothers and The Limited. Welcome back to the show, Karl. Karl Haller: Thanks, Julia. It’s great to be back. It’s nice to be back on the show and it was great to finally meet you in person at NRF this year. Julia Hare: Likewise. You guys had an amazing setup with IBM booth and it was good to chat about some of the stuff we’re going to chat about today actually, which is sustainability. Top of mind for many of our listeners and the retail executives out there. And you were one of four main researchers on this brand new study that came out in partnership with IBM and NRF, and super excited to pick your brain today on some of those findings. But first let’s set the stage a little bit for those of you listening. So if you think about consumers, they’ve been through the ringer over the last two years, but overall we note they’re resilient. They found new and creative ways to adapt to, some cases, extreme circumstances, and they expect brands to do the same to be adaptable. And at least that’s what this new consumer study has found that Karl’s going to tell us a little bit about. I’d like you to just introduce this study to our listeners really quick. Karl Haller: Sure. Thanks, Julia. So a small part of IBM that a lot of people aren’t always aware of is our Institute for Business Value. And this is a thought leadership research organization that exists within IBM. My team and I work closely with the IBV, which is what we call it. And we go out and survey industry executives and consumers on a regular basis. So as you mentioned, we recently launched our bi-annual global study, which we do in conjunction with the National Retail Federation of nearly 20,000 consumers in 28 countries around the world. Karl Haller: It’s a reasonably unique study in that we ask about shopping behavior. We ask about what drives brand choice and store choice. We ask about sustainability, and unlike many studies, we actually delve into different behaviors and habits at a product category level, because I think when you’re trying to understand consumer’s mindset and behavior, it helps to know if you’re shopping for clothing, groceries, major appliances or personal care. Julia Hare: I would have to agree. And a lot of the more blanket statements sometimes you make on the show, it’s just, you have to dive a little bit deeper in retail because it is so different, especially if I’m shopping for my new washer versus a new dress. So before we dive in a little bit deeper, I mean, you mentioned huge study for emphasis again, 20,000 consumers, 28 countries. This is very global. You’re talking about brand choice, store choice, sustainability, all things that are top of mind in this biannual study. Can you dive in a little bit, one of the first things you mentioned as I look through the report, is hybrid shopping. Is this the same thing as when we’re saying omnichannel or connected commerce, or is it a little different? Karl Haller: It really depends on what people mean by all the different terms. We’ve been living in what I would call a kind of a bifurcated shopping environment for probably the last 20 years. We’ve had store shopping and we’ve had online shopping or digital shopping or e-commerce. And what we see now is that consumers are shopping across both. And the hybrid shopping, which is one of the three big themes of our study, along with what we call a purpose driven consumer, and we’ll get into that in a little bit, as well as the continued rise of sustainability. Hybrid shopping is the type of shopping that is not solely in-store, and it is not solely online. So one great example is when you’re shopping online, yet you go to the store to pick up an item, or you pick it up curbside, or what’s also known as click at and collect. On the flip side is when you might be shopping in a store and either you’re sitting on a sofa, you’re looking at the size and the design of a refrigerator, you’re trying on a sweater, but you don’t want to take that home with you, or maybe they don’t have your size. Karl Haller: And so you’ll get that shipped from you, separately. And that’s an emerging way consumers shop, and it’s actually the primary method of buying for one in four consumers globally. Julia Hare: Wow, okay. One in four consumers globally. And Karl, we make a lot of assumptions sometimes, and it varies so much. And because you have the data, is this something that all consumer groups are saying, “Yes, I do shop like this. It’s all hybrid now.” Karl Haller: Yeah. It’s something that’s happening across every demographic group. We look a lot at generations. We look at baby boomers, gen X, millennials, and gen Z, and we find that hybrid shopping exists across all of those segments. Gen Z are actually the age segment that is doing the most hybrid shopping at their, I believe 30% primarily via hybrid, which marks a bit of a shift. Because I think we’ve seen with our studies and other previous studies, an increase in what I’ll call digital commerce as you get younger. And we expected to see a continued increase in digital commerce as you get younger. And what we actually saw is that, that’s true through millennials, but then when you get to the gen Z consumers who are roughly 18 to 25 right now, maybe 18 to 26, you see that hybrid shopping, they were the consumer segment that was most likely to say hybrid shopping was their primary way they buy. Julia Hare: Interesting. Okay. And I guess that would align with my expectations a little bit, but 30% is a high number. I mean, you could think of that as one in three shopping trips they make is going to be done in a hybrid manner. So is that across all categories of shopping, like that included grocery and apparel? Karl Haller: Yeah. Now, and it’s another great point. So not surprisingly, everything varies the more you break it down. So when you look at product categories, and again, I mentioned, we break into, we look at groceries, we look at personal care, we look at fashion apparel and footwear, and we look at home goods. And you do see different numbers. You do see different data. So in grocery, still just over 60% of consumers, primarily buy groceries in-store, 20% primarily by groceries hybrid. On the flip side, in-home goods, only 28% primarily buy home goods in-store, 40%. So four in 10 consumers primarily buy home goods hybrid. Karl Haller: And I think when you start to look at some of the larger home retailers, especially in furniture and big ticket home furnishings, you really see the development of the stores becoming the showrooms. And you’re not usually going to walk into a furniture store and walk out with a sofa. So hybrid shopping has always been there, but it’s something that’s getting more common as we look across all of the categories. I was surprised to see 20% of consumers buying groceries hybrid. As again, this is their primary buying method as what we asked them. Julia Hare: That was the one I am surprised about too, because I remember writing a report or an article last year in 2021 saying it originally was around 4% in a lot of regions of the world. It was still really low. So it’s a huge jump. Karl Haller: It is. It’s a huge jump, and in two years time. I mean, it was not impossible to do hybrid grocery shopping, pre-pandemic, but it was pretty challenging to do. Most big grocery stores didn’t really have a click and collect offer, or a buy online, pick-up in-store offer or a shop in-store, get it delivered locally, offer. It just wasn’t available, and when you think about consumer behavior, you go back and look at the rates of adoption of things like ATMs and cell phones and cable television back in the day. And those all took, in some cases, decades, and here we have a pretty massive shift in behavior, just in the past two years. Julia Hare: Mm-hmm (affirmative). And Karl, I’m not going to take your thunder away from this, but this is what really caught… I see studies day in and day out. So genuinely, this is what really caught my eye with this one is what you found with purpose driven consumers. So I want you to speak a little bit to that finding, because that one was truly surprising to me. Karl Haller: Yeah, this was a big trend, and it was something I first identified in the two year ago version of this study. And as I said, we spend a fair amount of time trying to understand why consumers pick the brands that they pick. And we ask a whole host of questions, and we do some statistical modeling and some cluster analysis to group people into categories. And what we found two years ago was this emergence of this group we called the purpose driven consumer, and it was largely concentrated in the grocery category at that time. Now, the purpose driven consumer, and I’ll define that, which is consumers who primarily select the brands that they buy and the products that they buy, based on how well those products and brands align with the consumer’s own personal values, their personal beliefs and personal values. That purpose driven segment accounts for 44% of all consumers globally. What we would’ve thought was the dominant group of consumers, which is the group we call the value driven consumer, is actually now only 37% I believe, of consumers globally. Julia Hare: And that’s a huge shift, because it flipped, right? It was value driven. Karl Haller: It is. Yeah. Yeah. It completely flipped. The value, it was last year, they were neck-in-neck. It was 40, 41% each, and this year, it changed. And not only did purpose driven become the largest segment. Purpose driven also became pervasive across all product categories. Where it was, it was much more predominant in grocery two years ago, but it didn’t exist as much in personal care and even less in apparel. Julia Hare: Wow. So now across categories. And do you think if we’re just giving a quick example, so in grocery, consumers were more concerned about making sure that their products were cruelty free and that it came from good places like the animals on the farms, if we’re talking about that. Karl Haller: Yes. And we do see some correlation of sustainability as one of those things consumers care about as part of that, as part of their beliefs and their values. It’s not the only thing. And certainly, the study doesn’t say I buy, I select brands only based on sustainability. It says, I select brands based on my own personal values. Now what we see is the importance of sustainability as a personal value, is increasing. So there is some alignment there. But yes, I agree with your example, and the way we looked at it two years ago, was that consumers cared a lot more about what they put in their body than what they put on their body, which was how we explained the difference with groceries, being very purpose driven in apparel not. What we are seeing now, is consumers are caring about what they put in their body, what they put on their body, and frankly what put around their body, if you think about the home segment. Julia Hare: Mm-hmm (affirmative). And you’ve worn a lot of hats in your career, but as a researcher, if you are just thinking from that lens, a lot of people could argue, oh, the pandemic caused a lot of issues with people’s personal finances. People lost jobs, there was a lot of challenges. So you might assume that value driven would still either reign more important or about equal or take over, because people are just caring about how far their dollar can go, but that’s not what’s happening. So what do you think is driving that? Karl Haller: I think we’ve, and we do not have actual data on this. So a lot of this has been discussion amongst our team and anecdotal evidence. I think there are a handful of things going on. I think when we largely shut down almost two years ago now, people spent a lot of time with their stuff, because you were just at home and you were with your stuff. And so you saw it all the time. And I think a lot of people, especially in the upper third of the income scale, people probably realized they had a lot of stuff, probably more than they needed. And they probably didn’t care about a fair amount of it. So I think that was one thing that was going on. And I think a lot of us went through, or a lot of consumers, I would say, my myself included, went through some level of Marie Kondoing, our lives, where we thought about what things really gave us pleasure and what we derived value from. Karl Haller: And I think a lot of people did some editing. And I think then, that behavior is carrying forward. I think another thing that’s happened as we all shifted a lot toward digital commerce in the depths of the pandemic, when most stores were closed, we started realizing the sustainability impact of all of those boxes arriving and stacking up. Because now they were something we had to deal with. And so, I do think there was a bit of a psychological nudge of getting people to think about sustainability, because they thought they saw things stacking up around them. And at some point, the third time you’re tying up boxes and taking them to the front of the house or taking them to the room in your apartment complex, where you put those things, you start realizing, “Oh my gosh, this is happening a lot. There are a lot of people who are dealing with this. Maybe I should think about how these goods are getting to me and have a different consideration of what my own environmental footprint is.” Julia Hare: Mm-hmm (affirmative). So that was a really great example, Karl. All of those behavioral, more anecdotal examples you gave of how people shifted their mindset a little bit during the pandemic. We have more stuff than we need. We Marie Kondoed our lives, as you said. We saw the boxes stacking up from ordering online so much, and it gave people more time to pause. Are there any other things that you wanted to note from the study, something that surprised you, or just one of the other big takeaways outside of the purpose driven consumer taking the reins and the information that you shared on the hybrid shopping? Karl Haller: Actually, the one thing on sustainability that I won’t say it surprised us, but I think it was a very interesting finding, is that all the stuff we were talking about, and every study will show this, sustainability is increasingly top of mind, it’s much more actively in our decision criteria than it was two years ago. But the thing we found, and this is true for all consumers, there’s often a gap between what we say we’ll do and what we actually do. And that was one of the things we wanted to test out in this study, is to see, okay yeah, every consumer says they’re more sustainable. Karl Haller: Our study showed that the majority of consumers, I think it was 62% say they’ll pay a premium for products that have a lower environmental footprint or positive sustainability benefit. And the premium is large. I think it was 70%, which was twice as much as what we found two years ago. So we said, all right, everyone’s saying this, yet we work with client every day and is it really happening? And what we found, is that there is actually what academics refer to as an intention action gap between what they say they’ll do, and what they actually do. And the way I look at… And so sorry, let me tell you what they found. So we found almost two thirds of consumers say they’re willing change their buying habits to reduce environmental impact. Karl Haller: So that was in the study. Half say they’re willing to pay more for sustainable products and brands, yet less than one in three, say that sustainable products made up more than half of their last purchase. So there’s- Julia Hare: The math is adding up. Karl Haller: Well, right. And that’s the thing, and this is that decision we all make when we’re in the store. I always look at it where like, okay, I’m in the grocery store, I’m picking up the gallon of milk, and where I am, I’m in New York City. So milk is just usually about $4 a gallon for the regular milk at the grocery store. And then, next to that milk at the grocery store, there’s what I would call the fancy milk at the grocery store. And that might be $6 a gallon, maybe $6.50, maybe even $7 a gallon, depending on the brand. Karl Haller: And that intention action gap, and that tension is when you’re standing there saying, I’m a good person. I want to be sustainable, but man, another $2.50 for a gallon of milk? That’s a lot. Julia Hare: Right. Karl Haller: And how do you get over that? And so, one, we found that it exists. And two, we asked people, “Well, what does it take to get you over that hump?” And here’s where it ties back to the purpose driven versus value driven consumer, with the value driven consumer, again, and this is a generalization, because everyone makes these trade offs individually. In general, with the value driven consumer, the sustainable option has to have no trade offs, same price, same quality, same selection. Frankly, some value driven consumers probably don’t even want to know if it’s sustainable or not. Karl Haller: It just has to be the default choice. However, for the purpose driven consumers, they are much more likely to say they will change their behavior if they have more information about the product. So maybe that is information about, well, what makes it sustainable? Maybe it’s information about where it came from. Maybe it’s a way to show how they’re purchased. That extra $2 for the gallon of milk goes to either help the local community that they’re in, that the consumer is in, or maybe it helps the farm community where that came from. Maybe it helps pay a better wage to someone working on that farm. Maybe it means a better condition for the cow. And you can think about this across sorts of products. There was a project we did a few years ago for a major coffee company. Karl Haller: And this was an IBM project where we enabled someone buying a cup of coffee to tip five or 10 cents. I mean, they could tip any amount, they could tip five or 10 cents, but it would go directly to the grower of the coffee beans. And there was huge uptake on that, because many consumers, when they’re given that option and they know it’s not going to line the corporate profits of some really big company, but it’s actually going to help someone directly. You start to see a lot of consumers taking that option, especially among the purpose driven consumer. So as we’re now working with taking some of the results of this study and starting to work with our clients, we’re trying to help them understand their purpose driven consumers versus their brand or their value driven consumers, and how they can use information, and what types of information they need to help give those purpose driven consumers the nudge to make that more sustainable purchase, which we think they want to do, they just need a little bit of help. Julia Hare: Yeah. And that nudge, the, “Hey, here’s the information, if you want to give the 10 cent tip, it’s really small, but it’s your choice.” And then they can say, “Okay, I have more information that aligns with my values. I’ll change my behavior. I’m going to give more money when I don’t have to”, is really interesting, because it validates everything that you’ve found about the purpose driven consumer and gives a little bit more insight into what that actually looks like in practice and day-to-day. And we could go on and on because I wanted to bring up, I spoke with someone else from your team about crypto anchors, and how that is creating a lot of visibility down the supply chain for retailers to get that information you’re talking about to the end consumer, which I found fascinating, because I think that could be the future. We might have this access to all products eventually. Karl Haller: Yeah. And the thing that we’re doing in crypto anchors, you’re right. It is a whole separate topic for the listeners. I would say, imagine to be able to trace something at every step of the way, without say, having to scan a normal QR code. A QR code is in a way an anchor that is on a product and that can allow you to scan something and look something up about it. What we’ve done is, we’ve taken these to, you could say a microscopic size, or sometimes it’s actually in the product itself. Every product has its own what I’ll call digital footprint, and that might be a chemical composition that might be a particular formulation, it might be a particular scent, it might be a particular graphic. Karl Haller: And what we’re doing is looking at how those things can serve as the anchors, so you don’t have to add an RFID tag to everything or add QR codes to everything, or add a hang tag to everything. The product itself gives you the information you need to do the traceability. It’s really interesting stuff. Julia Hare: It is super intriguing. Karl Haller: Yeah. Been headed up by IBM research, which is another very interesting part of IBM that a lot of consumer don’t know about. Julia Hare: So for our listeners, I highly recommend you dig a little bit deeper into that. And we’ll tell you where to find the report in just a minute. But Karl, I wanted to round out our discussion today. I’m not going to call any names of retailers, but there have been some in the past where they release these big press announcements about the newest sustainability initiative they have, they get a lot of buzz. And then later, you find that they’re stocking the landfills with all of the goods they didn’t sell. So is this year the one retailers get a little bit more serious on sustainability? Are you seeing that shift from an IBM standpoint? Karl Haller: We definitely are. And actually, I would say it’s not this year, it started last year. This was one of the things a lot of retailers and brands did during the pandemic, is start to dig under the hood of the sustainability pronouncements and ESG reports they were putting out, and realized that, hey, 2025 and 2030 are rolling around very quickly. And we’ve made these pronouncements about carbon reductions or about less water or sourcing routes to market, et cetera. And we did another study we did of executives. We found that everyone has these statements, but only about a third of major companies have in place the means to collect the data. And that was something that we’ve seen a lot of our clients start to take action on now. So I do sense a major shift among the large retailers and the large consumer products companies that we work with in aligning their sustainability and ESG targets into the core of the business, where up until probably last year, I would say sustainability operated in parallel to the business, and it’s now being embedded into the core of the business. Julia Hare: Wow. Yeah, that’s incredible. It was a great overview. And I like that you backed that setup that only 30% have the right data in place. So there’s a lot of work to do. There’s a lot of first steps to take or second steps, but eventually I think we’ll all get to the point we’re talking about a little bit earlier, with everything being incredibly visible down the supply chain to the consumer, Karl, where should listeners go if they would like to download the report that you shared with us today? Karl Haller: They can go to our IBM Institute for business value site, which is at ibm.com/ibv. Julia Hare: Perfect. And then if anyone wants to get in touch with you, is that cool? Can they add you on LinkedIn? Are you on those platforms? Karl Haller: Of course. Yeah, you can come find me on LinkedIn. It’s Karl Haller. Karl’s with a K, reasonably easy to find. Julia Hare: Excellent. And I’m going to steal this from my friend, Chris Ressa, I haven’t asked this in a while, but just off the cuff, what is one retailer you wish you could bring back to life? One that is no longer around that you miss? Karl Haller: Ooh, gosh, I’ve worked in retail for a long time. There are a lot of retailers that I wish were still around… Karl Haller: One retailer that I would love to see come back, is RadioShack. Julia Hare: RadioShack? And why? Karl Haller: One is, I grew up going to RadioShack as a kid with my dad. And so personally, there’s some just fond memories of that. And two, one of the things that I find is hard to do today, as a lot of those small package commodities have moved online, it’s hard to go to a local store and find someone who knows what you mean when you say, I need a thing, I’m a jiggy, it’s about so big, it plugs into the back panel of my, whatever it is. And that’s hard to do. You can’t do that on chat. You can’t do it on search. I’d say the same about local hardware stores that are actually staffed by someone knowledgeable about home repair, where you can go in and talk to them about the particular problem that you have. Karl Haller: Those stores are valuable in communities and they serve a great purpose. The economics have been a challenge for stores like that, but I think the community benefit and the cultural benefit is positive. Julia Hare: Well, that was a well rounded answer. At first, I was surprised you said RadioShack, but considering the nostalgia aspect and the community that it helped to bring, I mean, it is comparable to a local ACE Hardware when it comes to your tech needs. So I can see your point of view. Shout out to RadioShack, if anyone listening used to work there. All right. Karl Haller: Yes. I guarantee I’m the only person you were going to ask that, who probably would say RadioShack. Julia Hare: I like it. My brother actually worked there, it was one of his first jobs. But it was great to have you on the show today, Karl. And I hope to have you on again, you were full of insight. I mean, I can’t speak for everyone, but personally, I love when someone comes and backs up everything they’re saying with data, I just feel like it packs a punch to the conversation. So I really appreciated your time today. Karl Haller: Thank you. It was great to be on. Julia Hare: Great to have you.