A weekly podcast with the latest e-commerce news and events. Episode 213 is an interview with Kasey Lobaugh Principal and Chief Retail Innovation Officer at Deloitte.
Episode 213 is an interview with Kasey Lobaugh, Principal and Chief Retail Innovation Officer for Deloitte. This time we discuss a report Deloitte published last year “Boom, gloom, or doom? What the next recession might mean for consumer companies” which is suddenly very relevant to retailers facing the Covid-19 epidemic.
Kasey also gives a sneak preview of new report exploring the history of predictions around “The Future of Retail”. Look for announcement about that research on Kasey’s twitter feed @klobaugh
Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 213 of the Jason & Scot show was recorded live on Thursday, March 19th, 2020.
[0:24] Welcome to the Jason and Scot show this is episode 213 being recorded on Thursday March 19th 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
[0:38] Hey Jason and welcome back Jason Scott show listeners Jason one of our most popular annual Traditions now
second only to our annual predictions is when we have our friend Casey lobaugh on from Deloitte and he is systemically been able to share with us some really cool insights what’s going on with retail and consumer Behavior.
Personal favorite and I talk about this all the time in my pitches is the bifurcation difference between the convenience working to consumer in the valuing consumer
so that’s all Chestnut for me so I’m really excited to have Casey back on the show.
Tonight’s an extra special Casey appearance first of all he canceled his fancy Australian vacation to be on the show so we appreciate them doing that
and then second of all he was set to reveal some pretty interesting to research around the shop talk conference but that was moved due to this pandemic
thing that we’re dealing with so we twisted his arm and got Casey to to agree to reveal This research on our show tonight so we’re really excited welcome back Casey.
[1:44] Thank you I’m thrilled to be here.
[1:46] Yep and you you have a very interesting title so let me get to see if I can nail this Casey is Chief retail Innovation officer and a principal for the retail and consumer products practice at Deloitte
and you know that’s pretty worthy title and it makes soup Jason super jealous because he’s tried to jam as many words in there and I think he’s only got a quarter of what you have.
[2:08] That’s that’s the correct title this week who knows what it’ll be next week.
[2:13] Yeah and for the record of all the things I’m jealous of about you Casey that your title isn’t even in the top 10.
[2:20] Well thank you I’m plenty plenty jealous of you for all the things that you do as well.
[2:28] That I don’t know what those could be but I’m I’m I appreciate the praise know and accept the praise nonetheless.
[2:35] I’m starting to feel like the awkward third wheel over here I’ll I’ll go on mute while you guys do whatever it is you do.
[2:42] No but.
[2:44] Jason Jason III really really think highly of you and Scott you’re here as well.
[2:53] Kasey I share Scott’s enthusiasm about having you on the show because I desperately need Scott to get a new Chestnut so I feel like.
He’s reading your last Chestnut for like several years and we got to get him some new material I was hoping he wouldn’t bring up our annual prediction show though because spoiler alert later in the show you’re going to totally debunked.
[3:17] Right right we’re going to talk about some of the research we’ve done.
[3:20] Yeah but that being said I know you’ve been on the show a number of time so our most loyal listeners are pretty familiar with your background by now but as you may know
we have a massive new audience that’s growing all the time so can you kind of give us the highlights of your career and.
What all those words in your title mean at Deloitte.
[3:43] Oh I’m happy to do that so and I I think I’m losing count now but I’ve been with Deloitte in our retail practice now I think it’s going on 20 23 or 24 years
and in that capacity really during that time I’ve I’ve served the vast majority of the world’s largest retailers.
Mostly you know helping those retailers sort of grapple with with whatever was on the horizon so you know early on in my career I was helping retailers
with you know moving online so I did a lot of work with just the the.com portion of retailers
you know early on when I did a lot of work around you know omni-channel and how the channels come together how we need to think about inventory differently and and these days are really thinking a lot about where retail goes next
how do we pay attention to the signs and how do we read those signs and how do we help our clients sort of navigate through that so that’s really the quick flyby of my career with Deloitte.
[4:46] Cool so we covered the pandemic last week so don’t want to go back into that and frankly it with a good our job is to distract people from from all this stuff going on
but you know one thing I think we all agree is that this kind of
crisis has created dramatically increased the recession that will fasts will face the recession here
part of the research you guys have out there one segment is this is kind of I guess
pretty good prediction you had said that there’s probably a recession on the horizon and then you guys were talking about what that could mean for Consumer Behavior retailers consumer product goods let’s dive into that give us give us some highlights of that research.
[5:28] Yeah sure thing now first of all this this research at this point is probably about 8 months old and about 8 months 9 months ago you know
of course if you’re around the industry long enough you’ve seen you know the economic cycle is about eight or nine months ago there were signs that started to say that
the economy was starting to weaken and so we had gotten organized around that and done a piece that we call are you ready for the next Consumer recession.
And the signs that we were seeing at the time where you know several first of all you know we know that the US has faced a recession every on average about 6.1 years and it has been
nearly 10 years since the last recession so that in and of itself led us to believe that you know at some point we would be facing a downturn in the economy.
But more importantly and probably more ominously the the yield curve actually not only flattened but then inverted.
[6:23] And for you know those those of us that sort of follow economics and.
You know think about those things the yield curve is really where you know short-term interest rates you know are inverted with with long-term interest rates and it’s it’s known as sort of the number one
a recession no it’s not it’s not completely foolproof I think they say it predicted nine of the last seven inversion of the yield curve predicted nine of the last seven economic downturns
so we saw that occur you know roughly a year ago we also saw tightening monetary policy we saw Rising asset prices and really ultra low unemployment you know which which.
[7:05] Can and did and was starting to result in in Rising wages and inflationary pressure though the inflationary pressure really hadn’t appeared to the extent that we thought it was going to but those are just the ominous clouds and and of course you know.
One of the things I say about this is that this is like to use an analogy it’s like.
California comes out and says look we don’t want you burning bonfires because.
[7:31] It’s really windy and it’s really dry and conditions are ripe for for economic downturn
and so really that the clouds that I’m talking about these ominous clouds were really those signs that said we’re not sure what the spark will be
but we do know that the conditions really are starting to set themselves up for for this downturn and by the way you know any any spark that you’ve ever seen whether it was 9/11 or any other you know economic
event that’s occurred you know often times you can look at that and say boy that was.
You know how would you have predicted that that would have been the spark that really pushed us into you know into whatever economic position we get pushed into
so you know we weren’t trying to predict what the spark was we were just saying the conditions were starting to get ripe and there’s a there’s a quote that are I work closely with Danny Bachmann who’s our delete US economic forecaster.
[8:26] And he’s got a quote that I like he says I can predict with a hundred percent accuracy that the US economy will face another recession.
And then in small print he would say I just can’t predict when so we kind of knew you know something was coming we knew that the
potential is out there but of course we’re we weren’t even attempting to predict what that was
so then we said okay if you know knowing that that’s the case let’s look at previous recessions specific to retail and consumer products and ask ourselves you know what can we learn from those.
So we looked at the last two recessions the.com burst and then of course the Great Recession in 2008 and when you look at those recessions and you look at the,
the the market impact the impact.
And the recession themselves were different right the cause of.com burst was over Valley tech stocks and then the Great Recession was the housing market crash.
If you looked at corporate profits you saw two very different recessions as well.com burst corporate profits dropped only by 0.2% and meanwhile during the Great Recession they drop by 13.5%.
And the same on wages and salaries the impacts were very different as well the differences were in the labor market.
So we don’t know exactly how the next recession will play itself out but when it happens.
[9:49] It’ll likely have a significant impact on the consumer and the consumer companies that that’s what we we sort of highlighted so then we said okay well if those things are different.
You know where there are things that were.
Common where the things that we can actually pull away from those and and he’s actually become really important as we think about our situation today but we came up with three things that became very clear.
Happened the first was the growth in digitally and e-commerce.
Now of course we knew that e-commerce was growing but when you look at the numbers you look at it comparatively to brick-and-mortar we actually saw in both cases and acceleration.
Of e-commerce During the period of economic downturn now overall like retail you know showed weakness but when you pulled it apart what you actually saw was acceleration of e-commerce.
[10:42] In addition to that what we saw was.
The rise of new competitive entrance now this is really interesting because you know something was happening at the same time you know barriers to entry were coming down because technology was changing but also Capital was becoming increasingly,
cheap right as as the FED move to increase liquidity interest rates came down what we actually found was there as.
It’s this combination of barriers to entry falling and and available cash was actually allowing new competitors to enter the market at increasing rates during
and right after the economic downturn this included not only
you know new small digital native startups but we also saw European retailers
you know aggressively accelerating their growth in the u.s. marketplace we also saw consumer products accelerating their direct-to-consumer efforts so all those things together where this this new competitive entrance that that really,
were fueled during the downturns.
[11:43] And then finally and this is sort of relates to the bifurcation that you talked about Scott Lee saw the rise of discount players consumers really materially shifted to the discount players and they were experiencing average growth rates of about 6%,
while the rest of the retail industry was declining about 5% in particular during the Great Recession and after the Great Recession discount maintain that growth rate.
That they had you know obtained during the downturn so the consumer learned of a new Behavior consumer found a new channel of course that channel ended up with a flood of.
You know of quality because the traditional retailers were really trying to liquidate product so it really sort of added to the to the mix so if you think about those things as we said here today you have to ask yourselves.
You know how will those play themselves out you know we believe that we’ll see an acceleration of digital and e-commerce will we see.
Discount and an off price you know accelerate as well.
[12:48] In addition to this we see something happen with the consumer the consumer based fundamentally changed.
Due to the uneven economic recovery it happened after the first downturn of the.com.
Bubble bursting and also happened after the toothache 2008 recession if you looked at discretionary income changes during the.com cycle.
And the Great Recession cycle they were very uneven so for example if talk about the Great Recession from 2007 2017 if you were in the low-income bracket you actually ended up,
decreasing your discretionary income by three thousand dollars at the same time if you’re in the high income bracket up.
$18,000 so it was real uneven recovery and a largely that came from that came from.
[13:39] Well many facets but one facet was availability of capital so.
Liquidity slated to the market if you had good credit ratings you could Access Capital at very low interest rates.
The problem is at the same time that liquidity became available because the housing bubble you know led to the downturn we actually raised.
The regulations and raised the criteria by which we would give people loans so if you were in the high enough income bracket you could easily secure a very low interest rate loan,
the lowary off you were the less accessible that Capital was to you.
[14:18] So coming out of all of that then what was interesting this is a this is something we highlighted this year ago was this idea that if you looked at the industry of retail there was something going on you know even a year ago that was really
a little interesting and maybe a little disturbing and I was a substantial decrease in the return on assets.
That the industry was was showing and if you go back over the last 20 years 30 years what you’d find is during times of,
I’ve strength the industry would have growing increasing return on assets and only during economic downturns with the return on assets start to slip and go you know move in the opposite direction.
The problem is for retailers starting in 2012 even though we were in strong Economic Times and we were coming out of a downturn we were in the recovery starting in 2012 we actually started to see a negative.
Yeah yeah impact on returning that on assets we started seeing return on assets moving down all the way through 2017 as if the economy was actually not doing well in fact it was,
and that sort of leads to the question of what happens to an industry that is operating in
in a relatively healthy economy but they’re showing signs of weakness when it actually gets weak so I know that’s a lot of information about the research it was pretty fascinating and go through it and of course it’s more interesting to me now to look back on the research given where we’re at today.
Does that make sense.
[15:44] It totally makes sense and just to augment that one point you made like you talked about the acceleration of digital through these.
These recessions that you track.
That that’s even more surprising because you kind of looked at a couple specific recessions and one of them was the.com bubble right and so there you go,
you know man did it people overvalue dot-coms did they also sort of overvalue the utility of dot-coms and so you might have expected.
Digital shopping to decelerate when a.com bubble threw us into a recession and even there you saw digital grow.
[16:26] Yeah interesting that the way we looked at it was
and on a relative basis because of course you saw you like right in 2008 we actually saw you know retail softens sort of overall but when you looked at it relatively speaking and said okay when someone is shopping retail you know
which way are they shopping,
so you have to look at it that way to understand the acceleration because the acceleration actually occurred during a period where it looks soft and it looked like the market was softening but when you looked at it relative to brick-and-mortar that’s where you really see the acceleration.
[17:01] Yeah no that makes perfect sense so I read I got thank you for reminding me about that research I read it when you published it but then it was.
Prescient to kind of re read it right now in my big takeaway is like that there’s demonstrable evidence that these recession events exacerbate bifurcation right both of businesses.
It seems like there’s a chunk of businesses.
The do better in the recession than other businesses that there’s a gap that opens up and also as you would have to recently.
It exacerbates bifurcation of consumers and you talked about the Gap in real earnings but you’re in your report you also talked like.
Literally life expectancy there’s a big gap between affluent consumers and non-employment consumers.
[17:52] Yeah the idea of economic bifurcation is so prevalent when you really start to use that as a lens and you’ll hear me talk about this on every one of our research reports because it just.
Constantly comes back up is the whole Market wants to be fixated on age.
You know as a driver of behaviors but over and over again what we find is it’s this it’s the economics and this economic bifurcation that dramatically is more important.
To how consumers are behaving than ages so po what I say is people behave like their income.
Not like their age and I’ve got so many data points so many different lenses that we’ve used to prove that time and time again.
[18:36] Yeah Amen on that I feel like the age was actually never that,
never correlated that well but it just that was the attribute we knew about our audiences right and so like that was the attribute that everyone used but so when I will get your research and I say hey,
what can I business leader that’s contemplating like you know all the.
Current events you know there’s there’s a very real chance that throws us into a recession or at least recession like economy what are some takeaways for how best to.
Sort of be one of the winners in that bifurcation and I there a couple things that jumped out at me but like do you have sort of a top level 4.
Wait what’s the general advice you give to someone about thinking about the kind of Investments they should make and the.
The kind of financial moves they should be making like when they find themselves in a.
[19:35] Yeah well actually the advice is better about how to think about it before the recession think about it before you find yourself in in really difficult times.
What we’re finding increasing as you can’t fall back on the old Playbook you know compressing vendors cutting sg&a reducing headcount feeling Back Store labor and just going promotional if you look back at who the winners and losers were coming out of both of the previous recessions
what’d you find out was those are not the playbooks that that led to healthy successful outcome what we found was,
for those retailers that increasingly really focused on why they matter and I know that’s an easy thing to say but but what you find is is that.
I must say it’s like being.
[20:23] Knowing what it is that your consumers really value about you and then being Unapologetic about investing into that so if you’re an off-price retailer you know know that and then invest into that,
if you’re you know if your product is supreme the know that in invest into that and what we found is that during these times and you falling back on the old Playbook we.
You know our retailers in the marketplace consumer products companies you know often times focus on the Playbook and they lose sight of that
we also said build a war chest to invest in the growth cuz it’s during these times that those companies that found themselves you know investing into
the structural change that’s happening during the downturn are the ones that are best positioned for what’s about to occur coming out now,
if you find yourself in the recession and you haven’t invested into the war chest that allows you to invest into that growth you really find yourself in difficult position because you can begin to see the market.
You know come back together get healthy and start to thrive again but you haven’t you you know you don’t have the resources that allow you to you know aggressively invest into that we also know that embracing technology automation
to increase your leverage during the times of growth.
[21:39] And then looking outside your four walls to embrace new Partnerships those are the things that really came out when we looked at who won and who approached you know the growth coming out of downturns.
Differently as opposed to the old old Playbook I I love this quote that Benjamin Franklin.
[21:57] Had we said by failing to prepare you are preparing to fail.
And that’s why we wrote that’s why we did the research because you know eight months ago was the time when we were you know trying to get our clients that sort of recognize that the risk was increasing and that they really needed to you know begin to take it seriously and begin to prepare.
[22:18] Yeah it is I think that’s fascinating in that I had an early Mentor who was a very very successful retailer Wayne huizenga and he used to constantly heart on this philosophy that.
In economically good times that’s exactly when you should most be focusing on cost reduction and cost controls and in economic down times that’s exactly when you should be investing because your your.
Capital actually works harder and gives you a higher return in those economically distressed times than it does when everybody is pretty flush.
[22:56] Yeah I think that’s that’s that’s easy to say it’s really hard yeah I always like to put my practical like as
insulting it’s easy for me to say here’s what you need to do but I was trying to put my practical hat on and recognize how difficult that really is to do
that said when you look at who the winners and losers were coming out of the previous recessions that’s exactly what they did.
[23:17] Yeah I briefly tried to learn how to ride a jet ski once and counter-intuitively when you’re about to fall off the jet ski and it’s unstable
the correct thing to do is give it more gas and go faster because that’s what makes you stable but it’s not what your brain wants to do.
[23:34] That’s a great analogy.
[23:38] Well that is awesome one last question on sort of learnings from recessions do you have any point of view like.
So you’ve got a consumer that go through a recession you know consumer confidence goes down you know eventually those recessions in.
Do we tend to see consumers behaviors rebound and do they act exactly like they did before the rebound or do these recessions tend to have sort of a hangover effect on consumer Behavior even when the economy turns around.
Without a doubt our research research tells us that the consumer adopts new behaviors during the down times that they maintain coming up.
So I I would expect a lot of the behaviors a lot of the things we see going on even today with people adopting new behaviors that that those are going.
Accelerate those are going to become prominent and I don’t expect those to fully bounce back I I would expect some behaviors to you know to bounce back somewhat,
however I think predominantly I’d say the people are learning new behaviors as they do they stick with those new behaviors.
[24:51] Michael hopefully on-demand car washes one of those papers,
all right well now that we have all that kind of Downer recession pandemic talk behind us let’s dig into the new research Casey what’s the high level of how you guys came up with this and what you’re revealing on the show tonight.
[25:10] Yeah sure thing
you know here we are its 2020 and we are the number one request for getting from our clients is it tell us about the future.
Of the industry tell us about the future of retail or we get you know the future of the store and of course that seems to be a topic that that that is hot with our clients but it’s also you know very well published out there so we looked at it and just said,
okay you know how would we think about it how would we approach that topic and how do we do it in a different way than maybe you know has already been done and that’s really what what got us to dig into this this research that,
you know that we call retail and consumer products 2020.
[25:54] Cut it and you were kind enough to give us a little bit of a sneak preview of the research and I have to say I really enjoyed it and looking forward to when you publish the final version
in there you kind of talk about seven Trends you know of what this retail 20/20 looks like
I thought they were all really good so maybe give us a high level overview and then Jason and I want to tease apart a couple of.
[26:17] Yeah before I do that let me give you a little of the Segway that gets us to the seven trends.
In in the research one of the things we did before we started our own research as went back and said,
you know how good is the industry at this idea of predicting the future so we went back and spend time over the last 20 years of research is trying to assess.
How good are we as an industry and there’s great you know Publications a lot of great you know commentary that’s out there but what you find when you summarize it all together is,
we’re really not that good as an industry.
Professing the future and then the question is well okay well if we’re not that good as an industry we haven’t been that good at it for 20 years what makes us think that you know that we had Deloitte and the way we’re going to research this is any different.
[27:09] And it’s really the findings that relate to his kind of that backwards view that gets us to how to think about this problem differently and the way I like to call it is let’s move away from prophecy.
And let’s actually get practical okay because what you’ll discover is most of the future of pieces are just.
Prophetic there’s just people sort of imagining pie-in-the-sky with the future will be like
and and the Saving Grace by the way generally is they never tell us when the future will be here so it’s potential that all those predictions they make will
you know will be true at some point however the vast majority of the predictions that have been made over the last 20 years actually as we sit here today are not true.
[27:50] Okay so if prophesizing doesn’t work then if I look back in history how would I have known,
we’re we would have ended up as an industry and the interesting part is it’s actually there
it’s actually there in the data if we’re actually paying attention to what’s going on in the data we can actually play out trends that lead us to where we’re at today
so that’s the Segway and that’s sort of the the approach that we said okay so if we’re not going to prophesize about the future let’s go look at the data.
And so we looked at our we’ve got a group with that we call our Center for Consumer insights that has phenomenal data,
a lot of different sources of traffic and sales and consumer behaviors Etc and we said
well what’s the data tell us about the future and that’s where through working with the center for Consumer insights we came up with the seven trends that we see that are broadly
shaping the future of retail and consumer products,
no by the way you got to recognize it retail and consumer products is a really broad industry said everything from apparel fashion luxury goods to grocery you know consumer products tables Etc so these are really Broad
you know in their application but I’ll go through what those seven are that the data tell us the first one is commoditization and premium ization
[29:15] And I’ll talk a little bit more about what’s going on there but we also have digital success is growing even more elusive that’s the second Trend the third Trend pertains to physical retail.
And the third trend is smaller and closer I’ll talk about the data that we’ve got there as well the next train is new models become material.
And the interesting part here is not when I see new models things like rental things like resale you know in the apparel world or or,
yo ghost kitchens in the restaurant industry those sorts of things are all new models,
and in and of themselves are not that interesting in terms of size or scale but when you put all the new models together they actually start to become material in terms of how they’re eating into share.
[30:07] The next train we identified was convenience.
As the new Battleground so again I talked earlier about the idea in the industry that says everything’s experiential and we’d actually say convenience as an element of The Human Experience in particular
is what’s driving the new Battleground the next train is health and sustainability for some.
And we talked about that Jason the bifurcation is that when you dig into health and sustainability it actually is not a broadly applicable trend is actually really applicable the higher income you go the lower income you go you actually find
reverse Trends in play.
[30:46] And then the last point is it builds upon research we had done previously and it’s fragmentation and consolidation of market share we actually see some really interesting Divergence happening
in terms of how market share is is consolidating where it once was fragmenting or fragmenting where it once was consolidating,
so those are those are the big seven forces that we go deep on and use data to support how those are shaping the future.
[31:13] That’s awesome and I let’s jump into a couple of those I do want to say I suspect you’re being slightly kind because you talked about this this ocean of retail prophecies and how you know most of them are just kind of.
Prophecies are opinions and I suspect there is a huge chunk of those in fact I just did a Google search on future of retail and there’s.
Seven million two hundred thousand results.
[31:41] And and I had a team that actually had.
Through those 7 million two hundred results and we’ve got them all categorized and we’ve gone through them so we really stared at him and said you know what are they telling us and in our research paper we really go deep into it so that you can sort of see
what the flaw is that that’s behind a lot of the approach to sort of thinking about the future.
[32:03] Yeah and so to your team and they’re listening I’d like to apologize for the 500 of them that were me but I think there’s another big chunk of prophecies in there which are the self-serving ones right which is like the the.
Computer speech vendor predicting the future of retail is computer speech.
[32:22] That’s right that’s right there there’s plenty of those in some of those are commissioned so they’re they’re commissioned by you know vendor
you know I something that does research but when you dig into them you can go okay this makes sense you’ve commissioned this study.
[32:38] Yeah so moving on from the the.
The grand setting to the sort of seven trends that you guys notice that we’re sort of grounded in your,
your consumer data set what the first one that jumped out to me is actually the first one on your list because it’s a topic I talk a lot about but that’s the commoditization and
premium ization which I feel like I’ve said that before but I never thought it was an official word until I saw the what use.
[33:07] That’s right now you can use it officially yeah you know when you look at products in particular and you look at what’s going on you know you certainly see this again and you’ll hear me talk a lot about reduction in barriers to entry,
that that consumers have access to technology that gives them visibility in a way you know that they didn’t previously have and then it also gives
you know anybody selling a product they’ve got Avenues to you so
you know if you’re buying a particular brand of something like mac and cheese you’ve literally got thousands of options to buy that very same product.
And what happens when that occurs when you know we’ve got you know slowly you’ve got margins that are being eaten into as one after another tries to out price
you know the other so we’ve got a lot of great research about how you know margins on products are being eaten away,
and that’s the commoditization at the same time you have this explosion of choice,
so you if you looked at a traditional grocery store and you looked at 1990 they’d have you know roughly 7,000 items
would be available in a grocery store in 2018 it’s 35,000 items so just an explosion you know of options that the consumer has available to them.
[34:24] At the same time we’ve seen this growth of private label in fact from 2015 to 2019 there’s been a considerable you know,
growth with you know with retailers who are coming out with their own private label product growing from about a hundred and thirty billion to about a hundred and forty three billion over a period of about four years.
[34:46] And at the same time that we’ve got private-label happening we’ve got a premium ization of private label so in 2016,
of that private label product about 15% of those products or the dollar amount would have you know been categorized as a premium,
private label product and go to 2019 and it’s grown to about eighteen percent so not only do we have private label which was once really a value play
we’ve now got private label that’s now more of a premium play so really this opportunity for differentiation really becomes you know.
The the critical component to think about in a world that’s both commoditizing and premium I guess I can’t say premium icing.
Unless I just made up yet a new.
[35:34] You can say it.
[35:35] You did sure weird.
[35:37] Thank you Jason said Jason says I could.
[35:39] #premium izing well well I kind of out of those seven I wanted to dig in on convenience as the new Battleground so tell us more about what you guys saw there as you looked at the data.
[35:55] Well first of all when we when we
talk to Consumers and you find out why they shop where they shop what we find is the convenience is the number one reason a consumer selects a particular retailer so you have to start there and by the way there’s nothing you know
I knew about that that’s not a new age consumer sort of thing in fact we as we studied this what matters most idea you know over the last 10 years we found that convenience,
continually comes in first as the most important thing so you start their second of all then we said okay well let’s go look at where the growth is in the industry.
And what we did is we took you know a look at categories where
convenience or particular retailers where convenience is a major or a primary element of the value proposition and when you categorize that way we find about 67 percent of retail growth from 2016 to 2019
comes from retailers that that prioritize convenience as part of their value proposition
in addition that you can certainly see a lot of the growth that’s happening let’s say with mass retailers their initiatives that they’re undertaking like curbside
or delivery things like that but also relate to convenience.
[37:08] And of course grocery in particular is the most desired area for convenience
but we also see things like this like what’s so fascinating about the future of predictions is there things occurring in the industry that nobody was predicting
so for example we see you know solid Healthy Growth in convenience stores.
And nobody’s nobody in you know in any of the predictions did we see someone talking about the rise of convenience stores as an important you know,
attribute are– element in the marketplace.
So across the board we see a lot of different ways you can look at it and what we see is convenience you know is really becoming this new competitive Battleground you know much more so than say,
experience like entertainment sort of elements that you might bring into the store.
[37:56] Yeah that was super fascinating it’s funny to me because I sometimes wonder like.
If convenience is even an unfortunate word to describe a category of store these days because they’re often are so many more convenient ways to.
To get a product then then those convenience stores and yet they continue to thrive and grow.
[38:19] This idea of convenience shows up in in in like when we looked at what’s really going on with physical retail it shows up very prominent there as well.
[38:29] Yeah another one of the trends that got me excited because,
embedded in this trend you talk about one of my favorite sawhorse is what I call the mobile Gap as this like shift to mobile devices but aov and conversion rate or not.
Equivalent of mobile devices to what they were on desktop so but your macro Trend was digital success grows elusive,
and explain a little bit what you mean to our to our listeners about that.
[39:01] Yeah yeah first of all certainly we know that digital continues to drive a significant amount of the of growth in the marketplace it’s roughly driving 50% of of the growth just last year.
You know in retail and it’s growing at about 14.9% sort of depending on what you know what source you look at when we look at it.
You know the u.s. figures that come from the government and we’re seeing about 14.9 percent growth rate however,
we’re seeing this dramatic shift.
To Mobile so now mobile represents about 45 percent of online sales and that’s growing fast you know Mobile sales grew at about 36 percent kegger since
2014 versus only six percent for other digital channels so you seeing this shift occur but there’s a problem when that shift occurs and you mention it and it’s that the conversion rate
on mobile is actually dramatically lower than the conversion rate on desktop dropping from about four percent on average down to about 1.7 percent on average
at the same time the average order value is dropping from about a hundred and twenty seven down to 86 percent so as your as many retailers and many consumer products companies are paying for traffic
to show up at digital that that conversion is converting to dollars at a slower rate and the amount of dollars that is converting or actually lower.
[40:24] So that’s problem number one that makes digital success more more elusive however when you then add to it this idea about ad spending
because we’re certainly seeing you know an increase spending
that shift is happening towards digital advertising and we look at the increase on digital advertising or advertising overall Because by the way as you shift to digital advertising we actually not seeing a commensurate
decrease in traditional advertising which means overall advertising is actually increasing at a fairly good clip
when retail sales themselves are not you know increasing at the same rate.
[41:01] At the same time the cost for digital spend or the digital advertising is increasing and digital ad spending per person is going up again meanwhile TV is staying.
Roughly the same if not increasing slightly so that sets up a world where we have to pay for traffic
right we’re buying traffic effectively you know as we’re investing in different you know traffic programs that traffic is showing up and is converting at a lower rate driving that traffic through advertising is more expensive than ever and then on top of that shipping rate
you know I have an increase from 2010 to 2020 ground shipping is increased 76% and are 80% so,
not only not only is it like advertising but its fulfillment as well and of course wages for warehouse workers have also gone up
you know considerably all those things put together those Trends lead us to believe that going forward of course digital is an important.
You know aspect of growth but that growth is becoming either less and less profitable or in some cases it’s got a deteriorating effect on margins for four major retailers so that’s only going to become more of a problem
as we move forward.
[42:16] Yeah I liked all that except the part where you dissed on Advertising because I think that pays my salary.
[42:22] I take back anything that pays Jason salad.
[42:26] No no no but like just I mean
to kind of highlight how real it is like in your in your data set you show in like 2011 Brands were spinning considerably more on television than digital and in 2017
the television spending was about the same but now the spend on digital was much higher than the televisions been so it’s.
That that inflection point has really been passed.
And yet all the digital advertising and I say this as a digital Advertiser still kind of sucks like I’m super disappointed.
With all the events this week that we like you haven’t seen more more advertisers like curtail their advertising for what is at the moment in a relevant product or service.
But I digress.
[43:13] Yeah no no it’s a good point I mean advertising is becoming you know less effective more expensive.
[43:20] Yeah so that was that’s just going to depress me so I don’t want to spend too much time on that I do want to try to squeeze one more in because this was fascinating to me VII Tran fragmentation and consolidation and Tower westerners with that man.
[43:35] Yeah if you follow the research that we do out of the the industry sector you’ll you’ll know this term because several years back we were trying to assess.
[43:46] What the heck disruption meant everybody was saying it but we don’t know how to measure it we didn’t know,
you know there’s got to be if it’s occurring there’s got to be a way to understand what it is and to quantify it and then measure is it decreasing or increasing or you know
what’s going on with it we came up with a way to think about it you can argue that this is the right way but this is how we came up with a way to think about it when an industry is being disrupted
you know new entrants are coming in and in doing so they’re disrupting the market share
most likely they’re stealing market share where you’ve got the losers or those that you know you got you got the companies that are donating market share and you’ve got new entrance that have shown up with a new better mousetrap
better offering and they’re stealing market share so we would assume that in a market that’s being disrupted you would have increased you know turn over,
of market share so we’d be able to we’d be able to understand that by studying what was going on with market share you know and in that came the first term II called it turnover but it’s volatility you know how volatile
the market share is for an industry is a measurement that we came up with on how to study disruption and then once you study whether or not it’s volatile.
[45:05] The next question is is it volatile because it’s fragmenting or is it volatile because it’s consolidated.
[45:13] And you know as we’ve studied that what we saw you know it was roughly 2016 when we study the first time for retail in particular what we found was the volatility was increasing
as new smaller players came into the market and not only that but fragmentation what is what was driving that volatility
so now you fast forward and we looked at it again to say what’s going on now in retail what we found was the opposite and this is really sort of interesting to think about is that volatility of market share in retail is actually going down,
over from 2016 to 2019 and meanwhile what we saw was it was concentration.
That was driving that volatility so in other words the big players were getting bigger as opposed to the small players were stealing enough market share
to you know stealing it from the big players which we saw occurring roughly in 2016 so it’s interesting just to think about how the Dynamics of competition have changed and therefore how the nature of whatever disruption we see is starting to change.
Now if you jump over cuz we studied it also as it pertains to packaged goods and we actually saw the exact opposite.
[46:21] Occurring what we really saw for packaged food companies is the fragment by the way with packaged Foods you have to look at it by brand not by
aggregate company because of course a big you know.
Branded company will have many many brands that they’ll hold so we actually have to break it down and say let’s look at this by Brand level and when you look at it by Brand level what you find is
the smaller brands are really weather driving the volatility
and you see dramatic fragmentation happening in the packaged food area so just ways for us to think about disruption
and to understand the Dynamics of competition and how that’s changing and therefore you know what do we think maybe you know shaping the future.
[47:04] Yeah and like to sort of sum that up like super briefly.
So retailer power is concentrating into a few big players and cpg power is getting fragmented into more entrance and so like obviously there’s a,
shift in leverage in the whole retailer brand.
Dynamic there when that happens so that’s an interesting thing to think about when when you know both tons of companies are plotting their future.
[47:36] And when you begin to put that together with we talked earlier about premium ization you know a product and and and private label all of that plays together to think about how the consumer is shaping their view of.
What they want to buy and where they want to buy it.
[47:54] Very cool so in the paper you go into quite a bit of depth on these Trends and there’s some really good data in there and then you kind of then springboard forward and you say well let’s let’s kind of look forward and see if you
you know what you should be doing maybe give us some highlights of that for looking kind of.
[48:14] Yeah sure thing yeah I know it’s it’s sort of difficult.
To lay out I mean one of the things that comes out of this it’s difficult to say the future of.
The industry is X because what history would tell us is that the future you know plays itself out differently for different companies and different segments for different customers selling different products so there is no
no singular future and in fact as much as one companies is Iggs
and has success that actually creates opportunity for another company to zag and have success so
you know as one company finds that online retail works and other company finds that physical discount retail works and they’re they’re not at all the same future however they do certainly coexist,
and that’s really important to sort of think about you know how you think about.
[49:09] You know your company how you think about setting strategy what we say is like think about opportunity through the lens of data,
you know for every data point that tells us something is occurring you got to look at the converse and say is opportunity being created on the back sides of this you know for
like we talked about Health and Wellness
you know we can say oh man the market is being driven by health and wellness you go it is for certain consumers but there’s opportunity for for other consumers who maybe are an economic constraints and maybe don’t have the luxury of.
You know buying the high-end health and wellness product maybe they still care but maybe they’re under different constraints
so what we try and do is we help our clients sort of think about how do you scenario plan around this how do we use our you know Center for Consumer insights to really think deeply about your consumer and identify where there’s pockets of opportunity you know and generally I’d say look you can read
the predictions about the future that are that are prophecies and you know read them as.
As input but I certainly wouldn’t be you know in certain would be encouraging my clients to make big Broad
bats you know based on Prophecy what I be saying is let’s make that you know based on a deep understanding of our consumer a deep understanding of what opportunities will exist given the the changing competitive landscape.
[50:29] But if you are going to make future bets based on Prophecy they should be mine.
[50:33] They should be Jason’s that’s for sure.
[50:37] Well I feel like that’s the perfect place to leave it because we have once again used up all our a lot of time but Casey this is super fascinating thanks so much for sharing the research and I know you’re going to figure out in the weeks to come where this gets published and we’ll make sure
westerners know how to find it but thank you very much for your time tonight.
[50:57] No it’s always thank you guys for allowing me to share what we’ve been up to.
[51:02] Kasey if folks want to find you online what are you a are you Snapchatting with a client’s or what’s your.
To get in touch with her buddy.
[51:11] So of course that you can find me Casey lobaugh I’m on LinkedIn I also M @k lob aaugh on Twitter where we publish a lot of our research and our findings we do a lot of speaks at what we’re up to there as well.
[51:26] Thanks for joining us and until next time happy commercing.
[51:31] All right thanks guys.
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