A weekly podcast with the latest e-commerce news and events. Episode 223 is deep dive into the retail impact of Covid-19 pandemic over the next 18-24 months.
Episode 223 is deep dive into the retail impact of Covid-19 pandemic over the next 18-24 months.
Covid-19 is a time machine, propelling commerce five years into the future.
- New Behaviors:
- Shift to Digital
- Brand Agnostic
- Pantry Stocking
- Health & Safety
- Changing Retail Landscape
- How Will it End
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Episode 223 of the Jason & Scot show was recorded live on Thursday, June 18th, 2020.
[0:24]Welcome to the Jason and Scott show this is episode 223 being recorded on Thursday June 18th 2020 I’m your host Jason retailgeek Goldberg and as usual I’m here with your co-host Scot Wingo.
[0:39] Hey Jason and welcome back Jason Scott show listeners Jason I know you have been doing non-stop 12 hour a day zooms to help your clients understand the impact of covid and we thought that since most of our listeners are kind of now and what I would call and falling state so there their local environments are hopefully opening up and they’re getting back to little bit of a normal see if you will I’m excited report I’ve had a haircut that was those very delightful we thought it’d be a good idea to start looking at the pandemic and what it’s going to mean for retail and e-commerce and we’re fortunate enough to have you as the co-host on the show because this has become an area of expertise with you because you’ve probably literally talked to hundreds of folks about it so I’ll point out that your clients pay somewhere around a bazillion dollars for this so again our listeners get this information for free
which is great but if you’re if you’re kind of Jason still pay the bazillion so you can keep
podcast going and as I’m a couch Economist and Avid CNBC Watcher so I’m kind of excited to hear where you land on the shape of the recovery I’m sure we’ll get to that
so this show we’re skipping news and this is going to be a deep dive and the title is deep dive
post pandemic impact on retail so with that set up I’ll turn it over to you Jason.
[2:07] Wow Scott that was a like I feel like I was supposed to have the announcer voice of us that’s impressive you know.
[2:14] Ben it’s taken 223 episodes.
[2:17] Yeah I think most westerners are career that you can pretty much do all of my roles like you’ve said you’ve stolen happy conversing before now you stoled my like fake radio voice.
And like just to remind any listeners that don’t know as well,
I talk all day long about covid impact on businesses you actually run businesses that have been impacted by covid so I feel like there’s a pretty valid perspective there as well.
[2:47] It’s a yeah I’m a little bit country here little bit rock and roll.
[2:50] Exactly and I’m regretting that we didn’t make this a live video show because we both got haircuts and we’re looking good I feel like we were camera-ready.
[2:58] Yeah next time.
[3:00] Yeah something that’s what we call a teaser in the bids for the.
For the audience at home what for that next video show to see that Jason and Scott’s new deuced so jumping into the deep dive.
I’ll give away the plot in the the first minute of the show my perspective.
Like that’s really formed from talking with o over a hundred clients retailers and Brands about the various impacts they’re seeing an expecting to see from this is that covid really isn’t.
Creating some dramatic new behaviors or fundamental changes to have people shop what it’s really doing is dramatically accelerating.
Trends and behaviors that we were already starting to see of all so I’ve kind of landed on this metaphor of a time machine and essentially my premise is that covid has.
Pushed us five years forward in five minutes and so what we’re all dealing with now is ordinarily we’d have a nice graceful ramp for all these changes and now we’re having to deal with the very abrupt version of them that we’re getting.
[4:14] And so with that being said I like to break the impact down into three big buckets one bucket is.
Customer behaviors that have changed as a result of shelter-in-place so we’ll talk about that first,
the second bucket is the economic impacts of covid and how that changes shopping Behavior so we can talk about that,
and the third big bucket is how the competitive landscape for Brands and retailers have changed and how that potentially impacts all this and then tie it up in a nice little bow talking about how it’s all going to end,
and how it might play out and you and I can debate our premise are various premises about the shapes of the recovery.
[4:58] Yeah we’ll call that alphabet soup.
[5:00] I like it.
So let’s start with the new behaviors the First new behavior that we’ve seen as a result of covid or acceleration of a trend that we were already seeing to me is the most.
Universal and most prominent and that’s the shift to digital that.
You know fundamentally we’ve seen a way higher adoption rate of digital shopping experiences so in categories that were already well penetrated,
we saw the percentage of penetration go up,
in categories that were not very well penetrated like grocery we’ve seen like significant penetration and we’ve seen a lot of new customers come into the digital echo system.
Couple of data points to kind of make this real for people like if you everybody has a slightly different definition of retail and therefore slightly different numbers,
Forrester would have said Pre-K covid 16 percent of all retail was e-commerce and based on their April data 25 percent of all retail spending was e-commerce,
so before covid ever hit the forecast,
for that digital penetration would have had 25 percent penetration in about 20-25 so five years from now we saw it in April now.
[6:21] Totally open question whether that’s permanent does that revert all the way back to 16% or does it partially revert somewhere in the middle I’ll be curious to get your your thoughts on that Scott but before we do that I just a couple of other similar data points,
Bank of America there they’re steady 16 percent digital penetration pre covid,
27% digital penetration in April.
Brian Cornell the CEO of Target talk to enter F this morning he said that he felt like it was,
covid was accelerating digital adoption of their platforms by three years.
[7:03] And the one that I think is most interesting Forester has this really interesting data set that they use called digitally influence sales and so what that is is.
Hey of Sixteen percent of sales are online there’s another 37 percent of sales that happen at a cash register but you used your mobile phone to decide what to buy so you use Google Maps to find the store and the hours you read reviews on,
Amazon you went to the manufacturer’s website to read about the ingredients in the product,
and so you add up the e-commerce sales in the digital influencer sales and pre covid Forrester would have said 52 percent of all consumer spending was digitally influence,
and of you kind of run the numbers mid covid where we are now that would be 70% so so that’s the kind of,
shift to the digital channel that I’m seeing and I guess a Scott like does that surprise you at all and do you think it’s.
Likely permanent or what’s your forecast.
[8:05] There’s something so you’re a fan of the Forester day that I haven’t looked at that I saw a JP Morgan report and I’ve been trying to get the underlying data but it kind of
it was in the context of raising the price targets for a bunch of companies and essentially saying hey we thought the US was kind of on a track to 30%
e-commerce penetration now we’re going to raise that to 35 to 40 so to your point we’ve accelerated pretty dramatically through there
and then they called out some categories so like obviously grocery has been like hugely impacted by this and I think that’s going to stick it is the big question right as you know
how far is the pendulum going to swing back you know and then this also ties into the shape of the recovery and what happens with the pandemic if if this thing’s around for years
then that’s going to drive it if there’s you know some kind of a either treatment of some kind or
it’s very much for a.
[9:06] Therapy or vaccine.
[9:08] Vaccine vaccine then that could cause the pendulum to swing a different way so it makes it hard I think,
I kind of try to put myself in the shoes of our listeners you know what what do you plan for I think you got a plan for you know,
how do you get your company to 30 to 40 percent and if you don’t get there you have to have a plan for that you kind of have to keep a leg in both world because it’s hard to know what’s going to happen.
[9:33] Yeah the phrase I have uttered more than any other phrase in the last two months is called scenario planning yeah and that’s basically it right like
like what are we going to do about these digital penetration numbers we’re going to do scenario planning and we’re gonna we’re gonna have a play for for that that shifting permanent we’re going to have a play for partial regression in
you know the same story what are we doing for Holiday right are people gonna travel and buy gifts or are they going to send their kids out on Halloween like they’re all kinds of.
Unknowables right now so scenario planning is a big part of the mix.
[10:08] The thing I find most interesting is I agree that all the stuffs accelerated but what’s actually decelerated and I would argue apparel has just like taken it on the chin and I don’t know,
you know I don’t know how to percent why because I guess if you’re Sheltering in place you don’t need new clothes so I guess that’s a factor
but does this indicate that.
Maybe that category doesn’t get as High online as we thought because people need to go out see it touch it try it on it’s hard to separate out the inability to get in a store from the being sheltered in place so that one’s one that felt like it went backwards
and everything else accelerated so yeah it’s a tough one.
[10:51] So I my art so I would argue the my premise that covid is accelerated all these Trends is equally true for apparel because I would say that there was a pretty significant trend,
that apparel sales was decelerating and there were a bunch of headwinds against apparel right and a couple of them,
quality apparel is less expensive like there’s all these stats that that most people have about the same amount of clothes in their closet they always have but they had to invest,
significantly Less in them than they did in 1990 for example,
um the bifurcation of the economy is people have spent more on Healthcare and more on education the category of consumer spending that’s most gone down is apparel,
so that has kind of worked against them nobody pre covid,
everybody was going from to wardrobes a work wardrobe in a casual to one work wardrobe and so that was hurting apparel and free covid,
like if you go back to the 90s there was this Cadence that we were used to wear tastemakers had this big fashion show in Paris.
[12:02] And it generated a buzz and they had the world’s slowest supply chain that then took like nine months to make all the clothes and get them out in the market and and like the hole,
the whole apparel industry was based on these global fashion trends that turned every season,
and increasingly none of that happens anymore people are way more likely to be influenced by their favorite micro influencer on Instagram than they are by the Paris fashion show and the weed time from,
design 2 shelf is like 6 weeks for most apparel and,
they’re just wearing a global Trends and so a lot of the old-timers in apparel where like oh man you know we’re just having a horrible low wool because there hasn’t been a new trend in a while and as soon as the new trend comes as soon as skinny jeans come back we’re all going to make money again,
and I used to say bad news there’s not going to be a new trend ever again what they’re going to be is a thousand simultaneous trends that are each.
You know I’m not smaller a lot meant of demand so all of that was I would argue is already happening to apparel and then you put that that super Badness in the time machine and fast forward it five years,
and apparel is more bad like I would argue malls is the same thing we talked a lot about how they were decreasing in popularity,
covid is accelerated there decrease in popularity.
[13:26] And then you put those two Trends together and there’s an awful lot of people that sell clothes in malls that’s just not an awesome business right now.
[13:34] The other one interesting exception seems to be athleisure specifically Lulu Lulu Lemon so you know their stock is just kind of hitting a new high every day so they seem to have,
been relatively immune and or enjoyed the acceleration factor in the fashion category.
[13:51] Yeah yeah no I think that I think that’s generally true I think they’ve taken a hit and covid as well but I think they’ve largely been the winner in.
[13:59] And that the sort of apparel head wins,
I would point out like so I am advising clients that while we should scenario plan for this that it’s a safe bet that a significant chunk of this digital penetration is permanent like I’m,
I’m very confident it’s not going to regress to pre covid levels the,
like the couple of points I think about are
SARS in China in 2002-2003 was very similar to covid now like a bunch of five tier 1 cities in China had shelter in place holders and tooth in late 2002,
retail sales fell off a cliff,
and two companies Ali Baba launched a b2c e-commerce site after the shelter in place orders were put in place so,
Ali Baba was a pure B2B company when SARS hit China,
and they pivoted B to C or C to see when.
[15:01] SARS impacted them and in the same way JD.com was a brick and mortar retailer that was selling CD-ROM drives out of bazaars and had no e-commerce sales and they started selling their inventory on WeChat,
once arse kicked in and you know just two years later Ali Baba sold 1.5 billion dollars b2c right like China rapidly adult adopted e-commerce because of SARS,
and never look back like before covid China was at 38% e-commerce penetration and so in some ways.
[15:32] The same thing is playing out now and particularly in new categories like you mentioned grocery.
[15:38] Pretty under penetrated before covid like depending on how you count maybe three or four percent of Us sales were digital its,
again depending how you count 11 to 14 percent right now but what’s most interesting is the majority of those customers are first-time digital grocery Shoppers they tried it for the first time because of covid and.
That you know they’ve on-boarded to the new these new skills and new experiences and it’s a good bet that a big chunk of that will stick.
The counter-argument Scott though is,
that nobody was in a position to plan for all this demand so we all like are delivering the absolute worst digital experience we’ve ever delivered like websites are following down delivery Windows suck service levels,
shipping accuracy socks in so there’s a little bit of like hey whatever percentage of customers you would have you know got to become permanent new customers.
In normal times the percentage is likely to be lower now just because the the experiences is suboptimal.
[16:47] Yes so does that are you arguing that maybe those bad experiences actually make it not stick.
[16:55] For some so I think that that reduces the the amount of grocery that will stick I still think grocery is going to dramatically stay forward so if it went four percent if it peaked it.
it might revert back to seven or eight percent partly because of those experiences but then I could tell you those Grocers are going to,
having met those customers and collected data on those customers they’re now going to market the heck out of try us again when we have a better,
service level and better experiences and another phenomenon because.
Digital is so much more significant and at the same time digital grew and became way more significant,
brick and mortar had this huge temporary low as most retail had to shut down so so digital temporarily became a way bigger percentage of the total sales for a bunch of Brands and retailers and guess what they all did,
they all got more serious about digital right like the joke in our industry is you know the VP of e-commerce at any brand.
Got like hired and was you know heavily recruited by the CEO and told how important their role would be and how they you know have a seat at the table for all the future decisions in that brand and in most cases that.
First day of work was the last time that the VP of e-commerce ever saw the CEO.
Because you know things went back to normal and now all these vp’s of e-commerce are telling me that the CEO is literally sitting in their office all day.
[18:23] And so what does happen then is you start investing in digital you start you know doing more things and it it’s sort of a self-fulfilling prophecy a little bit as,
as it gets more awareness from more stakeholders at all these businesses that that facilitates its ticking.
[18:42] Yeah one one observation and I think we’re a little bit ahead of you guys so we’re in North Carolina and you’re in Chicago.
[18:49] Your head of us in most things.
[18:51] And opening up yeah the retail experiences of taken a huge step backwards so,
you know my wife needed something for from Container Store went to the store there’s a line to get in because they’re severely limiting the number of people that can go in there,
and then when you go in to workers in the store the store is understaffed which I’ll pull a Strokes on and then they’re having to do curbside pickup and help people in the store and,
they’ve been doing curbside pickup for three months so they’re favoring that over the people in the store so the store experience,
no yes we’re not having great digital experiences but the store experience is like 30% even worse than it kind of was before so then my wife had to get something else and she just did online curb pick up and it was actually.
[19:38] They had she was able to get her item and cut the line and some sleep
it’s almost like mobile ordering at Starbucks right now where you didn’t have that dichotomy before it most places the online experience was dramatically worse than the insert experience it seems to flip it’s anecdotal at this point,
the Asterix on hiring is we’re in this really weird environment and we’re really struggling with this my company spiffy.
That we can’t hire people so in Employments crazy but no one will come to work in this kind of we have what I would call that kind of how early retail type employee that’s Buffy that are our technicians.
They’re making twice as much on unemployment than they are in jobs so there’s there’s they’re making a smart economic decision too,
you to take care of that so it’s gonna be interesting I think through July you’re going to have these really bad retail experiences so online.
I think you’ll see it at least continue and through July to have a better customer experience.
[20:35] Yeah I think there’s a lot of aspects to that that labor thing a bunch of retailers have discovered the loophole in the tax code on that problem.
So it’s bring back employees under a job share.
And so under a job share you the employee gets less hours you pay the employee you know for the last hours but they’re still eligible for a prorated portion of their State’s unemployment.
But they’re eligible for a hundred percent of the federal subsidy on unemployment.
[21:09] We see jobs are just part-time not full-time sorry.
[21:12] Yeah but then there’s and I I’m not advocating this I’m not a Tax Advisor and I.
[21:18] Jason guarantees this orc.
[21:20] I understand it but there’s something specific about this debt and this is the loophole that I imagine will get closed or it won’t matter because the program will end in July but.
There’s something special like if you just cut back someone’s hours then everything gets prorated but if you,
chain there’s some formal status of a job share where two people are sharing a full-time job.
That that continues to make them eligible for this Federal benefit that.
[21:49] I’m going to go I’m going to leave the podcast and to look into that right now bye.
[21:54] Working at that and then we’ll start the recording again when you come back welcome back Scott so get spiffy just got a bunch more employees it’s amazing.
[22:02] We just implemented a job sharing program.
[22:04] I like it congratulations people give value and they pay the billions of dollars that’s all I’m saying.
That aside you’re seeing everything like Walmart is Shifting stores to self checkout only which would obviously have a substantial impact on the labor required to run a Walmart store,
Target just permanently raise their minimum wage to $15 an hour to try to get more important like they’re all these interesting.
Second-tier effect because of the labor issue so you’re absolutely right to point that out.
I want to Pivot though so the digital is a huge deal it’s top of mind for most of my clients when they’re talking about the.
[22:45] The systemic changes as a result of covid you know is this shift to the digital channel and what the ramifications are.
For a lot of brands that means man we should be investing more in digital marketing right and so I think you pointed to a L’Oreal article that came out this week talked in and they talked about how we went from 50% of our spend.
On digital the 80% of our Spin and got a great Roi because of that’s now where the consumer is that’s the front door or the brand experience,
but speaking of brand I want to Pivot to the second Trend which is a little bit of a Debbie Downer for a lot of my clients we’re seeing customers have a lot less brand loyalty,
um during this pandemic and so that manifests itself in a couple of ways one way is as we’ll talk about later in the in the show we’re in a deep recession and.
In a recession people tend to trade down and be less brand loyal but unique to covid or shelter in place.
[23:49] Customers have had all these forced product substitutions like you you sent your shopping list to Whole Foods and they sent back,
you know they made a bunch of substitutions and in previous times you might not have been happy with those substitutions you might not have even accepted them but during covid you’re mostly like just thrilled to get any brand of toilet paper for example right so you,
you ordered charmian and you got Amazon Presto toilet paper in your you just keep the toilet paper and you’re thrilled to get it and there’s some evidence that when people are forced to try all these brands that they didn’t intend to buy that 20% of them stick with the new.
So so we’re seeing you know brands have to be more worried as customers get a little more promiscuous,
I personally have been tracking,
um some of the funny substitutions that have happened and so I have like all these examples of someone ordering like cottage cheese and getting Christmas ornaments ordering peanut butter and getting glue sticks,
but my all-time favorite substitution is Tesco in the UK a customer ordered baby wipes and they got a bottle of bells whiskey.
[24:59] Boom nice.
[25:01] I feel like I would order baby wipes all the time if I knew that was a possibility.
[25:04] Yeah I think that’s so that’s a win.
[25:08] So but here’s the interesting thing about that brand promiscuity at the same time people are more open to shifting brands.
People are also flocking back.
Established traditional Comfort brands in a way that we haven’t seen in a long time right so pretty covid the big Trend in food was I want only natural food I want organic I don’t want any dies in it,
and and you know cleaning products for example something I think you know well like everyone only wanted the the organic cleaning products with no quote unquote chemicals and I always put the quotes in there because I’m pretty sure water is a chemical.
The now that we’re in covid everyone only wants Clorox right and in fact like.
Marriott and United Airlines have brand Partnerships with Clorox and everybody wants Kraft mac and cheese and Campbell Soup,
and like they’re all drinking beer in there drinking dad beers they’re drinking like Coors and Miller and like,
all of these traditional Comfort brand so it’s been an interesting Resurgence for a lot of those brands.
[26:20] So the third behavior that we’re seeing this kind of interesting is this phenomenon I call Pantry stocking.
And a couple of people on the internet misheard me and had memes about panty stocking which is a whole different thing.
The pantry stocking like the most visible version of this is like everyone rushed out about a year supply of toilet paper early in the pandemic.
And that like you know people superficially your I go man I’ll bet you the Procter & Gamble is thrilled to sell all that that extra toilet paper and the reality is that was kind of a bummer for them right because.
[27:00] They sold the year Supply in q1 customers aren’t using toilet paper at any significantly greater rate and so they’re going to their comps for the rest of the year going to suck and they sold that you know toilet paper and,
high cost will margin environment that you know there’s there.
[27:21] They didn’t create any new demand they just like pulled their demand forward.
And so there were a lot of products like that but as the pandemic has played on we’ve seen a related phenomenon.
People are buying a lot of shelf-stable food items so the the like fastest growing sales item at the grocery store are like dried pasta,
canned foods evaporated milk tomato sauces,
and they’re buying those things in substantial multiples of what they used to buy and almost across the board in every product category.
[27:55] People are shifting the bigger pack sizes.
So they’re you know they used to buy 12-packs of soda and other buying cases of soda like all of those sorts of things and so it’s created this this whole new,
phenomenon you know you.
The big packs didn’t sell that well in grocery stores before and so you know now everybody’s having to change their supply chain to carry more of the big pecs,
when they put the big packs on the Shelf they have less room for other products oh so retailers are actually having fewer product facings as they leaned into these big pecs.
And the most the funny most interesting thing is once a customer fills their Pantry with Kraft mac and cheese,
you now have to run new marketing campaigns to get people to consume the mac and cheese so that they’ll trigger a replenishment event right so,
suddenly you have a lot of Brands like leaning into teaching you other recipes and other uses for the products you Pantry show stock and so my premise is I keep pitching this,
to the toilet paper Brands no one’s taking me up on it yet but I think we should really be running a Halloween campaign where we encourage kids to toilet paper their neighbors houses.
[29:01] We’re just says The Mummy.
[29:03] Yeah that would work too that’s a good one I’m gonna I’m gonna steal that and it’s.
[29:07] Taco Bell time.
[29:09] But it has become a thing across every category chewy have their earnings call earlier this week and,
and they literally cited in their earnings the amount of Revenue which was 90 million dollars that they attributed to Pantry stocking,
and they went on record as saying they don’t expect that to Abate so they think that’s a permit this new Pantry stockings going to be a permanent behavior in the customers aren’t going to revert back to,
the smaller bags of dog food for example I’m not sure they cited any specific evidence for that but that was an interesting POV.
[29:43] But if you guys spend Pantry stocking.
[29:45] Yeah well yeah so we think our rapid over Pantry stockers just anyway and we live in a condo so arguably like.
We don’t have the luxury of space for all of those things but by far the most important Pantry stocking item in my household is jugs of Starbucks iced coffee.
[30:08] This is this is funny there’s a the guy that started Barstool Sports is doing day trading now his name’s Dave Portnoy and he does this thing called.
Davy day trading Global DD t– G and he so when the Stock Market opens he doesn’t live stream he’s so it’s like I’ve had 15 coffee then it’s like nine eight it always reminds me.
Where the time for some of see you partying 20 coffees so you’re the only person that I could give him a run for his money on his coffee.
Weapon stockpile in the coffee over here yeah the ramen Ramen is very popular with my crew.
[30:50] Yeah and are you consuming any of that or did you just put it in the in the stock the pantry and call it a day.
[30:57] We have last I looked we’ve been to a pretty good.
[31:00] Okay cool so the fourth behavior is a broad category I call nesting and this is all the things we’ve learned to do for ourselves for the first time because we’re at home so turns out a lot of people didn’t know how to cook.
And have developed cooking skills as a result of covid.
You know people belong to Jim’s now they bought peloton’s people like used to go to a salon to get their nails done now they’ve learned how to do their own manicures and pedicures and things like that,
and in many cases and we all used to work in an office and now we’ve all learned to work at home,
and in many cases we make Capital Investments to support those new habits right so.
[31:44] A lot of people stopped at Best Buy on their way home from work on the last day and bottom monitor for their home office and they ordered a comfy office chair.
Employers had to buy Zoom accounts for everyone and VPN accounts for everyone and so you know once.
All the health risks from covid of abated and it’s safe for everyone to go back to work and there’s no more you know.
[32:04] Um barriers the hypothesis is fewer people will go back to work I mean a lot of people go back to work but,
we won’t revert to the same level of office work because some people have learned that they can work from home and we’ll just like it better and other people have,
Capital Investments that they want to leverage so they’ll work from home or occasionally and all of those behaviors,
have created huge winners and losers in the retail economy right so if people drive to work less,
the McDonald’s and Starbucks take a huge hit when they don’t stop for breakfast in the gas stations take a huge hit when they don’t use as much gas in the convenience stores take a huge hit because you,
you go to convenience stores when you stop for gas so like all these economies shift you know Peloton wins the gym losses based on these new behaviors we’re learning,
and the grocery stores for example have a huge vested interest.
You used to get forty percent of your calories from restaurants and 60% from grocery stores right now you’re getting 90-plus percent of your calories from grocery stores.
They desperately want to lock in as big a percentage as they can so they know they’re not going to get 90 but they’re running all kinds of campaigns to keep it at 70 for example in remind people to use those new cooking skills they acquired so so lots of,
um micro battles in the nesting space have you learned any new skill since you’ve been at home Scott.
I kind of wonder how sticky this is going to be the because everyone talks a good game but then what happens in the office environments is you know some I
my forte is like a soccer as a service kind of company it what’s happened is the telesales group
is wildly inefficient working from home in the sales team so then you have this desire to get the sales team back to work but then now,
now your this kind of when everyone’s remote it works but then when you have one set of people at the office and the other aren’t then like whenever you need to meet with like someone in legal you have to do a zoom meeting which is kind of strange,
I talked myself into I think like five percent is going to stick
but then you know if you read any of the Silicon Valley stuff everyone’s getting rid of every office and they’re never going to use offices again so it’s gonna be interesting to see where we land on that you have a
so I’ll plant a flag at 95% we revert to kind of our old behaviors how about you.
[34:36] So the word from home when I think is the toughest to predict and I agree,
more people will go back than are necessarily expecting to right now I think it
it might be a lower percentage than 95 and I don’t mean because I don’t think it’s binary I don’t think you exclusively work in an office or exclusively work at home I think there might be a lot more people that go to the office four days a week and one day at home
now that they’ve learned that they can be semi productive at home but.
And I can certainly tell you in my industry it’s going to be funny like one of the biggest expenses in my industry is travel right so like while there’s all these negatives like one thing I’m sure the CFO is thrilled that right now is,
the tiny amount of money he’s paying to the Airlines and hotel Industries the.
[35:24] And so I think you know there’s going to be some some natural inclination to sort of continue the virtual work,
in this like agency model but then here’s what’s going to happen over time one agency will decide to travel to the client site for the pitch while all the other people pitch remote.
And when that agency wins every other agencies going to be like oh they had a slight Advantage from the human internet you know and suddenly everyone’s going to be back on planes and it’s pretty you know it’ll it’ll eventually,
get back to the old rebel so I sort of them with you on the work at home I spent a lot of money on a gym and we bought a Peloton bike and like we’re not sure we’re going to renew our gym membership right I think stuff like that is going to be a lot more calm.
[36:10] Absolutely agree.
[36:11] The cooking one is another interesting one like what like you know I think.
Percentage of calories consumed at home is going to be permanently higher but not anything like what we’re seeing at the moment.
[36:26] So the the fifth and final Trend are all of these behaviors related to people’s concern over Health right and so
we’re seeing stores literally get designed differently like they’re all these consumer sentiment studies just to throw some scary data out there,
seventy-eight percent of women don’t feel safe testing beauty products in a store anymore so you probably aren’t going to go to Sephora,
and try on lipstick and so all the cosmetic companies are leaning heavily into virtue of augmented reality try on right and we some news this week,
Warrior which has this really Advanced augmented reality Cosmetic System called Model face that they bought,
they just deployed it on Amazon Amazon and let them put their code on Amazon to do these cosmetic trials because.
You know again that’s going to be the new way people are going to shop for Cosmetics 65% of people don’t feel safe trying clothes on a dressing room right now so that has.
Significant ramifications you know you talked about some reasons why why a parallel might not be.
[37:36] Might not dropped online as much like if people aren’t going to be able to use dressing rooms and don’t feel safe than that you know is a reason that you might see more online shopping but also higher returns and things.
And 66 repeat,
percent of people don’t feel safe working with the sales associate right and so you see more self-service experiences and we see these Walmart stores testing,
stores with all self-checkout and Walmart wasn’t super high on self checkout prior to covid so that’s interesting and then you have all these.
Experiences in the store that are going away like nobody’s opening salad bars or self-service hot food or bulk nuts in the store,
I really controversial one is you know that stores aren’t doing sampling right so you know that’s kind of a signature thing at Costco like.
You know will people want to go back and take a sample off of that tray and take their masks down to eat the food in the store right like.
Stuff like that you and I have talked for years about contact us payment and how no one was really adopting in the u.s. now contact us payments blowing up,
in fact I call the gas stations are adopting it because no one wants to touch the pump quite full service gas may come back because people literally don’t want to touch the.
The gas nozzle and we now have at least two different websites out there that are rating retailers based on their safety procedures.
[39:05] And so is that you know is sort of trust and reputation in safety like a you know a new differentiator that that you know becomes part of the brand promise for some retailers.
[39:17] Yeah yeah it’s going to be interesting to see how that Lance.
[39:20] Yeah are you you think that like people are going to get over all that and and all those experiences will come back I feel like South Carolina or North Carolina is a little more open than Chicago so it seems like.
[39:33] Yeah I would say that we have kind of a 50/25/25 thing here we have kind of the bulk of people so half the people are kind of following the rules and if the store says it needs a mask
they’re wearing it otherwise they’re not driving around in their mask then we have a quarter of people that are just disregarding everything,
and then we have a quarter of the people that are super fly freaked out and they’re they’re wearing a mask while driving alone in the car so you know just give you an idea of kind of the spectrum there
so I think I think you’re going to have 30 to 40 percent
cohort that super tuned into this there’s probably a high correlation to exposure to older folks or you know some kind of a you know compromised situation or they’re just you know.
Freaked out but which is fine so so I think that that’s going to be enough that that it will be a factor I think it’s going to stick around for a long time.
[40:29] Yeah and then usually at this point in the presentation I’ve been totally Debbie Downer and everyone’s like really depressed and mad so I usually sneak in a six Trend that’s not on the outline which is that every pet in America has been adopted while we’re all at home,
and so I joke about that but literally there’s like the largest cohort of new pet owners in the history of the US and chewy and earnings report talked about they got 1.6 million new customers this quarter,
and the interesting thing about all those new pet owners is.
They all learned how to get their dog food and their cat litter and their toys online right like none of them you know drove to the pet store and went inside to get their stuff so,
so like it’s a huge Nucor whole cohort that was born digital we talked about digitally native Brands now we have these digital native shoppers.
So that concludes the longest and first section of the my sort of feel like the second section is about the recession and.
For those that don’t know where I think now officially in a recession and it very likely is the deepest recession since World War Two.
[41:44] And so you can you know they’re all kinds of conversations about the behaviors we typically see in a recession and what the learnings are from from the last couple of recessions.
Super high level like it’s not stuff that would surprise you like,
in a recession people shift to more value oriented products they trade down in Brands e-commerce tends to go up in in recessions ironically one of the recessions is called the.com bust,
and yet e-commerce grew all throughout the.com bust as people shopped online for better values in the recession,
people kind of pivot their their spending from wants to needs,
you know there’s a huge credit Crunch and that has a significant impact on a bunch of retailers we saw Sephora this month like roll out installment payments for Cosmetics which is.
Sounds like a economically bad idea,
but you know you’re going to see retailers break out their layaway programs and and all these non-traditional financing and things like that and I would remind listeners we had KC.
Robot from Dwight on a couple months ago and he talked about like a study that Deloitte had done kind of looking at the last couple recessions,
and saying hey you know there’s likely one coming and I you know I don’t think any of us knew then that it was coming a lot sooner than we expected.
[43:10] So potentially and like the long-term impact of covid is mostly felt because of this this recession.
[43:23] Like does that it’s something like spiffy would you guys think about like changing your packages to add more value oriented packages if people are more cost-conscious or.
[43:35] So having lived through 1809 while the data says its source recession from a GDP growth perspective
like the macro stuff isn’t tracking it right so unemployment is but it’s kind of weird unemployment it’s like it doesn’t people aren’t really
they’re actually learning more being unemployed so so that’s not impacting you know and we’re we’re we’ve pushed out like four
plus trillion and another three or four behind it through PPP and all that stuff so yeah and in the same time also the stock markets hitting new highs so there’s this really big disconnect is really hard to get a read on what’s going on because there’s been so many levers that have,
so it doesn’t feel like a recession right and then there’s just some data out today this really timely with this where retail sales.
Maybe maybe we save this do I save this for the how long it lasts or do you want.
[44:30] Although you’re like so I would certainly agree like there’s no precedent for this recession like it is the deep it right so 2001 bust unemployment 6.3%.
2008 Great Recession 10% unemployment 2020 depending on you know how you count like we’ll call it fifteen percent unemployment,
I’ll come back to your point about the unemployment a second,
in 2001 retail sales never went negative like they the rate of growth slowed but it was always positive in 2008,
retail sales dipped 3% at worst and in 2020 we last month we had this or April we had this like 15 percent dip unprecedented.
Um so um.
[45:15] It’s apples and oranges that would be.
[45:16] Well that’s yeah so so here’s the problem like that’s.
[45:20] Stores were literally closed due to a pandemic.
[45:23] They were literally closed and in any of those other recessions like whatever the dip was,
it’s slowly came back like we already know now from the the April data that the retail sales already came back right so it was the it was the,
this the it was a deep crevice but very narrow,
and per your point unemployment is it Derek Thompson at the Atlantic he wrote an awesome article called we are living in the weirdest economy ever and his main point was,
earnings in the United States of America are at an all-time high because,
while there is that unemployment like the stimulus checks that everyone got in the extra unemployment benefits like really like like income for the average American like,
is the highest month that we’ve seen on record and spending was at an all-time low because all those stores were closed.
And they’re like we’ve never seen that in the economy before like we have this huge huge spike in earnings and a huge drop in,
in spending and it was the highest Avis savings rate we’ve ever seen since we recorded it so a hundred percent agree with you,
it’s not really valid to use those other other economic events as strong indicators here.
[46:43] Yeah yeah so it’s going to be fascinating to see.
[46:47] And then briefly because I want to get to the how it in stuff but the other impact here is.
Did the landscape probably changes there’s clear winners and losers right so by category there’s winners and losers if you were online Grocer in New York IE Fresh Direct.
Best thing that ever happened to you if you were Disney plus you couldn’t have launched in a better time right but if you were away luggage or Marriott Hotels or 24 Hour Fitness.
[47:17] It was a you know a devastating blow to you and at the same time it disproportionately advantaged the,
the largest richest retailers and the retailers that are the biggest General Merchants right so the way to think about this,
if you are a specialty shoe store if you are DSW Shoes you are not allowed to be open you are non-essential
but you are allowed to buy shoes at Walmart because Walmart was essential because of their groceries right so there was this huge,
shift of like 250 billion dollars of spending the disproportionately went to retailers that had a grocery component and very large well capitalized,
At the other end of the spectrum independent retailers which is about 25 percent of all retail had on average 19 days of cash on hand so they’ve now ran 60 days with less than 10% of their usual Revenue.
They’re totally financially insolvent in a huge swath of them are likely to never open again,
and so we’re just going to have to have this this cataclysmic event where we’re just going to see way less retail stores in the US.
Then then next year than we had last year.
[48:39] And so a way that plays out is let’s say 25 percent of all the stores don’t open let’s say you look at the grocery category pre covid Walmart Kroger and Albertsons represented 40% of the grocery category,
when a bunch of independent retailers and some some Regional Grocers go out of business,
the likely outcome is that Walmart Kroger and Albertsons represent sixty-three percent of the grocery industry.
[49:07] Yeah you know why some of these policy is kind of strengthened.
Market share so so if Walmart’s only thing open and everything else is closed I mean like you’re essentially putting coffee you know Nails in the coffin of some of these small Independence it’s going to be kind of kind of sad.
[49:24] Yeah so it’s always had and then it’s I insult to injury it’s really hard to declare bankruptcy right now so like we haven’t even seen it all.
[49:33] Yeah I mean you got to get in line like the courts just open for the video bankruptcies your lawyers are you know extra pain and
usually you know usually you tried to declare chapter 11 you try to raise some some new lines of credit liquidate a bunch of inventory and do a restructuring plan,
right now you can’t liquidate any inventory and so you know a bunch of people like Pier One that probably hope to restructure have had to throw in the towel and they’re going to close all the doors.
[49:59] So that brings me to the last section which is if and how this all ends and I’m eager to hear your perspective,
but I’ll throw out just one important fact beforehand I like to talk about the fact that they’re really two different endings there’s a psychological ending when our Behavior revert Stu,
pre-pandemic levels of concern and there’s a medical end right and.
The Debbie Downer news is the medical Outlook is not particularly awesome like the.
The science is pretty clear that we’re not going to be way safer from covid,
in January of 2021 then we were in March of 2020 when we shut down all this stuff whoop will be a little safer there’s a few things that have improved,
but like herd immunity is not realistic in the next two years on the horizon like there.
[51:03] A therapy that has a meaningful effect on the on the Comfort level of Americans is not likely to be on the horizon in the next two years and the fastest of vaccines ever been developed as five years,
scientists are going to work miracles and if it’s possible to develop a vaccine that of up at way faster I would remind people a lot of stuff.
Vaccine never works like we still have to deal with the cold we still have to deal with measles and other things.
[51:35] Once we develop That vaccine we’ve got to distribute 7 billion doses which we’ve never done before and we have to hope that one dose is enough to give people a long-term immunity so it,
from a medical standpoint.
Customers are still going to be at risk in December of 2021 and so the magic question to me is not when the medical risk goes away its.
When people say hey you know what I have to live with this risk and I have to you know revert to my my old behaviors are not so to me the psychological end is.
Probably more economically relevant than the medical and.
[52:11] Yeah yeah and just kind of frame it there’s a lot of schools of theory here so you have one school would be there’s a v-shaped recovery so just like you’ve seen the retail sales kind of have a really deep Chasm and then come right.
[52:25] It’s almost that I recovery for the retail sales but yeah.
yeah and then there’s a u shape where we kind of like Bounce Around the bottom and then come out of it slower and then there’s a w shape where we come out of it in a V and then in the fall there’s a Resurgence as cold weather sets in there’s a lot of Science and you keep I know more about this than I do that that would indicate that these things tend to kind of Spike
like the flu does in the winter so then that would be that W shape so we were down we’re up and then we’re down again I’d be super depressing,
and then kind of the most popular one I think with pundits now is kind of the L so so you come out of it very very slowly it kind of went down deep and then you kind of come out of it so it’s more of a long tail L shape
and this is where I kind of am on the V shape of this because.
To your point I don’t I don’t think it’s going to look like the medical side but mentally once things have opened up.
People have just gone into it Whole Hog it almost could be a problem because we’re we’re seeing the bars the younger folks around here are like just totally.
[53:30] During that 25% of,
you have just don’t follow any of the processes or procedures here in Raleigh they had to kind of like get pretty Stern and now they have a you have to wear a mask outside all the time policy but people are just ignoring that too so you know,
but but it’s gonna be interesting to so mentally people are really burnt out on the whole shelter-in-place thing and ready to get back to normal so there’s that and then I think you can automatically,
all these policies are designed like once this unemployment stuff comes off you can see the jobless Spike very very quickly because you know,
there’s a lot of people that want to hire a lot of people don’t want to work and I think that’s going to fix itself pretty quickly I think it’ll still be it’s not going to go back to pre covid levels but it’s going to fix itself largely pretty quickly so yeah so I’m a but yeah,
full disclosure I’m a entrepreneur so by definition we have to be kind of like irrationally optimistic to do what we do every day so so put me squarely in the v camp for now.
[54:29] I like it and whether I could show I want you to be right number I’m rooting for you it is interesting the.
[54:39] So we’ve been Consulting with this epidemiologist that wrote this really scary book about there being a huge coronavirus pandemic in 2007 he wrote the book in 2017 and imperfectly predicting all of this,
[54:56] Side note he’s like a w-shaped recovery is a total possibility like he doesn’t think it w shape is likely to play out in the u.s. because he’s like.
There’s never been a dick is this point like like Behavior has changed but the cases have continued to like go up like there you could argue the rate has gotten better or worse but like what people are perceiving as like.
You know we had a significant abatement and then it might come back he’s I really like we’ve just been living on an incline and not notice that,
but that that antidote aside my my feeling is that we’re going to have a check mark shape,
recovery or what some people call the Nike Swoosh recovery where.
It is going to take longer to recover than it took to fall because we were so,
and but and some parts of the the economy will recover pretty quickly while other parts like have very long lingering.
And so you net out to this shape where you have like a steep down and a more gradual return as opposed to you would be more more symmetrical.
Is kind of my position.
[56:15] Hundred percent with you like there’s a real dichotomy out there right now there’s a bunch of evidence that people are super conservative and are not going to spend as much.
Even without the the.
Like government-mandated shelter and places so I in China where you know they’ve been 99% of retail has been open for two months,
retail still down 20% in Taiwan that never closed retails down 20% and Sweden that never close retells down 20% and so though that means retails down because people are afraid,
or either of the economy or their health or both,
but at the same time not only are all your bars full Scott but Carnival Cruises is a hundred percent book for August.
[56:59] Yeah yeah yeah.
[57:00] And so you do have this weird Behavior where you see some signs that people are being extra conservative and some signs that people are like you know just fed up and open and maybe the answer is for your point that they’re not the same people.
But it it is really interesting and hard to predict that the two things I like to leave retailers with on this recovery is that.
[57:24] I do believe that stores are not going to return to their pre-coated levels of foot traffic for two years.
In some cases that’ll be consumer fear and that they’ll try to minimize their trips and we’re seeing this huge Trend towards.
Tripp consolidation for consumers they’re buying a lot more stuff in fewer visits.
In some cases it will be because there’s a legitimate health risk and of the store being too densely populated and the store self-regulating its own traffic,
and then a bunch of cases there will be local ordinances,
that will limit the Maca maximum occupancy so you know the easiest mental model is to think of a restaurant,
you know in a lot of places restaurants that are just now starting to reopen but they’re only allowed to use 1/4 of their tables or 1/2 their tables,
and so in the retail world if you’re not if you’re let’s say Costco and you have 3,000 customers in your store on a busy Saturday afternoon,
and now you’re only allowed to have 1500 customers in your store the only way you can get close to your pre Cova to levels of Revenue and comps is.
[58:32] You have to sell more stuff to each customer that goes in the store you have to get the customer in and out of the store faster right so instead of focusing on dwell time and instead of having like,
unqualified traffic in your store you only want the best customers in your store and you want them to get in and out quickly so you can open up that slot for the next customer and most importantly you have to sell a bunch of the stores inventory to people that never go in the store which is curbside and so to me,
for the next two years like the most important play in retail is going to be how you survive this prolonged dip in foot traffic.
And you know I think every retail you know there were retailers with systemic advantages there like you know that.
Had weaned into like a Target had you know heavily leaned in a curbside or a Walmart before covid and so again you know they have a huge Advantage versus,
a dollar general which you know ordinarily you think would be really advantaged in a recession but you know they don’t have near the digital chops or the curbside pickup chops that a Walmart has.
So that that is.
[59:41] What are the top questions client ask you after you.
[59:45] Yeah that’s all great Jason.
[59:46] Punch them in the nose with this terrible news.
[59:51] Well so I mean a couple of things right so so you know they have like.
Which of those Trends you know do you feel confident our long-term versus short-term and why and how do we predict right and so we talked a lot about that scenario planning that we open the show talking about.
A tactical question that customers are still really concerned about with right now is holiday right and and I’ll be honest I don’t have a great answer,
it’s a very difficult holiday / to plan for like for all the reasons we just talked about like I don’t think customer demand is going to be at pre covid levels like I think it’s better than it’s it’ll be much better than it was in.
In April when everything was closed but I think it’s going to be a challenging holiday like I think a lot of the occasions that drive purchases around holiday,
are still not going to be happening at the same rate so that’s going to be a challenge but like how consumers respond like if they just all decide that they’re just fed up with all this and they want to celebrate Christmas how they always have,
um you know maybe it ends up being in unexpectedly good holiday right it’s really challenging and then layer into that,
what the heck is Amazon going to do like Prime day is now in October.
[1:01:10] And so is that going to kick off holiday early and is Amazon just going to like Run Holiday from October through December,
you know a bunch of retailers tend to try to lean into singles day in November does that kick off holiday you know.
The it’s really tricky are our kids gonna go trick-or-treating and so you end up doing these scenario planning right in if you’re a candy manufacturer like,
you know maybe you ought to be selling variety packs for families to you know in lieu of the candy they normally would have collected,
going out trick-or-treating or things like that you have to start thinking about.
[1:01:49] Yeah yeah seems like Amazon’s run scenario planning and they’re like hmm if this is a w we should run Prime day before the holiday in case it’s stinky and get you gotta go get the win early.
[1:02:03] We’re running up on time Scott but I do like an interesting question like so.
It’s totally obvious to me why they didn’t do Prime day like in summer right they had this huge supply chain disruption and and consumer spending is downright so,
they didn’t feel like the right time October it was kind of a weird place to land and one.
Um dearie I have heard about October is because.
Like does that potentially coincide with some new product launches from Amazon and did they decide that like the next tent pole after summer.
Between into 4 Prime day is to support the launch of some new new Echo products or new products any what do you think about that.
[1:02:49] Yeah I can see that and then you know they don’t really look at competitors but Apple should have a new phone coming out in that timeframe right isn’t there a I think it was September but then I’ve read it’s been pushed back.
[1:03:02] Yeah it would ordinarily be September and there’s a lot of rumors that Supply chains a little disrupted so that could be later there.
[1:03:10] There’s a lot of theories that this month they’re going to announce a dramatic new laptop based on their own chips instead of the Intel chips.
But nobody thinks they’re going to ship it right away so that that could be shipping in that time frame as well.
[1:03:24] Yeah yeah yeah I think that’s valid,
I think if you think about it November so so you have kind of singles day out there is kind of another interesting data point but it feels too late you don’t want to interfere with Halloween because that’s a good song thing so I think by kind of pegging it every day and we do we know when in October.
[1:03:44] I am.
[1:03:45] Note to his opinions.
[1:03:46] In my mind I think we may have now ended on on dates and I just don’t remember what they are.
[1:03:52] I want to see 1010 there’s some symmetry to it if I recall.
[1:03:55] That’s an ironic pivot from from from Singles day then right oh yeah you have 11 and then we have 10 10.
[1:04:03] Yeah don’t be smart also very popular radio station in New York the yeah so we’ll see I think it’ll be I think I’ll be clever.
[1:04:14] Gadget for our listeners radio is a way people used to get sound before podcast existed.
[1:04:19] Yeah yeah the other thing is you know so let’s say you’re one of these folks that have really you know this has been a huge win for you the pandemic what do you do next year when you turn a when you have to lap this thing you know that’s going to be the cops next year,
are going to be huge for some people that were the most negatively impacted and then hard to calm for those that have been most positively impacted.
What do you what do you say those books.
[1:04:44] Well so we I brought this up with Mark when he was on the show a couple weeks ago I actually think it’s a get out of jail free card for most retailers on comps like I think that you know retards that had a struggle here like are gonna.
You know have a ridiculous we High comp and people aren’t gonna give them credit for it and retailers that had an unexpected boom here are gonna you know really struggle the comp and people aren’t going to completely penalize them for it so I think there’s.
A lot of smart CEO’s that have like you know painful course Corrections and and austerity measures and things that they’ve,
they have like probably known that they should put in place but we’re you know difficult to do it in a quarter to quarter investor environment and I think now is their window of opportunity to do it.
I actually think that’s why another reason a bunch of reasonably healthy retailers will close stores underperforming stores because.
It’s going to you know they have this semi get-out-of-jail-free card.
[1:05:46] Well I think if you believe it you should put it in your annual prediction show and we’ll see how it goes well however that’ll make us follow it closer.
[1:05:58] Yeah well this is got we’ve used a little bit more than our allotted time so we should probably leave it here but as always if folks want to,
continue the conversation on Twitter or Facebook we’d certainly love that as always jump on iTunes and finally give us that five star review.
But we sure appreciate everyone’s attention and despite the fact that there’s some negative predictions in this.
I’m wishing everyone a nothing but the best and I hope all of Scott’s a wild optimism comes true.
[1:06:31] Thanks for sharing this super-secret client briefing with the the world and may all your pandemic recoveries be v-shaped.
[1:06:40] Exactly and until next time happy commercing.