Jason & Scot Show Episode 114 Great Retail Bifurcation, with Deloitte’s Kasey Lobaugh

A weekly podcast with the latest e-commerce news and events. In Episode 114 Kasey Lobaugh, Chief Retail Innovation Officer at Deloitte is back discussing his latest (unpublished) research on the Great Retail Bifurcation.  The interview was conducted live from the NRF trade show in New York.


Kasey Lobaugh is a Principal and Chief Retail Innovation Officer at Deloitte Consulting LLP, he first appeared on episode 68.  You can follow him on twitter at @klobaugh.  Kasey and his team publish some of the most useful research in the industry including The New Digital Divide which helps quantify the effect of digital on in-store purchases, and the Deloitte Retail Volatility Index which measures disruption in the retail industry.  Kasey sat down for an interview live from the NRF Big Show, to discuss some new research he’ll be publishing in March at ShopTalk.  Kasey is giving our listeners an exclusive first preview.

Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.

Episode 114 of the Jason & Scot show was recorded on Monday, January 15th, 2018.

New beta feature – Google Automated Transcription of the show


[0:25] Welcome to the Jason and Scott show this episode is being recorded on Monday January 15th 2018 I’m your host Jason retailgeek Goldberg and as usual I’m here with your Tahoe Scott Wingo.

[0:38] Good morning Jason and welcome back Jason Scott.

[0:42] Well Jason one of our most popular shows of 2017 much to our surprise was when we had our mutual friend Casey lobaugh on from Deloitte to share what they’re singing retail Casey is Chief retail Innovation officer and a principal.
For the retail practice at Deloitte Casey welcome back to the show.

[1:00] Thanks I’m I’m happy to be back.

[1:02] Don’t worry we’re excited to have you on we’re all here live together so that’s exciting too we rarely get to see our guest so I just want to say your hair looks amazing today good you’re having a really good hair day.

[1:12] I was up all morning.

[1:13] Yeah okay good good spot a product in there.

[1:17] Having the best hair amongst the three of us is not is a very well bar.

[1:21] Welcome to the super rarefied air of the multi time guests honored to have you last time on the show you give us your.

[1:30] Your full background but like obviously the the shows expanding exponentially so there’s a lot of listeners that may not have heard your first episode so can you remind us just a little bit about how you came to your role at delay.

[1:41] Sure thing and worse all thank you guys for having me back thrilled to be here long time listener how about that.
Set my background I’ve been with the lawyer a long time in the fact is I think about the number of years it’s a bit scary I’ve been I’m approaching 22 years with the lawyer in our retail practice.

[1:58] And you were the first teenage party.

[1:59] That’s right that’s right I do.

[2:00] Doogie Howser ability.

[2:02] Early on you know early on with with the letter i really focused on e-commerce so we’re talkin your 99 2000 2001 time frame you’re helping retailers,
Enrique’s launch e-commerce figure out what it meant to to operate.
The other operations in place and then we went through a period of time where we were helping retailer scale and it was really all about maturing business processes you had a new technologies that they gave more sophistication around e-commerce.
After that I did a bit of a pivot and started working on this thing that it’s time we were calling multi-channel,
omni-channel helping retailers figure out how the channels work together and did a lot of work around on the channel strategy and then more recently I spent a lot of time on the future of retail like where is it going next how should we think about it,
what are the implications how do we create in a winning strategies against a very fast evolving retail environment.

[2:57] Cool awesome let’s start with, taxable? Sitting here it’s January 15th the dust is still setting settling on holiday 17 what what do you think about what are some of the insights that you drew from holiday 17 come in early look of of what you got song.

[3:11] Great question you know so an interesting enough we do we do a report for our clients we don’t publish it,
Alba we do share with her with our clients about what we saw us we just put the wraps on that last night at the highest level I’d say it was a good holiday obviously we believe it’s the best holiday you and many many years now.
For retailers on upper upper around 5% 4.95% so clearly a good holiday and then,
no surprise e-commerce in a put up about 50% of the holiday growth but that also means that there’s some gross that’s coming from brick-and-mortar when you look at it and pure.
Dollar amounts it’s about a 60/40 split 60% of the gross you know coming from an e-commerce standpoint 40% of the growth dollars coming from brick and mortar and maybe that’s a surprise because we sort of look at it.
Brick and mortars growing up 1.71 .9% somewhere through there but when you do the math it’s actually a big amount of dollars.

[4:09] Yeah that was the 1% against 85 to 90% so so the number that squirts out speaker.

[4:14] We lose track of the number of dollars that come along and that’s one of the things we try and highlight the second thing I’d point out is so you know meaning of are the retailers in the marketplace I I like to stay there.
They’re celebrating but in many cases that you sort of have to look at that someone skeptically the markets at 5% so if you’re up.
2% if you’re up 1% that means you may have had positive results but you’re losing market share relative to the market so we sort of always have to think about these things.
Yeah from a relative standpoint so if you are as strong as the market.
But if you’re stronger than the market great if you’re not as strong as the market that actually shows that you still have weakness relative to you know what’s going on with the consumer and so I wouldn’t take too many Victory laps too soon and that’s part of what are our findings or reveal here.

[5:02] Obviously we’re doing this show from the internet Big Show in New York City I know you guys haven’t had a chance to get to the show yet any like expectations going in what it what do you think the big topics are going to be this year at the shop.

[5:17] Yeah so that that’s a good questions I think about the show one of the things I’ve heard a grown,
and I even tweeted about this earlier in the week was I’m always anxious to see what the new buzzword is the vendor seem like they’re in this this arms race to figure out who’s going to coin the.
The next bus word whether it’s.
Cognitive Commerce I saw you know seamless we know from years past multi-channel on Beach and I threw out those buzzwords lot around personalization a lot around blockchain and so there’s a lot of vendors who really trying to coin the buzzwords,
the interesting part is Buick historically the buzz words have never been the answer.
The right there if you think about it did you go back to we’ve done the study where you go okay back let’s go back 5 7 years wear on me Channel.
Was Devo’s new safe who were the ones that retailers that were winning around on me Channel and when you look at it you go they were winning because they had capability.
At the end of the day they’re actually we’re not the winners,
and so you still have to tear that apart and look at it and and be skeptical and I encourage everybody be skeptical of the buzz words and Sarah challenge whether or not those are are are really winning strategy so that’s why I go to the floor I’m really looking at,
what are the new Buzz words and what’s being said by the industry and how should we think about it.

[6:34] So I guess you’re not all in on cryptocurrencies not going to do at KCI Co.

[6:39] I don’t know though if we just added Bitcoin to the show here you’re at your Stockwood Skyrock.

[6:46] Yeah we we are going to do a Jason Scott Coyne so just to let you know later in the year we’ll talk about that.

[6:52] I don’t want to disclose too much too early.

[6:55] But I actually what I was at CES last week and like turn-up Kota to like literally launched us a cyber currency and got got some ridiculous kissing their evaluation.

[7:08] That’s awesome by the way I believe in the power of blockchain and I think it’s going to be revolutionary but that’s different than the hype around cryptocurrencies this currently going on.

[7:18] But then the show doesn’t want to talk about future stuff but,
what are the reasons you’re here on the show is you guys have a new report coming out in March and I think it debuted at shop talk so we’ll be excited to watch that and we’re really excited cuz you have offered to give our listeners an exclusive early look at the report here on the Jason Scott show.
The report is called the Great retail bifurcation this is a topic near and dear to my heart my full-time gig right now is on demand Car Wash what’s 50.
And I talked about this all the time because people say and I talked to some folks and they say why would someone pay for a service like this why don’t they just go to a $3 Car Wash so I,
bring up the bifurcation so you guys have been a great resource in there,
old report and I’m excited to see this new report coming out so let’s dig in the report let’s start out with you know you guys have,
come up you can write about a lot of different topics why the bifurcation and what’s the Genesis of the report.

[8:15] So one of the things we try and do as we try and look at what’s going on in the industry what’s conventional wisdom.
And you know honestly one of the things I always try and do it take on conventional wisdom about,
what’s going on and if you look historically you know we had done a big report that we called the digital divide that looked at how mobile devices were being used,
and we thought the industry wasn’t thinking about it correctly,
because they were thinking the industry largely at the time was thinking about Mobile in in into the degree it was generating transactions and we said,
we actually think we have to look at it differently and let’s look at how it’s influencing in store sales if you work all that reports,
that was sort of conventional wisdom first that we took on and then subsequently we wrote a report called the retail volatility index when you know a lot of retailers at the time were you thinking about,
and instill today about you know the big online retailer and to the degree that they’re affecting,
retail and so we took that on this a while there’s something else going on here and if you guys are call it was really the fragmentation of share that was happening that was happening at nearly the same Pace as we were seeing consolidation.
And so from that you know we started scratching her head about it.
The conventional wisdom today and we hear words like digital transfer retailers need to do a digital transformation or.
Yeah that the idea that there’s this retail apocalypse going on right now.

[9:47] Call Ed Mulligan.

[9:48] You have Molly getting nervous you know that somehow the industry is being young traumatically just dropped in and by the way that’s usually put in the context of people shopping online and not shopping in stores anymore we also heard that is a narrative that,
so it’s the millennial the Millennials ruining but he got to see the list of all the things the Millennials are ruining right.

[10:07] If they’re killing everything.

[10:08] Everything including retail.

[10:10] Fabric softener.

[10:10] So we decided this or that start big and clearly what are those.

[10:16] But not avocado toast their they’re putting all their money and avocado toast.

[10:20] The new things that the tide.

[10:22] Tide Pods yeah they’re it while they’re eating those.

[10:24] They’re eating that’s right.
So so we started to take on this conventional wisdom so we said so let’s figure out is any of this true and which parts are true and which parts might not be true.
So that was that was really impetus this her to take on the research at the time we didn’t know what we were looking for we just knew this was the conventional wisdom and we wanted to start tearing it apart.
So we started looking at by the way this this research has been going on for about 16 months now so we started looking at the economy first now.
At the time we were started as we started to dig into the economy we started the recognized actually strong,
now you know even if you clearly a lot of people to recognize today the strengthen the economy go back 16 months and all the signs were there that the economy was strong you know the unemployment rate is at near historic low,
you know already,
and that the home price indexes have Rick of the index has rebounded and it’s actually now got your the highest home prices we’ve ever had so record-breaking home prices consumer sentiments gone through the rough we know that and the median income.
You know for the for the consumer has now exceeded where it was in 2007 so by all.
Citations you going to go wait a minute we have we have a strong economy so how can we be having the retail apocalypse if if the economy stats.

[11:44] The good news is unlike the Great Recession of 08 it’s not on the back of it so people actually saving during this kind of unit boom cycle so so it feels like it’s Cena doesn’t mean it won’t go down but it’s definitely better set up then we had kind of liking o 6:07.

[11:59] That’s right I mean really if you think about that in the last year this idea about the retail apocalypse is really taking on a ton of momentum at the same time the economy and you know the consumer.
You know it’s strong right now only that but then you look see.
Markets gone through the roof right so we’ve got more you know more value on the balance sheet of our consumer and then even when you go over and you look at.
Retail industry the retail industry is actually showing strength and it’s been showing strength for some time.
You know one of the things we’ve looked at is the correlation between GDP and retail sales and there’s always been a strong correlation and in fact if you look back over the last 18 months retail has been outperforming the GP,
it you know at a pretty significant clip right so in 2017 we saw three and a half percent retail sales growth.
And at the same time we saw GDP about 1.7%.
If you look at the projections for this year gtp’s supposed to be strong last couple of quarters has been 3% or so and and of course the holiday we’ve seen good results there as well.
In our own survey we did a bit of a survey around the great retail bifurcation and ask people hey did you spend more in the last 12 months and what we found was 44% of people we surveyed said I spent more 41% said I spent about the same so,
is 80% spent the same or more okay that all lines up as well even when we look at.
Retail by categories we find strength now it may not be in all of the categories you know from time to time the categories are different but we saw that we’ve seen Home Improvement.

[13:37] 5.2% of beauty cosmetics and fragrance at 5% Home Furnishings 3.3 apparel seem softness,
about 1% by the way we’ve done a deep dive into apparel and one of the interesting thing was we found there is is a real deflationary pressure around prices that we’ve seen units of apparel growing faster,
but then with a deflationary pressure on prices and we’ll get a little bit into.

[14:03] You think that’s private label cousin on her.

[14:04] It yeah so as we think about the great retail bifurcations you hear me as we tear this apart one of the things we see you know has to do with with the consumer and their.
Available dollars to spend so if you did a couple that idea with our previous your report the talked about fragmentation of Cher let’s Bears entry we’ve seen.
Competitive forces really driving deflationary pressure so you’re off price you know fast fashion and a lot of these pressures for the build-up and they’re causing for deflationary pressure.

[14:39] So you know what’s that paint I just painted the picture that says.
The economy’s strong right relatively speaking and retails actually doing well write 3.5% who can complain about that so then that you know cause you to think further about okay.
Well then what’s going on what what what are we missing especially if you look at the headlines and headlines across the board you know from.
From the Press repeat this really you know they have painted this really bad picture about retail that means to me that.
There’s something missing so what we did is we said well let’s let’s keep digging deeper.
And there’s a there’s a quote I was love Sarah finding the right quotes to think about situations and Albert Einstein said you don’t have to know everything you just have to know where to look.
Okay so we took that we thought about that and in retail what where do you look like you look at the consumer right but consumer tells us.
You know what’s really going on so he said okay let’s take all of that and let’s dig deeper you know into the consumer so can we don’t know what we’re looking for.
So we looked at generational differences we looked at Regional differences with hypothesis hypotheses around Urban vs rural,
gender we really started trying to rip this apart and we did our own survey to support this we looked at publicly available data through all these dimensions and.
One of the things that started to reveal to us was when we looked at it through the consumers economic lens right.

[16:13] That’s where we started to see differences I’m going to talk to a little bit later about the idea about millennials,
the reality is we did not see dramatic changes generationally right we didn’t see dramatic difference is urban versus rural cuz I had some hypotheses around that it was really when we looked at it through this consumer economics lens.
That we you know we’re able to start to see some things so what we did we took.
We took the consumer and sort of broke them out into three cohorts and we use.
That the government’s classification around this around low-income middle-income in high-income starting to try and figure out how they behaving different how are they shopping different you know are they.
Your do they have the available money where they pressured right now those are the kinds of questions we looked at so the low income consumer you know has income below 50,000.
The middle-income 50 to a hundred thousand high-income is a hundred thousand or more and you know sweetheart to look at that interesting part it’s like a 40 40.
20% split so 40% of population low 40% mental 20% high and of course if you look at something simple like home ownership clearly you see that’s cute with 49% of low-income only homes + 83 + percent,
High income owning homes as we ever is reporting that we looked at income while how they performing from an income standpoint we looked at.
Non-discretionary expenses right cuz we no income minus non-discretionary leaves discretionary or disposable and really that’s the amount that.

[17:46] Really drives retail so we thought let’s rip that Apartments understand net worth difference is xcetera and here’s where we saw.

[17:55] A profound.
Difference here’s where this was the aha moment this is when we dug into this this is for us what what the find that the research report when we started to see how drastic the difference is worth and for me personally I would tell you you know Apollo retail.
I listen to that Jason Scott show I do everything I possibly can to understand what’s going on and for me this would really wasn’t haha MoMA.
So I know when we probably all know we’ve heard about the bifurcation of income between the income and low income we probably heard that for a long time but the degree to which it has happened you know in the last 10 years for me was shocking.
The degree to which event is happening last 10 years.
And so when we start to look at that the fascinating part about this like if you look from 2007 to 2015.
What we find is that over 100% of all income gains went to the top 20%.
Over 100% that means the other 80% of the population.
Didn’t do so well you know -2 flat fast for 80% of the population right so think about that in some ways I called this the last decade.
And for meeting of our consumers by the way it was I talk to my own colleagues I talk to the executives across retail like to remind everybody where where we fit where you fit as an individual within that because you have to keep in mind.

[19:23] You know you know that that you’re you’re doing favorably in this income it are in this environment if you’re an executive if you’re you know technology vendors many of the listeners of your shows and unlikely the owner of a car wash.

[19:39] That’s right the owner of a spiffy car wash.

[19:42] Regular listeners that the show will know that Scott travels with his own gold Throne that he’s actually sitting on right now is he’s doing the.

[19:49] Yes and I wear my unlike snoke I wear my gold robe.

[19:52] I’d say over over 20% of all income gains went the sky apparently right.

[19:57] Show me where this this was really profound I would say in 2016 continue to be in some income games and some of those games actually were spread out more than they’ve been in the past to where at least at this point.
In a SS 2007 low income has actually gone positive slightly but they’re you know that you see some some gain here.
The problem is income isn’t the only component here that matters right so I’ve heard this like why the stock market stock markets up right well the problem is is that.
The top 20% own 93% of the stocks so any depreciation in stock.
Is all almost flowing to the same top 20% who have gotten the income games,
and by the way I don’t have the facts behind this but it was my own personal belief that when we talk about digital disruption we talk about technology technology is fueling.
This is bifurcation of the income where you know if you think about the available jobs today read some of the other day that said there are now more.
Open positions that are going unfilled than ever in the history of our economy.
And you think okay why is that will unemployment rate slow while there’s a lot of people though that.
Positions that have gone off of the unemployment rosters there no longer speaking and it’s I believe it’s a mismatch between the available jobs which you know are more technology-oriented and available skill sets.

[21:28] Olympics Girl Scout on the 80/20 so so that’s a population so if there’s 300 million people in the US 80% are in that haven’t kept up in 20% or a head.
Does the wallet split preview it seems like the wallet because the 20% or so affluent it seems like they would almost be like.

[21:45] 90% the wallet 5% or 10 on the wallet sideways backflip.

[21:49] That you’re absolutely right right right so there’s a small percentage of population that’s really can controlling it a big part of that that you cannot expend.
So the interesting part though is you dig deeper as I dig deeper this only gets more pronounced because all we’ve talked about so far as we talked a little bit about balance sheet,
stocks we talking about income when we then look at non-discretionary spending this gets more pronounced in that non-discretionary expenses of skyrocketing.
And as they’ve skyrocketed the effect of the lowest income has been the most traumatic I mean think about Healthcare is during that same time. 2007-2016 up 66%.
Education up 41% food housing Transportation 1810 + 3.
Do you put all that together and you put that against a flat to decreasing income and what that does is it puts pressure on to disposable income or discretionary spending.
In fact when we look at when we look at that proportional impact it really becomes pronounced it that the non-discretionary expenditures for the lowest income of a 22%.
So again zero to negative and an 22% increase in non-discretionary spending.

[23:04] The only relief is gas prices are down from that time frame.

[23:08] That’s right that’s right so there’s some there’s some there’s some.

[23:09] It’s not offsetting what the increases.

[23:11] Hello it is funny I mean we’re talking about how these macroeconomic things affect consumers gas prices to me is always one that I think of is a little bit of a red herring.

[23:24] Close attention to it and follow it super closely but it’s it’s not a big chunk of that.

[23:30] Non discretionary budget for for the average household so it’s it almost seems like people sort of overweight at like we’re at their Healthcare is taking 30% of your not discretionary money in gas is taking 2%.

[23:45] Doesn’t matter the gas is cheaper.

[23:47] Right right you have to sort of look at it in aggregate that’s what we tried to do is look at 9 discretionary and aggregate knowing that there’s no shifts occurring and what was it was fascinating as I talk to her about deflationary prices.
And apparel and slice of a Factory CD player Sherry prices in certain areas we see inflationary prices,
I haven’t been able to tear this apart to figure out know what tribes that deflationary pressures what drives inflationary pressures.
I have my own hypothesis again this is not a proven fact yet at least that I’ve been able to prove out but I believe that those areas where technology has been able to make more inroads and more impact,
drives the deflationary pressures those areas where it’s slower to adopt.
Alesso so freezing by talks about Healthcare you know being an industry that I personally believe is still tons of opportunity and technology is not made as many in Road maybe it has an inner in other areas.

[24:48] So okay well let’s dig deeper okay this gracious let’s talk about the scratch the discretionary share of wallet then,
what’s the consumer left with the fascinating part here is low income has had a negative 16%.
Change in discretionary wallet in fact they’ve gone negative.
I ain’t 2015 their discretionary well it went went negative a dramatic change from 2007.
And if you go up the only the only cohort that had any increase in discretionary is the high income.
4% increase in a 4% may not seem like a dramatic increase but when you put it against the the amount of dollars that are you know coming in.

[25:34] $100,000 plus you.

[25:35] It’s a significant amount of additional money so when I start to think about that in fact you what we show is going to low-income.
Now has a net change in discretionary income of nearly $3,000 negative.
While the the highest income is up around $32,000 net change in their discretionary income so we got one consumer that has money.
Money to spend in one consumer who is more pressure than ever around.
Therefore you got to think about price sensitivity of the bottom 80% versus available dollars of the of the top 20%.

[26:17] You talk about low medium high at the very beginning now your time got two buckets what happened to the medium guys.

[26:23] Why I start a group those together I’m sorry so I start a group together when I talk about the 80 right who are doing not as well.

[26:31] Exact more like the low then.

[26:33] That’s right so I started just divide it like the top 20% doing well the other 80% is pressure.

[26:41] Okay so then I started thinking further about this idea about what retailers are really competing for discretionary income there two competing for disposable but we also know over the last 10 years something else has changed and that’s,
new categories of disposable and specifically we look just at 1 devices devices and data plans so if you went back to 2007 you know who was spending money on devices and data plans,
due 2016 of spinning at Force what we now know is all income.
Cohorts are spending on devices and data plans and if you looked at digital spin.
As a percentage of income digital meaning on the device for the low-income category except 3.6% just in the last year.
And high incomes only at .71% as a as a percentage of their dollars going towards this category okay so what was to say that.
For that low and middle-income categories that used to spend on certain retail you know items and spin.
There their discretionary disposable is squeezed and another portion of that is going to new categories or spend that maybe they weren’t too in 2007 just shows more and more pressure building up and for us we sort of you that is,
increasing the price sensitivity that those categories have right so that for us was sort of really interesting about.
Tearing apart the consumer because at the macro level the economy is doing well let’s not doing well for everybody okay at the at the macro-level you think retails doing well.

[28:20] Let’s dig deeper and figure out what what’s going on so what we started to do is to say okay well if that’s occurring how might that be manifesting itself on the retail industry itself.
And you know there’s another quote that I like to quote often is follow the customers they change.
We change and that was from the Tesco former CEO we talked about like evolving the value proposition of the retailer in accordance with what the customer actually wants crazy philosophy right.

[28:48] That seems super and Kim.

[28:49] That’s right it does so how can we look at retailers in the context of what I just discovered here.
And so we took retailers you guys know me I was like to think about Frameworks to measure performance of the industry in the aggregate we put together a framework to look at the value proposition.
Every Taylor’s simple-framework on one end of the spectrum we looked at price.
On the other end of the spectrum let’s think about it in terms of Premium premium products or services.
So if you’re a top price retailer you’re getting plotted in a to the left if you’re a Premier Service or product exclusive product your plotted farther to the right now.
How about called is a subjective plotting right because we’re just sort of making an assessment of where.
Retailers are relative to each other but we thought it was a helpful and by the way there’s a ton of debate.
Kind of debate myself my colleagues working through fighting and there was a lot of really in arguments about these relative placement.
A single dimension on a value proposition probably isn’t fair it’s more complex than that.
We use the framework to look at the foreman so as we planted everybody out we came up with three categories right if you’re on the far left let’s call that price based retailers if you’re on the far right.
Lascala’s Premier retailers and in the middle that’s calling balanced right so if there’s a retailer that doesn’t necessarily offer exclusive.
Really exclusive products or extremely exclusive experiences but they’re not cheapest either they a nice mix of Prada.

[30:24] And promotion in a Serta falls in the middle so those are sort of the three categories so we said okay we got three categories now let’s look at the performance of those categories.
And this again was another huge aha moment for us is when you look at the five-year Revenue growth of of those retailers for a price-based you actually find they’ve been incredibly well.
Insight over a five-year. The growth is north of 30%.
If you’re up earlier base retailer we also find their growth has been incredibly good in fact we find that north of 60% that we see.
His last drink there now the problem is and I gave you you may have noticed that I overlooked in that it is those Balance retailers over the same five-year. We’re seeing about 2%.
Growth of those okay so it’s really,
bifurcation of where the strength is in the industry and again if you were late that back to a consumer one consumer who is incredibly price-sensitive because of a constrained discretionary spending and another consumer actually has.
More money to make more decisions the questions are they buying more stuff.
Where they buy more premier stuff are they buying more Premiere plus Services you know oriented by the way you’ll hear a lot you know in the industry by all people want experiences not stuffing,
yeah I challenge you to look through the same lens is that all consumers want experiences not stuff,
I think there’s a lot of consumers who are just trying to get by you know with with squeeze dollars.
To figure out how to buy the stuff I need just to get by there is a consumer though who has more than enough money to spend on more experiential things than maybe they think they might.

[32:01] An inconvenience is a huge factor form to that’s what the whole car wash things about like yeah they’re they’re so busy because to make over that under K you can’t just you know you’re working 60 80 hour weeks the convenience factor for those premium retailers is a big.
Big part of it as well white why they’re choosing that retailer.

[32:19] I think that absolutely makes sense is that there’s an element here that says at some point you’re willing to change it trade dollars for time.
Hey has to do it while I have extra dollars I don’t have extra time right I’m willing to do that so anyway as you dig deeper by the way if you look just in the last year that same exact framework what we find is in last year except if your price based your up north of 6%.
If your Premier based your up 8% or so and if your balanced if you’re the balance retail your negative so weak that that cohort for us is negative 2% or so.
So by the way I would call out that not everybody in the cohort.

[32:58] Forms like the cohort rights and every cohort there’s an Amelie’s where there’s a price-based that’s negative and there’s a premier that’s negative in there someone balance is doing a little bit better than others so that that’s absolutely there.
In aggregate but we find a strength and weakness and that’s really what we were trying to identify.

[33:14] Yeah I need this is what hurts the mall base retailer because I’m all is neither you don’t go to the mall saying.
Oh my God I’m going to save so much money right you go to the dollar store the club and does usually Arnot Mall.
Y’all so don’t go to the mall saying oh my gosh this can be so convenient because you know if the park over here it’s busy hike over here and so some malls I think kind of end up being in that Wasteland in the middle right now.

[33:36] Yeah I met many of the companies that are warm all based absolutely fall they’re not although but many of them apps.

[33:42] But the Apple Stores obviously bucking that Trend but.

[33:44] By the way one of the things I did point out his this is a lens to look at the industry there are other lenses that also have a credibility you know the idea about are you off mall are you off you know re Mall based might be another lens to look at this.

[33:58] I would also just point out.

[33:59] All of these definitions shift overtime which is funny because there was a gyro in which you would have Define the mall as convenient.

[34:08] Like we put all the stores together in one place and surrounding them with a bunch of parking that was much more convenient than having to drive 15 miles to the store and today that same structure feels like.

[34:20] The inconvenient shopping experience because what are our expectations have just.

[34:26] That’s right that’s right.
I’m right by the way we looked at this then performance along a lot of Dimensions we looked at return on assets return on Equity we looked at PE ratio we’re looking at everything we can look at that they would help us understand,
performance of these cohorts in an across-the-board on every one of those Dimensions you’ll see the exact same.
You know if you looked at yet when you look at the graph in the report visually looks the same with strength on in the off price strength in the Premier and weakness you know in those that are in the middle.

[34:59] Even if you looked at here’s there there’s my other favorite conventional wisdom store closings.
This is closing stores the whole industry were closing stores closing brick and mortar stores that are being closed there’s actually if you if you need it out there’s more stores opening than there are closing.
Further if you then look at it via the same categories that I put forth you see the exact same thing occur you know price face retailers they’re opening up stores in fact they’re opening up stores like crazy.
Premier bass retailers also opening up stores and it’s that the balance retailers were the vast majority of the store closing you know is occurring.

[35:35] So there’s like 7000 closures last year I think is like the number that a lot of people put out there so you’re you’re saying that there was more than enough more than 7,000 openings around the the value side and the other side took character.

[35:50] What we did we went out and we studied at 10 Case press releases we tried to collect the everywhere we could and we use theirs there’s varying reports that include and don’t include some.
Certain companies but we were able to get everything we could see and what are what what are study found is that there were more opening in the work clothes.

[36:09] We also looked at net promoter scores,
long the same three dimensions and we find the exact same thing where you know consumers are 22% more likely to recommend price-based retailers than they are these balance based retailers their hundred 10% more likely to recommend Premier retailers than their balance.
Retail so we find the exact same thing that really has to do with what’s the consumer want.
This is the simple idea about how is the consumer changing how are the pressures on the consumer changing and then how are you as a retailer you know evolving and meeting those those changing to man.
By the way the interesting part here is if you look at digital through this lens right what we find is the vast majority of price-based retailers are physical with very little,
digital presence very little digital offering of course it once you get to the premier side you find digital matters a lot more as it pertains to Premiere but I was like to look at this through that lens of life.
If you looked at ticket take a price-based retailer who’s had signs of success over last 10 years and you look at them in and tell them they need to do a digital transformation or,
or go back 10 years time and tell them the way of the world is e-commerce,
they would have missed if they done either one of those things that she was opportunity they’ve had in the last 10 years the amount of value that they’ve generated,
you know my entire career has been about digital in retail and I certainly believe that the future of retail is predicated on digit.

[37:40] However I don’t think being digital is the only strategy I don’t think being digital is a sufficient strategy right.

[37:49] It’s not much of a differentiated.

[37:50] How much are the temperature like retailers need to have digital and Technology fundamentally sort of ingrained in what they do but how that manifests itself and how they create value propositions around that needs to be that’s the Strategic question.
So anyway that that’s sort of the Highlight you know you think about this great retail bifurcation says look on one side we’ve got income that’s really changing their for the consumers changing and therefore,
if we look at retailers in success or weakness it actually corresponds and I’m fairly well with what’s happening at the consumer at the wallet love.

[38:24] So if I made from value and Premier I kind of know what I need to do I’m in good shape but I’m balanced what do I do.

[38:32] Actually.
I’m not sure that anybody knows what they need to do I think that’s the that’s the hardest question because the world is evolving and Retail environment consumers evolving so quickly.
That how you think about that consumer and how you think about creating value propositions one of the things we believe is it is increasingly granular.
You know Aunt in the value proposition actually is also increasingly modular so instead of having the big you know.
Monolithic value proposition that you’re going to offer up to the consumer what we see is.
Fragmentation fragmentation not only of the market but fragmentation about how I approach the market if somebody call this personalization.
Right beside you that I talk to you different than I talk to you the next Consumer what we actually take that idea further.
And this idea that says no not just how I talk to you that’s a marketing thing but how I approach you how I serve you my value proposition 1 assortment I bring to you we got to take all those things and safe.
That has to come become increasingly granular granular and modular how I take that out the market that’s what’s happening to the competitive base and frankly that’s happened that’s what’s happening to the consumer as well.

[39:44] So so some of the.
So like Nordstrom and tax and I don’t talk about the Retailer’s but when I look at Nordstrom’s and Saks the kind of have two phases of the consumers they have the the luxury side and then.
You know then they also have the price side so that you know that Nordstrom Rack and Off Saks so that’s it seems to be an example, like what you’re talking about.

[40:03] Yeah what was that without a doubt that’s an example and in fact if you if you if You Pull A Part the vast majority of big strategic moves that any retailers have made recently they really do line up with this idea about some cases there.
They’re different brands some cases their Acquisitions of brands that you’d go while that doesn’t make sense with.
You with your customer base and if you looked at it through the Senate lens you got all that makes absolute sense less that’s a choir a brand that actually lets me approach you know and and capitalize on a different customer in my customer base.

[40:37] Well there’s tons of talk about Millennials word where do they fall into this mix.

[40:41] Yeah you know that’s that’s a great question cuz I was another thing we took head on this conventional wisdom that says this is all the money all the Millennials destroying all of this.
And what we found was.
Well I’m some ways that’s true but the reality is it’s more intricate than that so at the highest level when you average all Millennials together we actually find in our study we find.
They behave differently they behave in many ways that you might expect a shop online more often they go to the store last off,
you know those things but here’s what really is fastening when we when we separated the Millennials by the same income cohorts here’s where the big aha was as it pertains to millennials.
It’s only the high in Cumberland you that actually really skews the entire collection towards the behaviors that you would expect.
The low-income Millennial actually behaves very much in line with the low-income consumer so we looked at propensity the shop online and what we found is a low-income Millennial shops online roughly the same way a low-income person does.
Meeting Tom middle-income Millennial does the same way also looked at whether or not they shop at discount stores and we found the same thing very much in line with the high in Cumberland Hill though.
Is is skewed dramatically towards behaviors and therefore they as a subset,
of the Millennials actually skew the entire collection of Millennials that way so when you pull it apart and then it becomes really obvious now the issue that you have is when you look at the high income Millennial you find out that’s about 6%.

[42:13] The population or so it’s a small portion of the population that really behaves differently one of the things we counseling and caution is to sort of think that the millennial is a group.
Now is that consumer we actually have to play the part we also looked at an interesting question is fragmentation of spin when you do shopping stores how many Shores at stores do you shop at when you do stop and shop online how many.
How many different places to shop online and what we found was high-income across-the-board skews hired a fragment or spend across more retailers.
The millennial online shopper skews.
Almost off the charts in terms of the number of different retailers that they’re willing to shop shop with online that’s very interesting insight.

[42:58] The shop at a lot of very few.

[43:01] The highway promiscuous in the.

[43:03] That’s right that’s right that’s right.

[43:04] Does a user than play this but just to save it stated explicitly like so all Court cohorts.

[43:10] Gain wealth as they get older right so the older the color is the more wealthy 10 aggregate but one of the things that’s been unique about Millennials is they’ve gained wealth much more slowly.

[43:22] Then previous cohort So when you say hey there’s a a high-income group in a low-income group.

[43:28] That hiding from group is actually much smaller as a percentage of their total population then was true for Gen xers.

[43:36] Yeah that that’s a great point cuz we all like to imagine when we said around as retail experts that we are and we imagine you know a millennial and how they shot,
you know what there their they’re probably wearing yoga pants they’ve got 3 smartphones they probably avocado toast I think you mentioned that,
you know we got the idea of a millennial that the problem is that idea is a very small portion of the millennial one in five Millennials live in poverty.
2/3 of Millennials didn’t go to college don’t have a degree and the older Millennials 26 and 34 are the cohort with the highest rate.
Of uninsured medical incidents are the incidents that most frequent lead people into poverty so there’s many people who are millennials today who are not doing so well they really fall into categories that we don’t often think about when we talk about money.

[44:25] Yeah it’s fascinating and I run into some retail all the time is just.

[44:29] Our industry was born based on these kind of urban legends in the you know this kind of word of mouth like oh this is who our customer is this is what their economic situation is in in you know you’re you’re bringing us another example of.
When you really look at the data the urban legend off and doesn’t hold up but I used always chuckle.

[44:50] Personas are big thing for retailers he’s going to need to return to have this Persona who their customer is and I have this premise that on average every retailers Persona is 10 years younger than their average.

[45:03] Because I want imagine that they have this like young hip Shopper and yet that that usually isn’t who shopping in their stores.

[45:10] Something about this cuz I just I just shared data that most of it is you’re looking in the rear right we’re looking for looking back think about you know here we are interesting about the,
the buzzwords I’m in route back to this idea of the buzz words that were the big buzz words here at dinner after last 10 years.
In what I just showed was that there was something going on in the marketplace that none of the buzz words were.
Where anywhere clear to close to write were talking omni-channel retails the future in Mobile link.
Important in that they weren’t good and that if you did them right they wouldn’t be productive but there’s a whole collection of retailers that that went a Direction.
Around the cut off price you know that was incredibly lucrative over the last 10 years that none of the buzz words.

[46:00] That opportunity and when was thinking about business with him. RetailMeNot retail strategy we got to keep in mind that this is about finding opportunity.
Finding where those pockets are of of demand or pressure or needs that we we can figure out how to capitalize on those in and serve those and provide to those right,
and if we look into the future we have to figure out,
where are those evolving opportunities where they coming from next and how do we think about those too often and Retail we think about capability we think of mobile.
The capability when we don’t think about is is this idea of need right and the changing competitive environment and how our competitors are thinking about unlocking those opportunities so you know I got passion about this idea about.
You know Zig when everybody else zags write the passion about this idea about thinking in more granular ways about where there’s opportunity and being skeptical.
I’m a bender let me be clear I’m a vendor but be skeptical of us off of us vendors who who you know show up with the buzz words and show up with these simple ideas that are conventional wisdom about what success looks like.

[47:12] With the very rare exception of Jason and Casey be very skeptical of the vendors.

[47:16] That’s right you want to be skeptical of Scott.

[47:20] Scot used to be a vendor now he just helps make our life better by having our.

[47:25] Agnostic vendor so what channel does being somewhere so choose your own strategy.

[47:30] You guys now that that’s those are the highlights of the great retail bifurcation in the report you will be launching in.
The March will be sharing with few of our clients between now and then but in March we’re going to be in a launching it and you will see it will make sure we push it out to the market.

[47:46] Did you guys projected Ford like as it’s only going to get worse or so like some of the tax cuts and we’re seeing some people raise minimum wages for retail employees was trying to see some movement at that lower level I don’t know if it’s me and you don’t fit.
WD projector for door.

[48:01] There’s no projection on it but we certainly have had,
plenty of conversations of course this is it gets wrapped up it gets wrapped up very quickly and threw a political positions and thinking and and how you believe these things that are happening now policy changes made manifest themselves.
You know I would share my own personal view point would be that.
In a meeting of the changes that have occurred recently including the continued growth in the stock market skews towards one end of the Continuum you look at the tax cuts and you have to decide whether or not you believe.
The trick is trickle-down effect will.
You know ultimately find its way to the lower lower ends of the income Spectrum I’ll refrain from providing will have to have more conversations over a beer about whether or not we believe one way or another.

[48:51] We don’t get into Kenzie in economics here at the end of the show.

[48:53] That’s right it is it’s a great question about whether or not you know the things that are occurring from a policy standpoint or only going to accelerate this or whether or not they’re going to solve this.

[49:02] Cool Whip between now and when the reports out what should should listeners they’re interested in this topic where would you point them like maybe your Twitter feed or.

[49:11] Yeah so it will certainly in the Twitter feed will continue to offer more things out but I thought I would share this look we’re sharing with our clients you know that the initial findings I’d be happy to share you knowing conversation with anybody in a prior to our official,
no more States and reach out to me via email or Twitter LinkedIn any of those ways I’ll be happy to know begin sharing some of this there’s nothing super secret here,
let me thrilled to share this with anybody that thinks this would be helpful.

[49:40] Awesome and then what’s your Twitter handle.

[49:42] Caleb.

[49:43] Caliber.

[49:44] And we’ll put that in the show notes so you just have to click the link.

[49:47] Go to last topic so you spend a lot of time thinking about the future you you’re heavily involved The Singularity University and and you know we always have this fun topics around Ray Kurzweil and stuff what anything would we think about the next 10 years what does it hold for.

[50:01] And I always like to say you know if you think that you’ve seen disruption you know you ain’t seen nothing yet.
Cuz the reality is if you don’t we study this in the retail volatility index when you when you really think about okay is the industry being disrupted today I think pretty much people would say yes being disrupted but if you say.
Artificial intelligence isn’t disrupting and I can’t come up with an example this is all this is Ben and blockchain isn’t disrupting and driverless cars aren’t disrupting and you know advances and in human health.
So the vast majority of the the Technologies even that will see over it at interrupt.
Disrupting today the destruction that were talking about today is really after 20 years of first and maybe second year second generation internet Technologies.
Web IP protocol mobile devices you know so and we start celebrating him.
Of those and you know I look at it and go boy this next Generation that are just now coming online,
are going to make that pale in comparison but I finally I comes back to the exponential curve of advancing Technologies in the impact of those Technologies where we’re now starting to feel the acceleration of that.
And I think things like I think things like blockchain and its ability to.
Open up the marketplace are really going to have a profound effect once once we figure out what and how do you use blockchain to open up Trading.

[51:34] Inventory providers and customers and you know there are retailers today that play The Ledger.
In between suppliers and customers today what happens when you don’t need a company.
The place at Rolex that do I think I’m pretty bullish on that it’ll take awhile for that to you know evolve and unlock the advances in artificial intelligence there’s a great presentation of singularity,
on the advancements in what what like why now why are we talking about it now when you see that presentation about well here’s how far it’s coming The Last 5 Years it’s mind-blowing,
about how far it’s gotten so I’m confident that in the next five to seven years that will have a profound effect though you know I guess I tell people you ain’t seen nothing yet that’s my view.

[52:21] It’s funny one of the things I’ve learned from from Singularity is the human brain just isn’t wired to sort of.

[52:29] Project these exponential changes and so we have this tendency to think linearly and you go home and there’s been a bunch of change we’re probably.

[52:36] Most of the way through that change when in reality I wholeheartedly agree that like the overwhelming majority of disruption were likely to see his still.

[52:45] Still in front of us which is great news for the three of us at this table because there’s going to be a great role for our businesses and more importantly the Jason and Scott Show podcast.

[52:54] The interesting part I’ll add one more common is that it’s not usually the technology itself the technology gets all the attention it’s the changing.
Competitive Dynamics it’s the changing barriers-to-entry it’s the changing idea about what it means to compete.
That we lose sight upright weight we want to think about our competitive model as it stands and will attack on whatever technology is and in largely will be the same but the disruption comes from the changing.
Competitive environment that’s what changes not just that a you know my competitor now has a mobile app I need a mobile app to know.
That’s not it it’s like I talked to her earlier about deflationary pressures on prices and apparel it’s those sort of changes that come from the technology that we miss when we don’t double click and triple click into what are the implications.

[53:43] And the consumer changing more rapidly than we can react to him to your point about the the quote they have.

[53:48] One of the things we’re saying this is back to buzzword right this are buzzword we’re saying this isn’t the retail apocalypse it’s more like the retail Renaissance,
brightest idea that there’s a spirit of change that’s occurring we sort of put it into the to the Renaissance. Where technology became important in science became important and the question is whether or not you can evolve.
You know during the Renaissance.
And that’s really what we’re at because the industry isn’t week the industry has strength there are winners and losers it’s happening at a faster Pace than ever but it’s not the apocalypse.
You know and it in its demise it’s actually in its you know when someone gets in at a day here as we as we figure out how do we compete in a new environment.

[54:34] Well that is great news and that is a great place to leave it today because it is happen again,
we’ve used up all our a lot of time so we certainly appreciate your time Casey is a reminder if you enjoyed the Today Show we certainly appreciate a 5-star review on iTunes if you like to continue the conversation you’re welcome to.

[54:52] Click on over to our Facebook page and leave us a comma.

[54:56] Yep and a kind of a fun thing is you get to play you are in a rock band so you have in your your your night gig are night gig is podcasting in yours is playing a bass guitar so there’s a big a jam session at the Retailer’s get together at the soap look forward to seeing you rock out tonight.

[55:12] And I look forward to it.

[55:13] Until next time happy commercing.


  1. […] was last on the show for Episode 114, where he introduced “The Great Retail Bifrication.” This time, Kasey is back with a new […]

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