Transcript
Reva Bhatia: You’re listening to Next in Retail from Publicis Sapient. The podcast that shares insights on unlocking what’s next in digital transformation.
According to research, data shows that ecommerce spend has nearly doubled during the pandemic, with June increases showing an uptick of close to 80% over the prior year. These staggering increases beg the question, can retailers continue to sustain these peak volumes indefinitely? Adding fuel to the fire, many retailers are also now prepping for the impending holiday season. With retailers like Walmart and Target calling off the ever-popular Black Friday and doubling down on their cyber offers, we’re all bracing for the 1-2 punch that will be this year’s holiday shopping season. In today’s episode, we will discuss what the accelerated consumer adoption of ecommerce means for retailers and how they should think about managing for these unpredictable times.
Joining me today are Hilding Anderson, Retail Strategy Lead in North America, Publicis Sapient, and Andy Halliwell, Retail Strategy Lead in EMEA and APAC at Publicis Sapient. I’m your host for the session, Reva Bhatia. Now let’s dive in.
So to get started gonna kick things off with a simple question for you both. How do you think this year’s holiday season will be different for both consumers and retailers? I’m going to start with you, Hilding.
Hilding: This holiday season is going to be, is just going to be a mess. It’s just, there’s so many, I mean, there’s just so much uncertainty right now. I was sitting down this week thinking about this, and it’s just going to be totally bonkers on multiple levels, right? I think one, given the large number of bankruptcies, we’re seeing a lot of retailers even if they are expected and do come out of bankruptcy they’re cash only, which means they’re going to be constrained in terms of how many SKUs they can get in as well as the volume of those SKUs. I think broadly we’re going to see lower inventories, lower availability across the board from what we saw last year and certainly the trailing average, but not only is that we’re likely to see kind of fewer products available, I actually think there’s a lot of uncertainty around are consumers going to buy, are they going to be in a position to buy in the same degree? And some of that is both economic, some of it is the needs have changed, I mean with large number of white collar workers at home the higher end apparel space has just been absolutely devastated, schools now and in the U.S. or in many of them are going to be digital kind of online streaming… huge issues with my kids: like do we even need back to school clothes? No, I was talking to my wife about it this week, like it’s a different thing, and so a lot of the assumptions that have built and you’ll see rollout I think are going to be just completely different, and it’s just going to upset supply, upset demand and really change the nature there.
With that caveat of, there are some sectors that I actually think are going to be incredibly strong, and this is also symptomatic of just the chaos that the U.S. economy is likely to face over the next six months. Things like the outdoor sector. If you try to buy a bicycle today in North America or a tent or a bike rack, you can’t get them and obviously as we get closer to the Holidays the patterns are going to change, but winter coats, snowshoes, a bunch of the core products that in that outdoor space that lets you get out are going to be different this year.
We’re also seeing some interesting trends. I think that the gaming space is going to be probably the biggest we’ve seen for a decade this coming holiday season. We’re seeing major launches of two new consoles, entertainment as a whole, of course if you’re stuck at home is, is the last refuge. If you’re 16 or 17 you can’t, you get tired of texting with your friends let’s go let’s go meet over Gran Turismo or Fortnite and have an interaction that way. So it’s going to be hugely challenging, and it’s going to be a hugely difficult time for many retailers.
Andy: Yeah, I think we’re going to see the same thing here in Europe as well. I think it’s going to vary a little bit more from market to market, I think the kind of the socio economic situation is going to play hugely into this. We’ve seen lots of redundancies, we’ve seen sort of lots of furloughing here in Europe, and that is creating a huge amount of uncertainty in consumer spending, but then you’ve also got a lot of the kind of the retail brands have been putting on these big sales over the last three or four months and that’s mostly being fulfilled through kind of online channels which is seeing a huge spike in online over the last few months and is really helping out a lot of the digital businesses. And the more digitally enabled businesses are really making bank during this. Whether that trend continues into the back half of this year and through kind of October, November and peak or whether we see as countries like Germany, Denmark as they start to reopen and if they don’t see a significant second wave in the Coronavirus outbreak then will things go back to more, it’s really difficult to use the word normal, but are they going to go back to some semblance of normality? That’s one of the big swing factors, right? We don’t really know where it’s going to land. I definitely think in Europe we are seeing a lot of those kind of categories which are closer to the home do really really well, right. So we are seeing a big resurgence in DIY and so brands like Cluster Armor and Being Q brands like that doing really really well assuming that they can manage the queuing issues they’ve had coming in and out of the stores and actually they’re also starting to look at new innovative digital solutions that will help them with sort of transactional capacity of stores and transactional flow for things like clicking collect. So there’s definitely some big swing factor in kind of the categories. We’re also seeing like you say that kind of the outward bound stuff is doing particularly well and I think that is going to be a trend that continues into the back half of this year in Europe. So it’s going to be a weird one. I think that’s the only thing that we can say. My gut tells me that as we get closer to Christmas, I do think you’re going to see people who are have been trapped at home for long periods of time or have been working from home for long periods of time, I do think you’re going to see people to some degree overindulge if they are in a position to be able to do that. Obviously there’s going to be a huge kind of wealth gap between those that have managed to retain their jobs and have managed to stay employed and have maybe done well during this period, versus those that have been laid off or have unfortunately not found further employment. I think you’re going to see this kind of divide between the haves and the haves-not actually grow over this period as well. So you’ll see some categories will do very very well and then some categories will probably do quite poorly, and kind of where that line falls I think is very difficult to call right now.
Reva: Speaking of indulging during the holiday season, it’s worth us double clicking into grocery a little bit. So, as we all know grocers do generally see a small rise or, something more significant rise in consumer demand during the holiday season. How will this year look for them? I know coming out of or still in but the pandemic, they’ve seen a massive uptick and overall ecommerce engagement, but what do you expect the holiday season to contribute to their overall ecommerce presence?
Hilding: I remember having a conversation with a grocer a month, month and a half ago and they were questioning whether this shift in click and collect here in North America was going to be sustained, and that seems so ludicrous now where we said with 150,000 people killed in America and no sign of cases slowing somewhat but clearly no sign of any sort of systematic solution, we’re absolutely at a point now where if you don’t have a digital strategy, and there are a handful of retailers that don’t have said explicitly they’re still not going to do any sort of digital fulfillment if you don’t have those, you’re nuts. I think this holiday season is just going to be the final drive of that hammer in to say look if you’re not at the 10-15% of your total revenues from digital as a grocery, you’re losing share and you’re doing your customers a disservice. With that, you’re going to see more attention around tightened delivery windows and the higher peak loads that the holiday season drives, so you’re going to have bad experiences, you’re going to have a lot of learnings. I think we’re going to look back on this year is the year that grocery really became algorithmic and became digitally-led, and consumers now expect a veteran and seamless experience, and they’re just not going to get it this holiday season.
Andy: Yeah, I think the click and collect thing in North America has been I think bigger than it has been here in Europe. I think in Europe people are still more divided between whether they want online grocery delivery to their homes or whether they’re willing to go and do click and collect. I mean partly that is because of population density, which is higher in some countries here in Europe and actually I was talking to, I was talking to a supermarket company just this week, and they were saying that they are starting to see their click and clack numbers drop down a little bit from the highest that they saw in April and May, and it’s starting to recede just a little bit. Now obviously overall digital sales are still incredibly high, but what they’re saying is that as they have made more capacity available for those online grocery delivery slots, people are drifting more towards those because they are more convenient, they get the product they want and it kind of comes to them, and to some degree they’re willing to pay a little bit of a premium for that in some categories. So those slots that they’ve struggled, I think all supermarkets and all grocers really struggle to add capacity in their online grocery delivery capability and so they’ve scaled in other ways by adding sort of click and collect slots and click and collect capacity because it’s easier to do that from stores. But as they’ve managed to scale their infrastructure and their warehousing and NFCs to be able to add more delivery slots, I think people are gravitating towards that because they prefer that as a model. So I think that’s going to be interesting. I think we’re going to see a demand for express delivery and those kind of special orders, so I think there’s going to be a little bit, I think people are as we go into Christmas and the holiday season people are going to do more ad hoc kind of get-togethers as families so I think you’re going to see, I think it’s only going to see an increasing not just kind of like the what we would call their barbecues or the kind of special party foods being delivered by Deliveroo or Uber eats. All those kinds of things I think you’re going to see again a bigger increase in restaurant takeaway food and those kinds of things. I think overall though I think you’re going to see subdued party food sales, I think you’re just not going to see some of the mass gatherings that you would have seen last year, so I think you’re going to see a slight reduction overall in the kind of the spending in the kind of the big platters and the party plates and those kinds of things. I think people are going to over indulge in things like liquor though. I just don’t see any, I don’t see any way that that is not…
Reva: Going to? Have been, Andy.
Hilding: I was going to say. This is ongoing at my own household.
Reva: I don’t know why you use the future tense on that one.
Andy: Well, the only reason I say that is because pubs have been opening and then closing and then opening again here in Europe, right, so as places like in the UK, for example, we’ve had Manchester and Lester which have opened up and then have gone back into lockdown, and so I think you’ve seen…
Hilding: In America, we just drink alone.
Reva: Drink alone at home.
Andy: But, yeah, I think the bars and the pubs are just not going to see the same level of traffic and so you’re going to see people buy that and bring that home. So going to be a big spike in that kind of stuff and sort of like you 1-2, 1-4-6 kind of family groupings, I think you’re going to see big spending in those sorts of areas.
Reva: Great, thanks. So you know shifting gears a bit, we’ve mentioned in other episodes the margin erosion that a lot of retailers see with returns. When you add an element of holiday shopping and other people buying things as a gift for you, this is likely to really deepen the wound a bit for some retailers. Can you both discuss what supply chain priorities you think retailers should have to prep for holiday and potentially the glut of impending returns that will likely largely be shipped back to them this time?
Andy: This is going to be a really interesting problem to see who’s actually learned from last year. We had historic levels of returns and who’s actually managed to put in place changes in the way they handle their reverse logistics to respond to the challenges they’re going to have this year. I mean I’m going to take you back to the whole margin erosion point initially though ‘cause like margin erosion in digital in general is still a huge problem for a lot of brands, right? A lot of brands still feel like they’re having to charge minimal costs for delivery in the first place, and so every time the business moves to digital rather than being sold through physical store, brands are seeing this as being margin dilutive to the business and then on top of that when you see the incremental returns that you’re going to have and when digital becomes the big chunk of your business, like margin in general is just so much of a problem, and that’s why we’ve seen so many companies—so just yesterday I saw that Jigsaw, which is a large fashion retailer here in Europe, they’ve announced they’re going into a cva and they’re reducing the number of stores that they’ve got. I mean everybody is now looking at the sort of this administration process as a way of getting out of onerous stats and onerous leases that they have on their stores because they just can’t make the stores work, and they just can’t make the margins work anymore.
Hilding: Yeah, I think I just in the U.S., I think there’s some really interesting things happening around that exact point. Obviously we are seeing the exact same pattern in terms of store closures, but, more interestingly, I’m seeing more commitment to driving higher profit through dynamic pricing and promotions and more active use of pricing and promotions using signals that perhaps we’re not used before. So things like you know web traffic and searches on your site for specific products even affecting where you merchandise on the site, and I so I think that I have a hypothesis that some of that margin gap will be closed through these new technologies by really committing ultimately to digital and saying hey, look this is in five or 10% where we cannot do the best we possibly can in digital when it comes to pricing and promotion and merchandising, it’s not an also-ran for our merchants, it’s our core business now because it’s 70 percent or more of our business.
Reva: If my husband could use AI to purchase my gifts, I think I’d get better gifts so I’m all about that.
Andy: I think the other thing to build on top of that is a lot of companies are now going to, if they’ve been smart, they’ll have work behind the scenes over this year to do things like putting in place single view of inventory so they can see their inventory across stores and digital as well and being able to fulfill online orders from store or to be able to send product from stores to home or to send people to store and do maybe click and collect if they don’t have the inventory in the warehouse. I think is those are the kinds of things that people are looking at to help them with some of those margin challenges and also sell through stalker at full price rather than having to discount it in the sales that will inevitably come in January. And then obviously, coming back to your point initially around returns I mean we always see this huge peak in the 5th of January. I do wonder with people staying away from physical stores a bit more whether it’s going to be a big peak on the 5th of January or if you’re going to see more of these coming in sort of these postal returns. And obviously postal returns are really bad news because oftentimes people are offering free returns and in some countries globally you have to because of consumer protection law. So if you will then seeing these returns come in that you’re having to then pay for the reverse postage on and then it goes out into it goes back into a warehouse and then from that warehouse it’s got to then be posted to another person who buys it again, you’re paying three sets of postage on potentially one product that costs $50.00, $60.00 and your margin on that product is your gross margin is usually not more than 50%. So it’s painful every single time you have to put you have to put postage on one of those parcels and send it out it’s painful.
One of the things that we’ve been looking at as the solution is how do you apply some kind of level of logic to this product and basically say look, in this particular situation it doesn’t make any sense for you to return it to us. Actually, if you’re not happy with it then please give it to Goodwill, give it to a charity or drop it off at your local store when it’s convenient for you, but frankly we’re not that fussed about having it back. And I think smart retailers are starting to think about that as a way of improving customer satisfaction and basically saying doing a little bit of what Amazon has done previously where if you have a problem with the product or if the product was shipped to you is not correct then in some situations they’ll say well look you keep that that’s on us we’re sorry about that—‘cause it’s just not worth the hassle and the cost and taking it in and then trying to re-shelve it and then trying to resell it. So I, investments in technologies around that kind of automated decision making around does it actually make sense, is it profitable for us to have this product to return, I think you’re going to see more people using those kinds of technologies.
Reva: Should be interesting. OK, so we know this holiday season is going to be tough for those that ignored the massive peaks in ecommerce engagement throughout the virus. For those retailers that were lucky enough to stay afloat amidst COVID-19’s chaos, how should they prioritize making sure their ecommerce is up to snuff and ready for that 1-2 punch I mentioned at the onset, like what certain things, is there a checklist, is there a to do list they should be looking at to make sure that they’re ready?
Hilding: Yeah, it’s interesting in North America we obviously we have a whole methodology around peak planning and optimization, both from a technology perspective as well from a larger business planning perspective, so a lot of those activities are largely complete at this point. The other piece that you’re seeing is when you think about this massive growth in ecommerce and digital making sure that you have the right kind of the fundamentals in terms of ecommerce modernization that you’re on a cloud based platform, that you’ve done the work to date and you’re seeing a lot of pressure for retailers that aren’t there to really move as quickly as they can. And again, the clock has largely started running and for those projects and are starting to wrap up over the next couple weeks. So that is too late this year to do much to address the technology stack. There are some incremental pieces you can do, but that’s kind of where we are at this point.
Andy: Yeah I think when it comes to the overall performance of platforms where we’re seeing a lot of that stuff is as you rightly say, Hilding, it’s kind of coming to a close now. People have been doing this kind of planning especially in the big enterprises. The big supermarkets in the kind of like the big four here in the UK, for example, they have been planning for this peak since January and maybe if not before, so for these guys it’s kind of the pattern year on year what we’re expecting our capacity. My concern is that their capacity planning may have been off and so they are now going to be thinking about what do we do to add incremental capacity and if they’re we’ve been talking to a lot of clients about how do you make sure that your infrastructure is horizontally scalable so that you can easily stand up and shut down additional infrastructure to help you with peaks and troughs in demand the other thing that I think there are a lot of people are doing to make sure that ecommerce is up to scratch is looking at how ecommerce can support the stores because there’s this big challenge with social distancing around the transactional capacity that your stores will be able to support, which is if you’ve got smaller stores, if you’re a… I talked about jigsaw earlier so if you’ve got these smaller more boutique style stores rather than these big supermarkets then your ability to have lots of people in the store or your ability to manage cues or people coming to the store in order to do a click and collect, for example, is going to be challenging this year because if you’ve got 2,3, 4 people in the store and that’s going to be it you can’t have any more people in. And then if you add on top of that the fact it may take 10 to 15 minutes to check somebody out, there’s all of these challenges. So I think part of how ecommerce can support that is just making sure that you’ve got slot booking so if you do want to go into store or if you tried to go into a store and you registered but there was no slot available then offering people the ability to complete the purchase online or trying to redirect other people so you don’t lose the sale. I think there’s a lot of stuff that people can do just about innovative thinking and adding sort of new features and enhancements to the overall digital experience to make sure that you capture as many of those sales as possible that would have typically flowed through the stores that maybe you’re not going to get this time around.
Hilding: Yeah, and I think one of the other things we’re seeing in North America is a renewed interest in innovation and co-innovation with our clients and to try to come up with what can we do given how different things are today to do, use our mobile tools to drive whether it’s reservations or kind of lower friction purchasing or any aspect of the relationship, customer chat, all sorts of touch points that can be enabled through mobile as well as PC at home and there’s a lot. My hypothesis is that over the next quarter as people start to think about 2021, people are going to start to ask the question of, okay what more can I do that’s different than what I’ve done in the past given that this move to digital is so important and that’s going to drive, I think, my hope is a lot of innovation.
Andy: Funny, actually we’re talking to a client right now about how do you differentiate through online when traditionally your differentiation has actually been through the store experience in the customer service layer that you wrap around the store experience, because translating that to online is really difficult and it’s very hard to do so and differentiate against the other propositions in the market because typically when people are buying online it’s just price price price, and the other stuff fades into the background. Whereas when you’re in front of people, when you’re in-store obviously services becomes the number one reason why you might buy. So I think there’s going to be some really interesting ways that people are looking at using innovation to differentiate their brand and making sure that some of these tools and new features align with kind of what the brand wants to stand for and how they want people to think about the brand and empathize with the brand in the future.
Hilding: Yeah, I think in some ways that dark arts of merchandising are going to become even more important going forward in digital. I think we’ll look back on the last 5, 10 years and be like the merchants just haven’t had all the tools that they need to be successful at their disposal, and that’s going to drive again higher performance for profitability and higher performance around how do you move from just a commodity type of offer—hey we’ve got the lowest white t-shirt amongst the list of 500 T-shirts to something that’s actually important and differentiated.
Reva: Cool. OK, so I’m going to wrap with a fun question for you both. So have you last year or the year before ever given into Black Friday or Cyber Monday hysteria, and, if so, what’d you buy?
Andy: So I typically stay away from like stores and buying on Black Friday and Cyber Monday ‘cause I’m really worried I’m going to get carried away. I will tell you what, so over the last over the last couple of months, there have been some insane sales from some of the brands here in Europe because they’ve had stock leftover from the Spring/Summer collection, which they haven’t been able to shift, and so we’ve seen 30-40-50-60% off sales here in Europe. I am not going to lie, I have spent quite a lot of money on Athleisure wear because I don’t need to wear a suit anymore…
Reva: Dude. Dude. Andy you…
Hilding: You’re talking Reva’s language right there.
Reva: You are after my heart. You had me at athleisure, and, you and everyone else, Andy. I mean, I don’t think people even know what buttons are anymore.
Andy: Yeah, it’s kind funny, but I was having this conversation last week most people who know me recognize me from my waist coats and suit coats and I was thinking I don’t think I’ve worn one in three months…
Reva: Just put them over your T shirts and sweatpants.
Hilding: It’s the new look.
Andy: The other thing I have to admit I have I keep buying up the latest wearable technologies as well. So I’ve been doing a super amount of running recently. I’ve built up to 55-60 kilometers a week in the mornings… so yeah, I’m looking at by myself a new watch.
Hilding: That’s bonkers. You’re crazy, Andy. You’re crazy. Too much.
Reva: Nice, Hilding. What about you – what’d you buy?
Hilding: Technology for the kids, so like iPads, I feel like we get a new iPad every six months or a year for our girls ‘cause one of them drops ‘em or does whatever so…
Reva: It’s how they’re going to school now, so…
Hilding: And and well no, I mean, and we get some issued from school but then they want to have one they have their books on that they can they can read on a Kindle now for my one of my daughters so it’s all that stuff, a lot of technology.
Reva: My focus for this year is going to be a new TV ‘cause I’ve, I finished Netflix, so…
Hilding: It’s done. There’s no new Netflix.
Reva: There’s no Netflix left for me to watch, but yeah, I mean, the TV is a part of my official quarantine pod, and so I’m ready for a new one.
Hilding: You’re watching it right now, aren’t you?
Reva: It’s true.
Andy: Very cool.
Reva: Cool. Awesome, well thank you both for joining. We are at time. Delightful chat today, and Happy Holidays in August.
Hilding: As always…
Andy: Yeah and have a good one everybody.
Reva: Cheers, team.
Hilding: Cheers.
Andy: Cheers.
Hilding: Stay safe.
Reva: Thanks for tuning in to Next in Retail. Be sure to subscribe, so you don’t miss a beat on the future of digital and retail.
