A weekly podcast with the latest e-commerce news and events. Episode 232 is an interview with John Fleming, interim CEO of rue21.
John Fleming is the the interim CEO of rue21. John was formerly the global e-commerce CEO for Uniqlo, Chief Merchant at Walmart, and CEO of Walmart.com. He has also served as a board member at Bed Bath & Beyond and Untuckit.
rue21 is an American specialty retailer of women’s casual apparel and accessories with 670 stores that primarily designs and fabricates its’ own products.
In this broad ranging interview, we discuss the challenges and opportunities presented by Covid, Amazon, the direct to consumer model, and the future of retail.
Don’t forget to like our facebook page, and if you enjoyed this episode please write us a review on itunes.
Episode 232 of the Jason & Scot show was recorded live on Thursday, August 13th, 2020.
[0:24] Welcome to the Jason and Scott show. This is episode 232 being recorded on Thursday August 13th 20 20.
I’m your host Jason retail get Goldberg and as usual I’m here with your co-host Scott Wingo.
[0:40] Hey Jason. And welcome back. Jason Scott show listeners today on the show we are super excited to continue what I like to call our summer of blue chip guest.
We are welcoming John Fleming to the show. John is currently the interim CEO of Rue 21 and previously had stints at Unicode Wal-Mart and he’s on the boards of Bed Bath and Beyond visualcomfort and untucked. John welcome to the show.
[1:06] It’s great to be with you guys this afternoon.
[1:09] We are thrilled to have you. John Scott gave us a little bit of a teaser but you’ve you’ve actually had a storied retail career.
We always like to start by getting just a little bit of background. Can you tell us how you got started in retail and kind of just walk us through the the elevator version of your career.
[1:26] Yeah I I got into retail in 1981 when the economy was terrible and I needed a job and,
I had a liberal arts degree which didn’t really prepare me for anything and I stumbled across Dayton’s department store in Minneapolis and got into their training program thinking I do this for awhile and,
I liked it and I was pretty good at it.
And I’ve been added ever since and I’ve seen a lot of changes in retail during my almost 40 years of being in the retail business.
[1:59] And that makes you a super young man. When you started because you’re still very youthful and you and I.
[2:05] That’s right. I started that since I was 7 years old when I started.
[2:09] Yeah and do I have it right like you were the first e-commerce leader at Wal-Mart if I’m remembering right.
[2:16] I was the second. So I followed Jean Jackson who was you know a rock star CEO that was leading Banana Republic and she came over,
to put the dream team together and she hired me to be the chief merchant.
So I was the first chief merchant at Wal-Mart dot com.
I was then technically the second CEO.
[2:39] That’s right. And then about seven years ago I started I joined an agency which became part of publishers called the RAZR fish in my first week on the job they’re like hey we have this newclient,
called you Nicolo and you have to fly to Japan and meet the team.
And I feel like that was the greatest I’ve ever eaten at work. By the way.
[3:03] That was a pretty good gig except so I got into that because they were pretty far behind it.
E-commerce had an incredible store program building flagship stores all over the world and very dominant in Asia but weren’t really doing much with e-commerce.
So I got sort of lured out of retirement to come back in and get the game and,
we put a team together in San Francisco because that was part of what what I felt needed to happen to run a global e-commerce team and what I learned pretty quickly though was the only way Iwas going to give you done was to get on that plane and fly to Japan.
I think over three years I went to Tokyo thirty six times.
And that got to be a little difficult at my age. So we actually put a great team together and we jumpstarted the business and got him to a really good level and then I went into my second retirement.
[3:53] Oh my goodness. And that that will bring us to your second unread tyrant because you at the moment have the most trendy title in retail which is interim CEO.
[4:04] In interim right. You’re not fully committed but you can get you’re focused enough that you can make stuff happen.
Yeah. So I then as I got into my second retirement that I started looking at different boards that I wanted to get involved in and I and I got on to three or four boards and was really enjoying that andsort of a broad range of,
consumer and or retail companies.
And one of them was Rue 21. And they were coming out of bankruptcy in the fall of 17.
I think it was September of 17 and I was recruited to go on the board and I did and we worked very hard to.
[4:45] The interesting thing was you know in my background I’ve only worked for world class companies and so at the first board meeting they spent all the time talking about liquidity and I’m likeWhat is this you know in vendor terms and I’m like really,
because that those were things that I really ever focused on in my retail career.
But fast forward to having that exposure and training has served me very well during this Cobra Crisis because then I was on the board for a couple of years and then we made a change in Februaryand,
I was the board member that they kind of all pointed to and said we need you to step in and,
sort of take us to the next level while we look for a new CEO and I did and at the time I remember this so clearly it’s the only time I went to Pittsburgh in this role.
I flew in and we had a meeting and got together with the team and we chartered out that year and the next three years and we’d come off a pretty successful year and things were looking prettygood.
And I think the first week of March we were up 10 percent year to date.
And you know the world looked pretty bright and then all of a sudden three weeks later we closed six hundred and seventy three stores and furloughed 9000 people.
[5:55] So it’s been quite the ride. But we did then,
open our stores starting in May and had each week we opened the stores that we could,
and the time that we were close to gave us an opportunity to sort of rethink the business and to sort of reposition ourselves because there were a number of things that as I came in I saw we could dodifferently.
And starting with you know becoming more customer focused and digitally led,
and not just thinking about stores and we learned a number of things about our customers and the way we we we did our pricing and promotion and,
the inventory that we carried and we were able to make a number of changes and as we opened the stores again the customers came back quickly.
I think the fiscal stimulus helped a lot but we’ve been able to sustain that and we’re we’re in a very good position right now.
[6:48] Awesome. And we want to dive in the cove it a little bit more but before we do I just wanna to make sure we level set everyone in the audience a lot of our audience will be familiar with Rule21 but for folks that,
aren’t I think of you guys as a solid omni channel retailer.
So I think you’ve got three hundred and sixty some odd stores.
You have a strong digital and social presence. If I have it right you primarily sell your own apparel so you’re you’re the manufacturer and the retailer and your,
primarily targeted at sort of teen and would you call yourselves fast fashion or would you call yourself.
[7:31] Well it’s interesting. That’s a that’s an internal debate we aspire to be we aspire to be faster.
We definitely call ourselves fashion but we aspire to be faster.
And that is part of the learning. So what are the things that we learned during the,
shutdown when the stores were shut down and we had a really you know a skeleton crew that was guiding the business at that point as that was as we did a,
sort of an evaluation of all of our processes and you know and how we presented to customers and you know how we engage with customers.
We came up with a new mantra which is simple fast and new.
And so that everything we looked at. We wanted to simplify it.
We wanted to move more quickly and ultimately we want to deliver newness to our customer much faster.
And so we are what you described is true we have six hundred and seventy stores.
[8:22] I think your view of us as a successful omni channel retailer is a little overstated.
We’ve been a very successful store based retailer but we’re building omni channel capabilities and that’s a big part of our growth strategy in fact we are migrating to a new platform in September andit will be the latest technology.
So it’s a headless technology cloud based API driven and this will improve our site performance dramatically,
and then ultimately you know it will take some friction out in some of the the the the the customers path primarily around checkout and make it a little more mobile friendly.
But then the real features and functionality that I think will take us to the next level will happen after holiday,
and the code but things slow this down a little bit there because of the uncertainty in April as to what the outcome of this is going to be so we had to kind of,
slow down some of the projects but then as we open the stores and could see things were going well we accelerated again and we’re really excited about the holiday season.
But you know we serve a younger consumer our customers 16 to 28 would be the sweet spot.
[9:37] We actually compete quite well with other fashion young retail brands and one of the things that I learned when I got under the hood moving from a board member to the interim CEO,
is that our best format is actually in a mall.
And as a board member I was way more familiar with the strip centers that we had and those have been the stores that we had drawn more recently.
But we do really well where we have a full competitive set and the,
findings there are that you know that consumer is not super loyal to anybody goes to the mall wants to see what’s happening with their friends and in the end our prices are quite good.
And I know from my Wal-Mart days as you know price is a good lever,
but what we’re trying to get better at is is what’s the news and the fashion newness and telling the the story that really emotionally connects with the consumer based on what the product is and thenthe promotion is more an outcome of you know how much you own.
But we have the low price position and we have the potential to be a fast fashion retailer meaning you know new newness to our customer more frequently.
But there are some internal things that we’ve had to work through to sort of speed up the process.
[10:53] Very cool the father of two daughters. I’ve been in many a Rule 21 so it’s always interesting to see the.
Yeah the displays and you obviously have a young audience and it’s always kind of vibrant and a lot going on in the store.
How many of the stores are mall based versus non mall like half Yeah.
[11:10] About half the mall based in half or strip centers. Yep. 50 50.
[11:14] Yeah. Well since we’re here kind of hopefully in towards the end of the pandemic.
I’m the optimist on the show. Jason would say it’s only the beginning. Yes.
[11:21] This is the this is the end of the pandemic. You think this is the end of the pandemic.
[11:25] I do. I’m the optimist. I said I’m the optimist. Jason thinks we’re in a five year cycle.
[11:25] Oh I I hope it’s well I don’t know that. I mean I think I’m not a doctor I don’t know anything but it seems to me like we’ll be living this way into next spring.
[11:26] Scott does. I do not.
[11:39] Yeah hopefully not. Well given that you know you’ve talked a little bit about the impact on the business so maybe walk us through.
It seems like you guys have done a good job as good job as you can navigating this so kind of march came we did shelter in place your your stores were closed. What what are you tell some of theactions you guys have taken and what it’s looking like today.
Now that we’re kind of coming out of it a little bit.
[12:05] So so we’re really quite quite happy with how we came through this.
And I think that the the reason we were able to do as well as we’ve done is because we were very decisive.
So if you think back and it seems like so long ago.
But I can remember day by day and I remember even a friend of mine that’s a Wal-Mart supplier called me let’s say the end of February.
And I think I just assumed this role and was talking about hey so what are you thinking about this. This virus thing.
And the entire conversation was around supply. Well you know we’re worried you know because we’re going to be able to get the product that we have on order and for the next week or so,
every discussion that I had you know with every company I’m involved in was really around supply.
[12:54] And then all of a sudden somewhere early in March probably 5 6 something like that in March I remember the same guy called me and we had the same discussion and he said you know youkeep talking about supply.
What about demand and I’m like What do you mean.
He goes What if customers don’t go to stores and I’m like wow. Oh come on. It’s not going to be like that you know.
And he was definitely the canary in the coal mine. And I remember him saying And then you know at that point then my CFO and I started talking and you know we were in all the discussion wasstill about supply.
[13:26] And I said to her like we should model what happens if we drop 10 percent.
And I remember having this discussion I was like I was on the phone with her I was in California at the time and you know she was in Pittsburgh and you know she we were looking and she said Ithink we’ll be OK at 10 percent. I’m like What about 20.
She goes wow that gets a little dicier. And then I remember talking to my friend again and he said well if you close your stores and I’m like that’s never going to happen.
I remember this so clearly. And that was like March 6th.
Well on March 12th the world changed right. That’s when the NBA shut down.
And like just the dominoes just started falling.
And at that point we were doing everything we could to stay open.
So for the next week I would say you know it’s kind of like the change management thing.
Like at first we were in denial then we were in resistance. Right.
And so from March 12th to about March 18 around us there were municipalities and or states that were mandating closing.
And so every day I’m on call it be how many stores do we have to close and you know on the first day it was like 12:00.
[14:30] That was another 20. And I remember even doing a virtual town hall because I was in California and I was headed back to Pittsburgh like on that Monday which would have been like,
15th or 16th and talking to the team about you know we’re going to do everything we can to keep the associates and customers healthy and safe but we’re going to keep our stores open becauseclearly our customers you know they still are coming to the store.
Because at that point we were just running down let’s say 10 12 percent it had really dropped yet but then on the I think was the 18th or 19th of March.
And again I’m in California and Governor Newsome likes is going to shut down the State and San Francisco is going to shut down.
And I just was struck by the fact like Oh my God this is real this is happening.
And the next morning it was a Friday. I got on the phone with the team,
and I said I think I think everything’s getting shut down and we had a discussion about it and I said I think we should get ahead of this and we should plan to shut down.
[15:34] For two months because this isn’t going to play out quickly.
And on that Friday at eleven o’clock Eastern time we made the decision to shut down six hundred and seventy three stars and furlough 9000 people.
And we did it by end of business day the next day on a Saturday. We did it and we focused on being shut down for two months.
And I think that was a huge success factor for us because if you remember at that time everybody was having the same discussion but they were thinking I’m going to close till the end of March.
[16:04] You know I’m going to close to the first week of April and I think being in that middle space paralyzed a lot of retailers because we were able that we canceled inventory.
We shut down the stores. It gave us a chance to evaluate our processes to think about what we’d look like when we opened to do talent evaluations.
I mean we went through all these steps and we were I think we were a month ahead everybody.
So by the time we opened and magically it was about exactly two months we started open stores opening stores the second week of May and we opened 180 or something the first week and 100 thenext week and it just went through that and got,
a majority of them I think in California we still have some stores close because it’s mandated by law by law.
But we have we have over 650 stores open and we’re doing well and we have a you know a slimmer team than we had before.
And we streamlined a lot of processes and we started to take steps towards being digitally first because we’re using the digital channel to better understand you know our customers and demand andyou know using that information to better run the stores.
And so we’re getting there and we’re in a good place and I know I would say even outside of room the lesson that I’ve learned is that there’s three things that are gonna make companies successful init during copied and coming out of all of it.
[17:23] You’ve got to be relevant. So if there isn’t something that’s clear that you do and you can differentiate yourself and your brand stands out from the rest there’s no reason.
And that’s where I think department stores are going to have a problem because I just don’t think they’re relevant anymore.
[17:41] Second thing is you’ve got to be agile. You know there’s going to be things that change.
I still think you know I I’d like to think we’re almost it’s almost over but it’s not.
And we’re going to be thrown into a number of different situations over the next six or eight months we may have to close stores we’ll be opening stores we’ll have to pivot to more digitaldistribution.
There’s going to be things that are going to happen and the companies that are agile we’ll be able to handle it.
And thirdly you got to be very disciplined and that person primarily around financials and that’s where I go back to the first thing I told Joe is when I got involved through,
you know I’m not used to working in financially distressed companies and yet you know seeing a company come through bankruptcy and get back on its feet,
was very valuable experience to me because you know on that day we decided to close all the stores.
We immediately you know shut down all of our payables. We shut down all of our cap ex.
We focused on liquidity. You know we renegotiated terms with lenders.
I mean we were on it and I had a great financial partner to help me through that.
But you know that a little bit of experience that I had early on in being on the Rue board which is a company out of coming out of bankruptcy sort of prepared me for this.
[18:56] Very cool one. One kind of tactical question is so. So you’re you know it’s early March you’ve got your storage kind of.
I imagine loaded with summer inventory what what do you do with that stuff now that you’re opening do you do you have to flush some of that or do you have enough of a season that you can kindof get it working out of the store.
[19:11] Yes. So actually the stuff in the store was was good because it was just we had just been getting receipts for spring and they were you know the floor set was only a couple of weeks old.
By the time we shut the stores down so we basically just mothball the stores and locked it down.
The issue was more what was coming because we knew we were going to miss two months of sales and so thankfully we were eliminated all that and we were very and again I think you know onMarch 20th we were looking at that number.
You know we knew what the number was. We knew it had to go away. And we made it go away.
So by the time we opened in mid-May we were about where we wanted to be in terms of inventory and it was fresh enough.
[20:00] And I think the combination of the pent up demand from the consumer the fiscal stimulus and the lack of other alternatives for our customer to spend money on because think of it during thattimeframe there were bars and restaurants.
There weren’t movie theaters there were places to go spend your money.
So they actually were looking for places to spend some money and they in some cases they had more money than they had before.
So we got a good jumpstart I think in that it gave us a chance to sort of refine the presentations in the stores.
Know we did some training. We we we got our stores focused going back to the simple fast and new mantra.
We removed a whole bunch of tasks that we used to do in the store and just got the stores focused on serve customers.
We’re going to we’re going to flow the products better.
We’re going to be much clearer as to where you put it and we’re going to streamline the promotions because in the past we were always you know messed around with the promotions every daybased on you know what we thought was going to drive traffic and in the end it didn’t. It just created confusion in the store.
So this simple fast and new approach really was was adopted very well by the entire organization and even the store organizations has felt like we simplified their lives and let them focus oncustomers.
[21:17] The other thing that we were able to do is we launched the loyalty program and this was all in the works before I even took over but it was all store focused.
So our company was really a store focused company and that was one of the first things that I wanted to change when I.
[21:33] Took to gotten the chair was that you know my background is going back to 2000 is more you know the retail has changed,
and I grew up in an era when retail was you know product focused and store driven and I was a product merchant for the first 20 years of my career.
But then you know I was very fortunate that I got into the online space and the visibility to customer information in real time.
You know I don’t know that I would have articulated it this way in 2000 but you know if old retail was product focused and store driven new new retail is customer focused and data driven and sothat,
that gave us an opportunity to start to make that pivot at roo and really get focused on who our customer is.
We launched the loyalty program online. It’s been fantastic.
You know it’s driven engagement with our customers and now we’re now we’re rolling it out in the stores and we expect to have two thirds of our customers enrolled in this loyalty program by nextyear.
[22:34] That’s awesome and I want to drill into some of the digital stuff.
But I do want to poke on malls just a little bit because you’re a great opportunity to talk to someone that is living the mall experience right now.
I just read a scary quote from David Simon who’s the CEO at Simon malls,
and it was something to the effect of Yeah I was feeling pretty good about getting back to work in June and July feels less good and now I’m totally confused about what’s going to happen inAugust.
And he was kind of talking about the fact that like yeah we got most of the malls open but you know now various parts of the country are having challenges and it sounds like they’re having to reclose some malls and it’s really unclear,
what the future is are you guys just having to kind of,
like I assume in most mall situations you don’t even get to pick when you’re open or not.
That essentially the mall is going to make make that decision for you. So it’s just it feels like you just have to be really agile and be prepared for whatever comes.
[23:35] Right. So there’s a couple of things that went on. I think everybody was pretty happy with June and I do think there was a pent up demand in basically all retail channels.
I think June you know there may be some laggards I’m not sure that the department stores did that great.
But but most retailers I think had a nice June into July but then you have two things that created headwind mid-July into August and they’re actually all impacted by Colgate right.
So as the business started to soften a bit mid-July if you charted my business nationally and we have stores in 46 states it looked like a coded map.
So any place mid-July where the virus was starting to increase our bid business was running down and most states were red.
[24:23] And any place where it was under control primarily you know the north parts of the Midwest parts of the Northwest.
Business was very positive and that sort of played out as you know we’d had this surge of increases with the virus.
Now that combined with the uncertainty around back to school,
and I think this has been you know fairly well publicized is you know it’s not clear like when schools are starting it’s different by municipality.
Some schools have pushed it out. There’s some schools in the south that have started again.
Some are going to days on two days off.
And that uncertainty has basically killed the opportunity to hit the peaks of back to school.
So like sats are terrible for two reasons. One those are the biggest volume days and there’s there was urgency in the past from consumers because it was almost like holiday they knew I had twomore weekends before school started. Well there’s that urgency doesn’t exist.
[25:26] And the second thing is in most cases the hours are reduced which isn’t a bad thing.
And actually it paid off really well in June from a profitability standpoint.
I know in our case we used to be open 10 to 9 in almost every location.
We’re now open eleven to seven so.
So there’s three fewer hours and during the week it hasn’t mattered because the patterns to the customers have evolved and there isn’t the urgency.
And so we don’t need the extra hours and we just we just bank that and savings our operating costs.
But on Saturday it’s a problem when you get into these peak timeframes.
Now what I will say is it looks like we’re getting the other side of it because we’ve been charting our business based on you know school starts early mid late,
and the first stores that really had a difficult time with early starts both in terms of it’s not clear when they’re going to start.
So there wasn’t the urgency and they’re up against these big numbers including these tax free events that all moved out.
So the first wave of that was very difficult but now we’re seeing that that first wave of stores are running positive comps for us again because we’re past we’re past the hill from last year and we’remore into our base business.
So we still have to work through the mid and the late waves but I think what’s going to happen and what I’ve told my team is we’re going to evaluate our back to school business on more of an eightor nine week timeframe instead of a six week.
[26:52] Because I think it’s just going to extend a lot longer because there isn’t the same sense of urgency.
And so that could be what. Part of what he’s talking about because the traffic has been very very mixed and that consistent.
[27:06] Yeah. And that that’s a recurring theme I have heard is you know a lot of national retailers you you tend to be one size fits all.
You run the part of the advantage of your scale as you get to run the same campaign everywhere and you get good efficiencies from doing that back to school being a perfect example and in thePost-Cold world per your point.
You can’t go live with the same message in North Dakota that had 400 cases that you you are in Atlanta for example or something and so it’s like I feel like we’re all having to learn to be local andper your point. Did school open.
Is that hybrid like all of those things are are new skills I see retailers sort of acquiring very quickly.
[27:48] Well in and pricing too because you know if you run the same if you’re trying to drive some kind of promotion that you’re trying to get incremental unit sales out of where you have no trafficyou’re just going to deflate your sales.
And that was the one that was hard for the team because this is a team that you know is used to a highly promotional business.
And you know in even talking through you know pass back to schools I mean they were changing prices all the time because there was the six week window back to school which was the secondbiggest six week period in the year next to Christmas for this business. And you couldn’t miss a day.
So. So there was always these adjustments on price and you know that’s where I just had to convince them like look at this.
I mean sure you could you could we could drop the price on denim the BOGO free which is basically 50 off but you’re just going to deflate your sales because you need to get a 60 percent lift tooffset the markdown.
[28:41] And as we went through it and we really looked at like let’s price this stuff so we think we can sell at a regular price at a fair value and you know make adjustments along the way.
But if there’s if there’s if the traffic is off 50 percent in Florida Texas and it’s in it’s flat in Michigan you know you can’t run the same pricing everywhere.
So yeah it’s been but we’ve kind of erred on the side of let’s not be as promotional let’s let’s try and go out with fair prices and let’s try and manage the units or that margin on a unit basis.
And it’s worked and in some ways I think I always sort of had this theory that you know like you get into the holiday season you get into December like everybody goes 50 off everything.
For one thing I hate that because that means you’re selling your very best things at the same price you’re selling the very worst things. And as a merchant that’s a bad idea.
And so I’ve always been sort of averse to this like 50 off all or 40 off all.
And I believe that you know pricing and promotion is as much about merchandising and understanding what the customer wants and what your ownership is.
So that’s that’s like another process that we’ve been able to learn and discover.
And the team is now you know fully supportive of because they see the results.
[29:54] It’s a and unfortunately it’s shaping up to be a 50 percent off. Maybe the new 20 percent off this holiday we’ll have to see but it’s not looking good right now.
[30:03] Yeah the holiday though I see the holiday a little differently. I think the back to school thing is very uncertain and I’m sure that when when everything gets added up there will be much lessspent in total even in school supplies.
I gotta believe it will be less because you know people just you know if you’re homeschooled versus going to school I don’t know.
I mean it just seems to me like it’ll be less because it’s uncertain what’s for certain for holidays.
Christmas is on the 25th and they’re are going to be packages under the tree.
The challenge is how do you connect with the consumer and what’s your distribution strategy to take full advantage of it.
So like that’s one where at real you know we had one single warehouse and we’re very quickly trying to enable ship from store because that way even if the stores get shut down we have the abilityto broaden our distribution network.
And that’s what I think everybody saw that in April. I mean,
AECOM just bounced in April and went from you know I don’t know if it was running the market was running probably up 15 percent or something in February and then it went up to like 40 and50 percent in April and the same thing’s gonna happen for holiday.
[31:18] Quote I’m the e-commerce guy on the show so I like to hear those numbers.
Speaking of e-commerce it wouldn’t be a Jason Scott show if we didn’t introduce the topic of Amazon just a little bit and you’ve you know since you’ve got your career in the started in the 80syou’ve you’ve kind of had a really interesting view.
You saw Amazon come on the scenes as this ratchet online bookseller and then become the behemoth they are today.
What’s your overall view of Amazon are they this unstoppable you know 800 pound gorilla or they’re just kind of going to be 20 or 30 percent of of e-commerce and you know,
high single digits of retail. Where do you fall on the Amazon topic.
[31:57] Wow. Hey you know listen they they have built the 21st century retail infrastructure.
And honestly they’re almost less of a retailer and more of a platform because they’ve got so many lines of business now.
So you know as a business they’re huge. They’re going to continue to grow as a retailer though.
I still think I’ve been saying this for a few years and I have yet to be proved true because they’re still running up 20 percent or whatever on their retail business. Is that right.
I feel like up 20 25 percent or something and if you just look at the retail line of business something like that.
[32:31] Yaakov Kovac gave a bit of this but your.
[32:32] Yeah yeah. So yeah. So you run into them.
They’re still growing. But by the way you know we could have this discussion about Wal-Mart in the late 80s and 90s when they were running up 20 percent every year. Right.
You know and then at some point you get so big that it’s hard to put 20 percent on top of a really big number. So I think that happen Amazon.
I still think there are a number of things that are that could create headwind for Amazon at some point.
I think direct to consumer if I don’t know the direct consumer will ever get to be like 40 or 50 percent of total retail for two reasons.
It’s inefficient. The last mile costs a fortune. And second of all the infrastructure is not built for that.
Just you know U.P.S. and FedEx and Amazon trucks would jam every street in America if we were driven delivering 40 percent of all retail direct to the consumer.
So I still think that this idea of having these distribution points which is an advantage for Wal-Mart,
where the consumer can do all the things they love about online they can go online you know they could put things together they’ve got the information that they need they could do thecomparisons. It’s all done on their phone.
You know it’s easier making a choice online than it is like standing in a crowded grocery store looking for you know the tomato sauce you’re looking for.
So. So I think there’s some limitations in direct to consumer. I also think that.
[33:56] E-commerce grew because of search and I still think the primary driver to e-commerce is the consumer knows what they want and they go find it.
And Amazon gives them a lot of choice and clear comparisons and has taken tremendous friction out and that’s that 21st century retail infrastructure that I’m talking about.
[34:17] However if I go back to when I started in retail and especially in the glory days of department stores the majority of retail aside from my grocery and consumables was discovery based.
So you know a woman would go into a department store in nineteen eighty three she kind of if she wanted to buy a dress but wasn’t exactly sure.
And she came out with you know a handbag and a pair of shoes and you know.
And so this whole idea of discovery which is much more of an emotional shopping trip is something that isn’t great online still isn’t great online.
I keep thinking with all the tools with personalization and you know understanding the customer it’s going to evolve but I still think the best discovery is in a physical store that tactile experience of,
looking and feeling and seeing things and the art of presentation.
I still think there’s a role for that and I think that stores have to up their game in terms of what’s the experience what’s What’s the differentiator in the store.
Why do you go to a store like just to go to a purely merchandise store that’s dirty and that clear how to shop is not a great experience but going into a great store that gives you inspiration and,
gives you ideas and allows you to discover things that you didn’t before.
So I do think that omni channel retailing is is is a is a is a long term sustainable scalable retail model.
And I just don’t know how Amazon plays on that.
[35:46] You know they’ve tried a number of things because I’m sure they have a bunch of smart people you know in rooms with whiteboards saying we’re gonna to figure out how to do this digitaldistribution thing because if we can get a bunch of customers to come to a location and we had all their packages there it’s a lot cheaper for us.
[36:01] But nothing’s really taken hold yet. I mean I’ve I’ve always thought that you know if Amazon would buy like a target or a Kroger that could be a game changer because then they’d get broaddistribution.
[36:13] In one fell swoop and be able to sort of discover how do they take what they know and obviously they’ve got more data than anybody.
And how do they then integrate that into what customers still really want and need which is an an Army experience.
And I think the challenge has been for the physical stores and I saw this I learned this early on in my walmart context is the physical companies had a very difficult time going digital because theythought of everything by function,
and digital to them meant let’s just digitize the function you know even going back to the days of like the sun circular that used to drive the retail business in the 80s and 90s.
You know in magazines still do this. They digitize what they did before and they call that their customer experience the digitally native companies start with what’s the customer experience.
And I I’m still my wife and we’re talking about this today. It’s like I’m still kind of blown away by these magazine companies that still just want to digitize you know Vanity Fair Sports Illustrated.
You know they just want to digitize what they did before as opposed to using this new medium to be able to create a new experience for the Cup for the consumer to consume their content.
And they just haven’t gotten there and it’s because the physical companies can’t get their head around it.
And that’s where I do think the value in these digitally native companies in a lot of them when you really look at it. If you think of e-commerce.
[37:39] There’s only like three really big companies that were digitally native. Big grew into like real businesses and e-commerce.
The rest of them just kind of come and go. They get to 100 hundred million dollars and then they fail or they get maybe to a billion dollars but they don’t make any money.
I still am I still sort of question Wayfair. I mean they have no path to make money and yet you know you’ve got this crazy valuation and it’s the future and this is what the customer wants.
But they shipping all these big cube things that are heavy and expensive to ship.
So you know but there are these these these spaces in e-commerce like small cube high value.
Ding ding ding. It works and there’s value to the customer and you can ship it direct but I still think I mean going back to the original thing.
I just think five 10 years from now it’s the omni channel retailers there and grow be relevant,
and also they need to be agile and I think even the omni channel retailers need to figure out how do they shift their piano to be a little bit more towards variable costs and less around fixed costsbecause that gives you the agility required to sort of maneuver through any situation that’s thrown at you.
[38:48] Yep I know you burn up omni channel a number of times and I’m particularly interested in what you think,
omni channel might look like for this holiday because one of the things that has me worried is you know normal year like the whole e-commerce industry grows like 16 percent last quarter.
E-commerce was up 52 percent and so one thing I know for a fact is U.P.S. does not have enough trucks to have e-commerce grow 50 percent in Q4.
So how are we going to how are we going to fulfill all this digital demand.
that’s why that’s why U.P.S. and FedEx are putting all these surcharges on any anybody mean to do above what your normal volume is.
I think they’re throwing a bucket package on because they know it’s going to be a problem too.
[39:31] I’ve heard it could be as high as three. Yeah. Yeah.
[39:33] Yeah I’m sure I’m sure. Yeah Mike my team probably just doesn’t want to tell me that yet.
Yeah but I think when you see 52 percent that’s not all direct to consumer that’s e com initiated that could end up being picked up in a store so it could be like you know buy online pickup in thestore or it could be curbside.
And I think that that could take some of that.
And honestly there’s going to be a lot of it. I mean I I expect the economy to grow 40 or 50 percent this holiday.
So it’s it’s going to be either a traffic jam it’s going to be very expensive to distribute or you know the winners are going to figure out how do I use my stores get the customer to start online but thenuse my store as the place to,
fulfill that product and actually I mean this is,
it reminds me of you know in 2002 at Wal-Mart we launched what we called at the time Site to Store which is focus.
[40:28] And and I remember the stores were so opposed to it because this was back in the days when the stores thought that e-commerce their competitor was just taking their customer away fromthe store.
But we were able to show them and this is where we got like the Wal-Mart stores to really adapted quickly in 2002 as I recall was that when we showed them the basket,
that the customer was coming in and they were buying something online picking it up in the store and then they added to the basket and the basket back then was five times bigger than the averagebasket.
And so once we got the store managers to see that they’re like okay I’m in because it’s a it’s even if it’s not an incremental trip it’s a bigger basket sized.
So I think that’s going to be a big part of everybody’s playbook is how do you get them to start online and ultimately how do you use your your distribution network beyond your traditionaldistribution network to be able to fulfill for customers.
[41:22] Yeah. Is that so one of the things you have to do in order to be good at it. Digital pre shopping and Pickup In-Store is you have to have your in-store inventory featured prominently on yourwebsite. Is that part of your your website remodel is it.
[41:35] Yeah. Oh yeah. Yes. Yes. And that’s hard. That’s all that stuff is.
I mean the devil’s in the details on all this stuff and you know under understanding where the.
How do you set your your men’s and maxes and what’s the floor and what’s the watermark all that stuff you’ve got to go through and figure it out tested.
So yeah that’s that’s those are table stakes. Got to do it or it doesn’t work.
[42:00] Yeah. And I have seen some reports that some of the mall operators are trying to offer some like aggregated curbside pickup experiences for all of you.
[42:10] Oh I hadn’t seen that. That makes sense. No I haven’t. No I’ll look into that.
Haven’t seen that but that makes sense too because if you could just ship it to them all you know they could they could see they have capacity and you know they could.
I mean again they’d have to figure it out. There’s a whole process you’ve got to put in place.
I mean that’s what I think as everybody rapidly tried to get to know curbside.
Kind of the new buzzword as we got into the cogan situation and there was a lot of confusion around that because like as a customer what does that mean.
Does it mean I just pull up to the door and wait.
You know and some companies did it pretty well. You know they you you’d call a phone number and you talk to somebody and they bring it out and other ones you know you’d still have to likepark and go inside and find the person that was supposed to bring it out to your car.
That’s where I think Wal-Mart has an advantage. You know I remember back in 0 9 and 10 we were trying to do,
grocery delivery online and build that capability and this was still where it was a bit of a like an organ transplant that didn’t take because the costs were high.
But we just kept pushing and pushing and pushing and I think thankfully for Wal-Mart they stuck with it because I think their drive thru has been and ultimately that morphed into know drivethrough pickup.
But you still had to have that capability with them in the store to figure out how do you pick pack and and get it ready for the customer.
And I think that’s a huge advantage for Wal-Mart.
[43:36] Yet another trend I wanted to pick your brain on because you’ve been in the retail industry so long is you know we talk a lot about this on the show of these brands going direct.
So for she had kind of electronics like obviously Dell and then now it’s linked into apparel where we’re the CEO of Nike said they want to be majority direct to consumer.
My understanding is at Ru 21 you mostly carry other brands right. Do you worry as a retailer.
[44:02] NO NO WE CARE. NO NO WE CARE our own. Yeah. Yeah. So we’re we’re directly consumed with our own brands.
[44:04] Oh it’s all OK. Yeah,
OK. All right so here you’re almost like part of the trend in a way I guess with.
[44:11] YEAH. AS LONG AS YOU’RE PART. YEAH. YEAH. I just think though. But but we’re a retailer right. We’re a retail brand.
I think it’s a little different. I think with consumer brands with consumer products there will be winners and losers not it doesn’t work for everybody.
[44:26] And if you have a path look like the shape club thing you know and I don’t even get not close enough to it anymore to know which one’s winning and which ones not.
But you know when you can get a customer on a specific product and then you can broaden the offering into sort of adjacent products that are complementary and this idea was a Dollar Shave Clubor one of them they basically wanted to own the bathroom for the guy. Right.
And that’s an interesting idea especially if you can get the consumable thing going.
And you know especially younger people they’re out there they’re OK with this subscription thing.
You know I mean they grew up with Spotify and Netflix. This is not whereas like the older generation hates all that stuff because they think in terms of like what I’m going to sign up for a monthlyfee for this thing every. But that’s the way the old people thing.
They’re more about like subscriptions than they are like actually going to the mall buying clothes.
So I just think there’s winners and losers. I don’t think it works for every every brand.
And then the economics have to work. So again you know it’s like small cube high value. OK.
There’s there’s a. And then then especially with frequency of purchase. Ok that sounds good. Like now is the brand distinctive. Is it unique.
How is it positioned against competitors. And you kind of have to just work through all that. I don’t know that you know it’s one size fits all and this is a trend where all these companies are going togo directly to consumer and it’s going to completely disrupt any kind of you know physical distribution.
[45:51] 1. So I saw you’re on the board of untucked and they kind of went down this path.
I kind of put them in this digitally native vertical brand bucket like bonobos and all these guys,
and then you know it seems like there’s this trend where those companies all get up to a couple hundred million in revenue and then they start opening stores and I’ve noticed on tuck it has beenopening a fair number of stores or sometimes they’ll call guide shops and stuff.
Do you think that’s you think the mall is going to be full of just kind of brand stores in the future.
[46:18] Well I and it it did a really good job because what would bonobos did and I’m obviously much closer to talk of time but bonobos spend a little bit about it you know they got their business tolike an online business that was one hundred million dollars and I don’t think it was ever profitable.
But then the way to grow was ad stores untucked actually went out a little differently.
They did start as an online business but very quickly they saw the opportunity to have a physical location to be able to get customers to understand the quality of the product and the fit.
And so the stores I mean the stores are primarily around get him into the store and find what their fit is get them comfortable with the quality and then the repeat is online.
And so they did very surgical about you know where do the stores go and what’s the what’s the role of the store.
Because they didn’t come in and just do like you know full on apparel stores like a lot of the competitors would’ve done.
It’s it’s a different it’s a different experience in the store.
There’s a lot of service and and and the objective is really about you know quality fit experience which ultimately leads to more engagement and fulfillment online.
[47:28] So I think some and then they did that sort of like step by step.
And every time that we’ve got as stores you know we get more online business.
And it just kind of they work hand-in-hand. And then there was a very good strategy to understand the customer to understand the cost of acquiring a customer and then figuring out how tomonetize that by having this experience.
[47:50] I think a lot of the other digitally native companies sort of backed into a store because they ran out of growth.
And this is the one thing that’s just so clear when you’ve been on both sides just like once you build a store you have some marketing that’s built in.
It’s called traffic. It goes by your store every day online.
You have to buy the traffic every day. And I think part of the problem with these digitally native companies they get started and they’re marketing is pretty viral and doesn’t cost them a lot until theyget to a certain level.
And then they’ve got to play with the big boys they’ve got to get involved and they’ve got to start like bidding on keywords and they’ve got to start paying the price of what it takes to drive traffic.
When you get to a certain love volume and a lot of these then the the startups behind them are coming in loaded with cash and so they’re beating the prices up.
So all the digital advertising just keeps going up.
And then also there’s a correction a bunch of these companies go out of business they go away the prices come back down.
And so it’s just like been the self-fulfilling prophecy it’s like nothing I’ve ever seen in media before where you know the small guys are actually driving up the prices as they’re trying to scale and asthey’re funded by you know.
[48:59] By venture and then they drive the prices up and then they can’t get to a certain point they can’t afford it anymore.
I mean that’s what happened with Wal-Mart and Jack is that you know as they got into it and tried to scale jet like the return on ad spend was terrible and jet compared to Walmart like every dollarthey spend on Walmart would be much better return because they have a much bigger scale.
[49:21] For sure and I feel like that. I mean you’ve you’ve perfectly articulated it.
But you know all these companies have some natural plateau they hit and the only way they get over that plateau is irrational unsustainable spending. Yeah.
[49:34] Spend more. Right. And the spending just doesn’t work. And if they sell their investors on. But if I can get to a million people.
And there are these thresholds if I can get to a million people if I can get to two million people and I’m sure somebody started this whole thing is you know you start out and if you have a reallygood value prop it kind of happens virally through social media.
It doesn’t cost you much but you take it very big that way and then you know then you just keep making these steps up and every step up cost you more.
And so it’s the opposite of like how Wal-Mart built its business where you know the scale actually brought costs down.
[50:06] Yeah. And so for that reason I sort of I don’t see V.C.
As being the way that these things keep getting funded because the vehicles have to have a billion dollar exit to make sense.
[50:17] Right. Right.
[50:17] And you know only a couple of these are gonna get billion dollar exits and only because they’re gonna sell themselves to someone established that’s desperate like a Wal-Mart or Unilever orsomething.
But but so if that’s if this is a temporary thing I guess I’m kind of curious.
I’d love for you to kind of put your future hat on. We are coming up on time.
So there is a perfect sort of wrap up question as this all plays out and we we think about the retail landscape five years from now.
What what does it look like. Is it is it just Wal-Mart and Amazon selling general merchandise and everybody else is a specialty retailer that makes their own stuff or what.
How did you. What does the landscape look like five years from now.
[50:57] Yeah there’s more big players than that though. I mean there’s there’s Wal-Mart Amazon Target targets. Target’s got a reason for being because they’ve got a distinctive approach.
They’re their product and their experience is distinctively different than Wal-Mart’s.
And so you know there’s there’s at least three big players. The place with that that I think goes away is department stores.
They’re just in this long slow decline. And you know the advantage Macy’s has is they’ve got some really good locations.
[51:27] But you know and then people could argue like a Coles Well they’ve got like this really convenient format and yet you can actually cope with big plays to tactical strength because there wasthis migration away from the suburbs.
You know the soccer moms that they’ve got their business on wasn’t like a growth segment anymore but now all of a sudden people may be moving back to the suburbs so maybe there’s more trafficthere.
The problem I have with department stores is when you go in and look at their product offerings category by category they’re not great at anything like you know somebody does each thing thatthey do better than they do.
There’s still a few you know like cosmetics and some department stores Home Furnishings housewares.
There’s a few that are still quite good.
But I do think it will be a series of big players both Ford and GM with a lot of specialty players underneath it that will be you know it’ll it’ll just be social Darwinism with that with the specialtyplayers.
You know it’s interesting when when I was at Wal-Mart I was the CEO dot.com.
Then they finally got me a book about Bill and I took out the chief marketing officer role,
and I wasn’t really a marketer before but I think I understand retail marketing but the challenge that they gave me was you know go out recruit a team of classically trained marketers to really youknow take take our capability off dramatically. And I did.
I brought in this guy named Stephen Quinn who succeeded me and went out and had a nice career at Wal-Mart.
[52:55] I remember about three months into it four months into it.
We’re putting something together for presentation and he said Man this retail game is brutal. And I’m like What do you mean.
[53:05] And he pulled out a chart. So he’s a CPG marketer right.
And he pulled out a chart of like the top 10 CPG companies from 1980 to what they were in 2000 and they were exactly the same.
[53:19] And you could name them PMG Kraft Coca-Cola Pepsi you know Unilever and then there’d been some reconfiguration and maybe one was three and three.
They’re all the same. You do the same thing in retail.
There was only one company on the chart that went from being a top 10 to staying on the top 10 and that was target because they reinvented themselves.
They were Dayton Hudson as a department store chain and morphed into Target which kept him on on the chart,
everybody else had moved from because the old chart was all department stores and variety stores and the new chart was all like value players you know big box.
And increasingly Internet you know like Internet like eBay and Amazon were starting to crack the code.
So over a 20 year period the whole thing it just completely changed.
And and that’s going to just keep happening I believe.
[54:14] Yeah. You know it’s funny because Steve Quinn gave that graphic to Doug McMillan the CEO and so,
Doug still pulls that out on his phone and he’s and he’s like me and I remember when we were the upstart looking up the hill at these white guys at the top of the list and he’s I went to bed one nightand now we’re at the top of the list and there all these guys work you know looking to knock us off. And it’s you know.
He likes to remind everyone that that your position on that list is not guaranteed.
[54:40] Now I know that Charney has the before Wal-Mart wasn’t on it and Sears was at the top right and then and then and the one from 2005 whenever Steve Quinn put it together was like Wal-Mart was at the top.
[54:45] Yeah. Absolute.
[54:52] But yeah who knows. I mean listen Amazon is a force. There’s there’s no doubt about that.
[54:59] Yeah. As a witness of this show we’ll we’ll certainly know.
And John that’s actually going to be a great place to leave it because it’s happened again. We’ve used up our allotted time.
As always if there’s something we don’t cover on this show feel free to hit us up on Twitter or Facebook and we’ll be happy to continue the conversation as always if you appreciated the show.
We’d love to have you jump on iTunes and give us the five star review.
[55:21] Tom do you do you pontificate on liner.
[55:24] No not really. No no. I it’s funny No I don’t actually. The only reason I pay attention to it is because I need to understand how it all works.
You know I asked my kids questions and stuff like that. But now I don’t really I have no social media presence.
I think it’s just a stage of my career. You know I’m not really looking for something else and I’m not really looking to build my brand.
I’m sort of like to be behind the scenes and you know I enjoy the role I have right now because I think I’m able to help some people make a difference. But I don’t really need much attention.
[55:55] Then I see your work. They can stroll through the Rue 21 star.
[55:58] Sure. Absolutely. Thanks guys.
[56:00] And until next time happy commercing.