Part 3: Delighting Customers Through Superior Retail Operations (Video)

Mauricio Cuevas:

I think Best Buy is doing a very good job coming from a retail-only background. I think the combination between the online and the price matching is helping because, you know, Best Buy used to be the Amazon showroom. You went there and you checked things out and then you went to Amazon and bought it.

Now you say, “Hey, Amazon says that I can get it for $200. Can you do it?” “Yeah. Sure. No problem.” So, Best Buy is doing a good job on that. That’s the example that I can give you.

Again, Nordstrom is also doing some interesting stuff. They recognize that one of the biggest trends is the stores. If you’re going to compete head-to-head with Amazon, nobody can do it with technology. By far, Amazon has more engineers, more dollars to hire, more dollars to deploy, more data centers, more data scientists who do artificial intelligence. It’s almost impossible. Nordstrom finding a very good, I wouldn’t call it a niche because they’re big enough, but they are using stores in a very smart way to attract people not only to the stores but also online.

Rian Buckley:

Apple. Their stores are things that we all look at and we think from the outside that it’s beautiful. I mean, Microsoft tries to knock them off and across street, every mall, every parking lot. So, they’re clearly doing something right. It’s still a place that we go to buy our technology and I think the majority of us are still buying Apple products in the store and not online because of that experience. You can go in and you can get help. It’s clean. It streamlined and you know what to expect.

Karl Siebrecht:

I’ll throw out a shout out to Nike. So, I don’t have an intimate knowledge for how or even know what they’re doing but they are really leading in innovation. You think about where Nike came from; fundamentally they were a distribution business. They were a big “Shoe Dog”. By the way, that’s a great book. Phil Knight talks about when they started that business how it was a distribution company. They didn’t make shoes, they just purchased them from overseas and distributed them.

Across many decades they have built a great brand, but you think about what Nike is doing now from continuing to support their retail channels, Footlocker, etc. They have also announced new stuff going on, new initiatives with Amazon, which in itself is a potential conflict and there’s risk, but tons of potential upside, too. Nike is stepping into [new distribution strategies] not aggressively, but very purposefully, as a big company.

And then, of course, there are the Nike stores. They are all about an incredibly curated experience. They will offer products in the store that you can’t get anywhere else, as well as ways to test out the product and they’re differentiating the experience by channel, which is what we’ve been talking about. They’re doing it. They’re very much a company that’s doing this in scale and it’s not all rainbows and unicorns. This is hard work and there’s a lot of people working to figure it out. But they are leaning into it—trying lots of things and are a great example of a company that is pushing hard to figure all this out.

Laurel:

Both Nordstrom and Nike were just mentioned and I’m thinking about a couple of more I’ve seen in Los Angeles: you have the Nordstrom local store and then you have the Nike store in Melrose where they’re both really kind of pushing the envelope on what it means to have a store and really using those as spots of experimentation. Great question. Any other questions from the audience?

QUESTION: ONLINE RETAIL SALES ARE ONLY A PERCENT OF TOTAL SALES. IN YOUR LINE OF WORK, WHAT IS ACTUALLY STILL GOING TO ATTRACT CUSTOMERS TO SHOP ONLINE? I KNOW MYSELF, I DON’T LIKE TO SHOP OFF-LINE FOR REASON OF THE CHECKOUT LINE AND FINDING A PARKING SPOT AND THE WEATHER CONDITIONS, ALL THAT. IF I CAN BUY IT ONLINE I TRY AND BUY IT THAT WAY. I’M JUST WONDERING WHY MOST PEOPLE STILL HAVE A NEED TO GO INTO THE STORE AND SHOP THERE? MY NEXT QUESTION IS, WHAT ARE THE TECHNOLOGIES THAT YOU GUYS THINK WILL DISRUPT OFFLINE SHOPPING IN THE NEXT 5 TO 10 YEARS?

Mauricio:

I think we live in a city that is very tech-oriented as we are super smart, at least most of the people that work in the companies around this area. And logically offline shopping is housework. Why people are doing this? But it’s a matter of taste. You may not understand how people like to do that, but the truth is a lot of people are. Even young people—not just old people like myself— but young people like to go. It comes down to taste.

There is room for that [shopping preference]. There’s still room for people to go and touch the fabrics—go and see how it fits—and the key question there is how companies are going to rationalize it to be able to stay. How are they going to use that because the footprint that they have today as I mentioned before, isn’t going to work. It’s overbuilt. We have over-capacity of stores.

To that point, you also asked what is the technology that is going to disrupt this? The convenience. Whatever technology that provides you the most convenience is the one that is going to, I wouldn’t say kill the store, but basically, decrease the number of what’s out there.

Delivery [technology] is one of them. Delivery is a very complex optimization problem because when you have a large city and you have to deliver hundreds of thousands of packages, what are the best routes? How are you going to get those products to where they need to be in less than an hour? That’s a very difficult problem to solve.

That’s one kind of technology that is going to be disruptive for offline shopping. Not necessarily taste. We know that consumer behavior is changing—everybody knows it. And it’s going to be increasing online shopping, but when you are able to see what you’re buying, touch it, in less than an hour, return it, exchange it… that’s kind of the Holy Grail.

Rian:

I would add to that and just say that I think right now the showroom is going to be the best thing to happen to retailers. Anywhere between 10% to 14% of purchases are online, so brick-and-mortar is still huge. But, as we continue to bring things online, customers still crave that in-store experience and maybe it’s generational, maybe it’s gender.

I don’t know all the data, but I do know that my girlfriends and I like to go every few months and walk down around University Village for a cup of coffee and go in the stores and we have no reason to be there, we have nothing we’re looking for, but we like to window shop and we will inevitably purchase something. We don’t know what we’re going for, but we’re going for the experience.

If you can have Bonobos or Warby Parker who understand the whole inventory, they don’t have too big a blueprint, they’re not going bankrupt with these brick-and-mortars. Showrooms are the way to go. And so, any company that can figure out inventory, figure out shipping, returns, and do it all based out of a showroom, I think that’s where that magic spot is at.

Laurel:

We have time for one more question if we have one.

Man:

QUESTION: WHAT ARE YOUR THOUGHTS AROUND THE GROCERY SPACE? IS IT A KIND OF THE NICHE PART OF RETAIL AND HOW HAVE THE LESSONS THAT YOU’VE LEARNED FROM YOUR RETAIL OPERATIONS APPLY?

Rian:

Groceries are highly personal, too. I haven’t used Amazon to deliver my groceries because I’m afraid that I’m going to get lettuce that’s wrong and I like to know that I’m going to look at the carrots and the celery and choose the ones that I want. I’m sure Amazon can do a fantastic job, but from my perspective as a customer, I’m not totally there yet on grocery delivery. But the convenience of the hard foods I think is amazing, anything that’s non-perishable.

Mauricio:
I don’t know anything about groceries.

[laughter]

Karl:

I don’t either, but I’ve never been shy to guess. It’s important to look at eCommerce in the U.S.—it’s something like 11% or 12%, but when you look at it by category, there are massive differences. Books are more than 50% online (probably no one is surprised by that); groceries are like 2%, maybe 1%. Electronics are about 25%, 30%. There are massive differences, and that’s because there was innovation started in other categories first, and the nature of the product and/or the nature of the buyer is more aligned with online.

Grocery is low penetration but it’s also massive. It’s one of the largest categories of retail. There’s a lot of innovation going on in that space and I think we’re just getting started. There will always be segments of the population who will say, “I like going to the store. I like picking my own produce.” And there will be other segments that already exists that just prefer, “Take care of that for me.”

I don’t know about the economics of it but these new models of “buy online and pick up in store” (BOPIS) or the scenario “buy online, somebody shops for me in the store, and then I can go in and shop for some of the items but the other items are already picked and packed for me [because, I want to pick my own peaches but the rest of it can be done].” This is enabling shoppers to reduce their grocery times to spending seven minutes in Whole Foods. It’s what’s already happening.

I’m bullish. There are still kinks to be figured out and the answer will vary by personality type, segment, and everything else, but there is a better way and big companies are working on it right now in grocery.

Laurel:

Great question. Thank you. Well, thank you very much to Rian, Mauricio, and Karl. We really appreciate you sharing your experience and your thoughts with us today and answering some tough questions from the audience. Very illuminating session. Thank you.

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