Speaker 1: This is Masters in Business with Barry Ridholts on Bloomberg Radio.
Speaker 1: This week on the podcast, I have a special guest.
Speaker 1: Her name is Professor Barbara Con and she teaches retail
Speaker 1: and marketing at the Wharton School of Business. If you
Speaker 1: are at all intrigued by the impact of not only
Speaker 1: Amazon on the worlds of retail, but how overbuilt retail is,
Speaker 1: and why it's inevitable that B and C class malls
Speaker 1: would would go out, why so many retailers are failing
Speaker 1: to keep up, failing to compete, why it's inevitable that
Speaker 1: we're going to see a lot of these retailers go down,
Speaker 1: and how all these really interesting applications of data, analytics
Speaker 1: and technology is completely changing how retailers operate. Uh the
Speaker 1: experiential aspect of it, the ability need to capture data
Speaker 1: in stores that previously only existed online is a very
Speaker 1: very significant change, and the ramifications from that are going
Speaker 1: to be felt for quite a long while. With no
Speaker 1: further ado, here is my conversation with Professor Barbara Con.
Speaker 1: I'm Barry Ritolts. You're listening to Masters in Business on
Speaker 1: Bloomberg Radio. My special guest today is Professor Barbara Con.
Speaker 1: She is a professor of marketing and a director of
Speaker 1: the J. H. Baker Retailing Center at Wharton, part of
Speaker 1: the University of Pennsylvania. Previously to that, she was dean
Speaker 1: at the University of Miami Business School. She is the
Speaker 1: author of The Shopping Revolution, How successful retailers can win
Speaker 1: customers in an Era of Endless Disruption. Barbara Con Welcome
Speaker 1: to Bloomberg. Well, thank you very much. It's fun to
Speaker 1: be here. Uh, it is, and and this is such
Speaker 1: a fun topic. I really enjoy uh the subject. And
Speaker 1: let's just jump right into it. It's a chapter in
Speaker 1: your book. I have to start with how disruptive is Amazon.
Speaker 1: It seems like every announcement they make royal is an
Speaker 1: entire sector of the stock market. Yeah, it's really amazing.
Speaker 1: Every day something new from Amazon, and every day there's
Speaker 1: massive reaction and a lot you do see stocks move
Speaker 1: up and down as Amazon says something or other threatens
Speaker 1: to go into health industry, into financial services. People are afraid. Um.
Speaker 1: And it's interesting because what Amazon does is a disruptor.
Speaker 1: There's no doubt about it. Um, and they disrupt. One
Speaker 1: of the most famous Jeff Bezos quotes, which I have
Speaker 1: never seen actually written down, but everyone on the internet swears.
Speaker 1: He said, this is your margin is my opportunity, and
Speaker 1: that idea of taking out margin, in other words, taking
Speaker 1: out profit is pretty scary and when they can do
Speaker 1: in a sustainable way, that's disruption. So let me broaden
Speaker 1: the conversation. Online retailing isn't even double digit yet, it's
Speaker 1: not ten, of which Amazon is just under half. Are
Speaker 1: we getting a little all worked up for five of
Speaker 1: the market, or is the overall trend what's scaring the
Speaker 1: Jesus out of everybody? You know, I don't think it's
Speaker 1: that online per se. I think it's changing the whole
Speaker 1: shopping experience. People talk about as omni channel, but right
Speaker 1: now it's just retail. Retail is now become a seamless
Speaker 1: integration between online and offline. The the original online retailers
Speaker 1: are opening up stores. Even on Amazon is opening up stores,
Speaker 1: which is kind of mind boggling that they're opening up bookstores.
Speaker 1: You know, well, it's been so successful for Apple. Are
Speaker 1: some of the other technology companies trying to imitate that?
Speaker 1: You see that? Also Microsoft, and you know, I mean Sony,
Speaker 1: which is electronic they're opening up a direct store for them.
Speaker 1: But when they open up these new stores, they're different
Speaker 1: from old stores. They're not the same thing at all.
Speaker 1: They're much more concentrated on customer experience. Some of the
Speaker 1: new stores that open up a showrooms, they don't even
Speaker 1: carry inventory per se. And that's part of the point.
Speaker 1: You really can't say what's the percentage of shopping online
Speaker 1: anymore because some people will shop online pick up in
Speaker 1: the store. Then where do you where do you code
Speaker 1: that you know what what is that is that online
Speaker 1: shopping or offline shopping? So I've experienced that with both
Speaker 1: Home Depot and Lows. You want something specific, they may
Speaker 1: not have this particular snowblower, but you can buy it online.
Speaker 1: They're shipping stuff to the store anyway you pick it
Speaker 1: up there. There's no additional shipping cost. Yet you feel
Speaker 1: like you're actually making it as friction free as the
Speaker 1: usual online shopping. Is that what's meant by omni channel
Speaker 1: is everything to everybody. Omni channel is thinking about not
Speaker 1: dividing up whether it's online or offline. It's all one
Speaker 1: big channel, and that's going to become not a real
Speaker 1: word anymore, and we're just going to think of this
Speaker 1: as retail you know, when you buy retail, you can
Speaker 1: go online, you can go in the store, you can
Speaker 1: pick up there, you can buy there, whatever, shop it
Speaker 1: on your phone. So I've noticed at stores like my
Speaker 1: wife calls is a retail therapy, but it's stores like
Speaker 1: Macy's or Lord and Taylor. If you're looking at something
Speaker 1: in a salesperson, some of these stores still have sales assistance.
Speaker 1: If you're looking at something and they don't have it
Speaker 1: in the color, size, whatever you like, they're very quick
Speaker 1: to say, we can order it now and have it
Speaker 1: shipped to your home for free. Would you like to
Speaker 1: do that? And if it's something you're familiar with the size,
Speaker 1: it's like, yeah, sure, it's one less package I have.
Speaker 1: They don't want to let any transaction slip away without
Speaker 1: converting it to an actual sale. Has that been your experience,
Speaker 1: Oh for sure that's the case. So there's not all
Speaker 1: the traditional retailers are doing that now. So this is
Speaker 1: a purposeful approach, not just one savvy sales person. Yeah,
Speaker 1: you know, but I wonder when you tell that story,
Speaker 1: one of the things that's interesting to me about is
Speaker 1: whether that salesperson's on commits or not, because and that's
Speaker 1: what I think is interesting about say, what I consider
Speaker 1: a very creative retailer like Sephora, where the salespeople are
Speaker 1: not on commission. And the reason I bring up this
Speaker 1: point here is when you say I'll send it to
Speaker 1: your store, send it to your home, is she really
Speaker 1: trying to she or he the sales associate, really trying
Speaker 1: to give something of value to you, which is the
Speaker 1: way you told the story, or were they trying to
Speaker 1: upsell so they make a commission. And that's a subtle difference,
Speaker 1: but I think it's an important difference. Well, if you
Speaker 1: walk in to a store and you find something you
Speaker 1: like and I'm looking at three Let's say we're looking
Speaker 1: at shirts and there are three different colors and extra
Speaker 1: small up to double XL and I want this color
Speaker 1: and the size and they don't have it. It's not
Speaker 1: so much an upsell as a lost opportunity, right, And
Speaker 1: that that's how I took it. Okay, in that case,
Speaker 1: it's positive. But but I want to make that point
Speaker 1: because I think this idea retailer that retailers had in
Speaker 1: the past of doing whatever they can to make the
Speaker 1: next sale backfired when Amazon came in, Because I think
Speaker 1: what Amazon is trying to do is really make the
Speaker 1: customer experience easier, you know, and they make you so
Speaker 1: you can get in and out of the website very quickly.
Speaker 1: When Amazon famous for is they patented in one click
Speaker 1: shopping at the and I when I found out that
Speaker 1: that was patented, that was shocking to me. It's like,
Speaker 1: why would that be patentable? And then you have to
Speaker 1: go back to think what was the way retailers thought
Speaker 1: and what they used to think when you're online is
Speaker 1: keep people online as long as possible. They would talk
Speaker 1: about web strategies where you have a landing page and
Speaker 1: if it's designed right, you go further and further into
Speaker 1: the website with the idea the longer people are on
Speaker 1: the website, the more they're likely to buy a store. Right.
Speaker 1: And that's why I was saying with the salesperson too,
Speaker 1: if it's a function of just trying to make sure
Speaker 1: you make a sale, like you said, anything I can
Speaker 1: do to make a sale, that's not what Amazon does.
Speaker 1: Amazon said, let's make it as easy as possible for you.
Speaker 1: And that was the first time people really tried to
Speaker 1: do that, and that's why they could patent one click
Speaker 1: shopping so going back to your example, the way you
Speaker 1: told the story, it was easier, it was better. But
Speaker 1: you could also imagine an alternative scenario where people are saying,
Speaker 1: I don't want you to walk out of the store
Speaker 1: without making a purchase, and they start doing a harder
Speaker 1: and harder sell. That's not really customer focused anymore. That's,
Speaker 1: you know, sales focused. Quite fascinating. Let's talk a little
Speaker 1: bit about retail and specifically, I have to discuss the
Speaker 1: con retailing success matrix. Tell us about those four quadrants
Speaker 1: and what they mean. Yeah, well, I mean I did
Speaker 1: name it that, but I think it's interesting. That's what
Speaker 1: that name is. Something I could think of nothing else.
Speaker 1: But anyway, the idea behind the success matrix is when
Speaker 1: when I um I recently stepped down as director of
Speaker 1: the J. H. Baker Retailing Center. I had been there.
Speaker 1: I had been the director for the last six and
Speaker 1: a half seven years, and during that time I ran
Speaker 1: into a lot of changes in the retail industry and
Speaker 1: being an academic, when I stepped down, I wanted to
Speaker 1: take a deep breath and try to organize everything into
Speaker 1: some kind of framework, and so I went back and
Speaker 1: looked at traditional retailing matrices, and they focused on the product,
Speaker 1: and they focused on operations or logistics if you want.
Speaker 1: And that was it. And if you want to talk
Speaker 1: with this about someone is a great retailer, let's say
Speaker 1: Mickey Drexler. He was called the merchant prince. But that
Speaker 1: meant he knew how to merchandise, he knew how to
Speaker 1: assort product, he had a good eye. And nowhere in
Speaker 1: any of these traditional retail matrices was the customer. As
Speaker 1: a marketing professor, the first principle of marketing is the
Speaker 1: principle of customer value. And what does customer value mean
Speaker 1: in retailing? Give them a product they value from a
Speaker 1: retailer that they trust, that idea of retailer that they trust.
Speaker 1: That was missing. The second principle of marketing, which was
Speaker 1: not in any of these traditional retailing matrices, was the
Speaker 1: principle of competitive advantage. If you're in a very a
Speaker 1: competitive market, you've got to be better than the competition.
Speaker 1: That means either increased pleasure or take away pain. So
Speaker 1: those two ideas form the underlying theory of the matrix.
Speaker 1: The columns are the principle of customer value, product benefits,
Speaker 1: or customer experience the rows are the principle of differential advantage.
Speaker 1: Do it better by increasing pleasure or do it better
Speaker 1: by removing pain? And that gives me the two by
Speaker 1: two matrix that I call my so I I broke
Speaker 1: it down in your book, which let me um, is
Speaker 1: called the shopping revolution. Brands, experiential friction, lists, and low costs.
Speaker 1: So each of those things either make it more fun
Speaker 1: or less painful, or what's the sect or focused on
Speaker 1: making the product more fun or less painful, or focusing
Speaker 1: on making the customer experience more fun or less painful.
Speaker 1: And what's really new in the matrix is that second
Speaker 1: column of customer experience and what Amazon redesigned, in my opinion,
Speaker 1: is making the customer experience frictionless easy. That's interesting. How
Speaker 1: much of this is driven by this millennial generation? And
Speaker 1: I guess I was going to ask a dumb question,
Speaker 1: which is how much of it is technology? But how
Speaker 1: do you really peel apart millennials and technology and second
Speaker 1: nature to them? So the let me rephrase that question.
Speaker 1: The combination of millennial preferences and the very use of technology.
Speaker 1: Is that what's driving a lot of this? Yeah, I
Speaker 1: think it is, actually because when Amazon started, they started online,
Speaker 1: you know, and they started with books. And you have
Speaker 1: to think back, why did they start with books? And
Speaker 1: I would argue they started with books because the product
Speaker 1: and the shopping experience could be completely digitized. Once it
Speaker 1: can be completely digitized, then what they did is have
Speaker 1: an endless assortment. So they had more assortment than any
Speaker 1: physical store, and they reduced prices by ten to That
Speaker 1: was a dominance Lucien and attracted customers. But you're right,
Speaker 1: it started with technology, but the basic idea of removing
Speaker 1: pain from a customer experience does not have to be technology.
Speaker 1: Because think of what Walmart's doing now curbside pick up.
Speaker 1: They could have done that a long time ago and
Speaker 1: made shopping easier, but they didn't. They made you come
Speaker 1: into the store, walk up and down the aisles, stay
Speaker 1: in the store as much as possible, impulse shop, you know,
Speaker 1: all the ideas, put the milk in the back, All
Speaker 1: of that was to keep you in the store as
Speaker 1: long as possible. This new idea of you're a very
Speaker 1: busy person and you don't want to spend your whole time,
Speaker 1: the whole day in a Walmart, so you should be
Speaker 1: able to pick it up as you drive home. That's
Speaker 1: a new idea, but that's not technology. Coincidentally, we're having
Speaker 1: this conversation the day after a New York Times column
Speaker 1: front page New York Times column came out discussing some
Speaker 1: of your work, amongst other things, how Amazon has affected
Speaker 1: retail and how retailers have finally began to learn from
Speaker 1: their experiences with Amazon. How far along in that process
Speaker 1: are we that retailers are finally waking up and saying, hey,
Speaker 1: we better do this and this, or Amazon is gonna
Speaker 1: eat our launch. Yeah, I mean, I think they're seeing
Speaker 1: the retail apocalypse. People are talking about that. If you
Speaker 1: don't understand these two basic principles, the principle of customer
Speaker 1: value and the principle of differential advantage, you're not going
Speaker 1: to succeed radio shack, circuit city borders. You know, it's
Speaker 1: soon Sears and Khmard who knows. But these retailers that
Speaker 1: are not really up to snoff on customer experience, they
Speaker 1: just can't make it in a world that has an
Speaker 1: Amazon in it. Sears, I think that has to be
Speaker 1: inevitable going that way. The local Sears and New where
Speaker 1: I grew up has been there forever and finally it's
Speaker 1: succumb And yet how are shops like best Buy and
Speaker 1: Target seemingly thriving. Target just announced their best quarter. I
Speaker 1: think in something like there was a game. What is
Speaker 1: the drivers of the successful companies like best Buy, Target,
Speaker 1: and Home Deeple and Lows for that matter, versus the
Speaker 1: sears and the circuit city targets are very interesting example
Speaker 1: because it shows the importance of stores and this quote
Speaker 1: unquote omni channel experience. So one of the things they've
Speaker 1: done that's very successful is opened up the small urban stores.
Speaker 1: So they used to have these big boxes in suburbia
Speaker 1: and rural markets, right, but now they have these small
Speaker 1: urban stores where singles are, young people are living in
Speaker 1: the city's more. They also opened them close to campuses,
Speaker 1: and they're getting a lot of people who like to
Speaker 1: have the physical store experience. They've been They've been tinkering
Speaker 1: with their product assortment. They've come up with a lot
Speaker 1: new store brands. They're trying to get the cachet of
Speaker 1: tar J back, you know, that design kind of idea
Speaker 1: of fun shopping, and it seems to be working. They've
Speaker 1: been doing a lot of things. The biggest thing is
Speaker 1: changing that store having a different assortment and it requires
Speaker 1: rethinking your assortment when the store gets smaller. And then
Speaker 1: these ideas of curbside pick up and making shopping easier
Speaker 1: and making shopping fun. So how do firms differentiate on brands? Well,
Speaker 1: you know, the luxury brands are still doing very well.
Speaker 1: So you're looking at Louis Vatan air Mas, those those
Speaker 1: are really doing very well. They're staying off of Amazon,
Speaker 1: but they understand the importance of online. Also, they're partnering
Speaker 1: with things like far Fetched or Netta Porte, which are
Speaker 1: some kinds of online marketplaces that are dealing. But they
Speaker 1: understand if they're going to charge those premium prices, they've
Speaker 1: got to give superior product, pleasurable product, and a really
Speaker 1: good customer experience. You have to feel pampered when you
Speaker 1: buy luxury, so that's another piece of it. So what's
Speaker 1: the flips? Are the everyday low prices the e d
Speaker 1: LP How important is that is at a totally different
Speaker 1: market segment or is there any overlap? Well, you know,
Speaker 1: that's interesting thing because I think somebody might have a
Speaker 1: Louis Vatan purse and then a Target T shirt. You
Speaker 1: know that that's possible, but there's always going to be
Speaker 1: a price sensitive segments. So Everyday low Price, the Walmart strategy,
Speaker 1: Costco strategy, TJ Max, they're all doing very well, even
Speaker 1: though the luxury brands are doing well too, because they're
Speaker 1: going after being the best at something. So luxury is
Speaker 1: the best at product, and everyday low price is the
Speaker 1: lowest price. And it seems that it's a bit of
Speaker 1: a barbell the middle where the middle class used to shop,
Speaker 1: that's become a bit of a void. It's either high
Speaker 1: end or lower right, Yeah, it's yeah, something special, And
Speaker 1: that's what I mean by differential advantage. You've got to
Speaker 1: be better. You can't just be good enough. You've got
Speaker 1: to be better at something. Let's talk a little bit
Speaker 1: about your academic career. What motivated you to write a
Speaker 1: book on on the Shopping Revolution? Well, I mean for
Speaker 1: the last seven years or six and a half years,
Speaker 1: I was the director of the Baker Retailing Center at Wharton,
Speaker 1: and the goal of that retailing center was actually to
Speaker 1: convince Wharton students to go into retailing. Typically, the Wharton
Speaker 1: students didn't go into retailing. They went into vestment banking
Speaker 1: or hedge funds or consulting. But Jay Baker, who had
Speaker 1: retired as the president of Coles, thought this was a
Speaker 1: missed opportunity, and so he developed the center to encourage
Speaker 1: people to think about retailing. And I was the director
Speaker 1: of it, and so my goal was to really learn
Speaker 1: as much as I could about retail and what the
Speaker 1: excitement was, to try to convince our students to go
Speaker 1: into the industry. At the time I was doing this,
Speaker 1: retailing was changing radically. You know. We had all sorts,
Speaker 1: not only Amazon, but these digitally native vertical brands started.
Speaker 1: Those are the digitally native vertical brands of brands that
Speaker 1: start online and they go direct to the end user.
Speaker 1: Warby Parker was started for Wharton students, so that was
Speaker 1: particularly sense, you know, something we were very proud of.
Speaker 1: But there's also Casper that did it. More recent Mattress Company, Yeah,
Speaker 1: the mattress company Bnobos which was subsequently bought by Walmart.
Speaker 1: Um All Birds is a new one that's getting a
Speaker 1: lot of your wearing over. But these are digitally native
Speaker 1: vertical brands that are going out and this Nate this
Speaker 1: We were trying to make retail sexy, but retail was
Speaker 1: becoming sexy, you know. It was really the technology referenced
Speaker 1: before really did change the way people think about retailing.
Speaker 1: So so when a student graduates Wharton and goes into retail,
Speaker 1: what aspect of this are they doing? There's it seems
Speaker 1: there's a universe of things that makes sense and are
Speaker 1: applicable in a modern technology world. Where do you see
Speaker 1: them going into? Well, you know, Amazon right now, it's
Speaker 1: big a hire of Warton students, as Goldman was really,
Speaker 1: so you know, we're not talking warehouse workers. These are
Speaker 1: people who knows what they're I think they're working for
Speaker 1: AWS or whatever else. I don't know what they're were.
Speaker 1: But Amazon is a huge company, right right, they'll eclipse
Speaker 1: Walmart as the biggest employer if things continue, if you
Speaker 1: extrapolate that to infinitely, which is never a good you know,
Speaker 1: even some of our students are going to Walmart now,
Speaker 1: which was you know, it was in the past. They
Speaker 1: weren't so intrigued with going to Arkansas, you know, and
Speaker 1: working in like you said, and operate actionally efficient company.
Speaker 1: But now Walmart dot com is in San Francisco. Jet
Speaker 1: dot Com isn't there, yea, So now it's a sexy, interesting,
Speaker 1: fun place to work. So do you recall there was,
Speaker 1: I want to say, a New York Times story. You
Speaker 1: just made me think of this um where someone came
Speaker 1: into Target to complain that their daughter was getting pregnancy
Speaker 1: stuff in the mail. She's in high school? How dare you?
Speaker 1: And then subsequently he had to go back and apologize
Speaker 1: Targets Big data analytics figured out that if you buy this,
Speaker 1: this and this, hey, you're probably pregnant and you're gonna
Speaker 1: want this. Is that the sort of stuff that that
Speaker 1: NBA students are doing. Yeah, that's one thing for sure.
Speaker 1: The Wharton School, Ardine is advocating over and over and
Speaker 1: over again data analytics, data analytics. You really can't go
Speaker 1: into marketing anymore if you didn't understand customer analytics and
Speaker 1: data analytics. You know in that story I remember when
Speaker 1: it came out maybe five years ago. Was surprising, but
Speaker 1: you know, you really didn't need data analytics to do that.
Speaker 1: A smart salesperson could have watched this girl come into
Speaker 1: the store via pregnancy test and by you know, vitamins
Speaker 1: and prenatal vitamins or all these other things and what
Speaker 1: it really wasn't rocket science to figure that out. So
Speaker 1: given your vantage point, how has the curriculum for NBA
Speaker 1: students changed relative to to this industry. Yeah, we've definitely
Speaker 1: included more analytics in our marketing in everything um Adam
Speaker 1: Grant is another professor at the Wharton School. He started
Speaker 1: people analytics generals, yeah, or givers and takers and planed
Speaker 1: B and M. He but he's really you know, all
Speaker 1: of that stuff. It's even management, which maybe used to
Speaker 1: think of management and marketing is quote unquote softer sciences,
Speaker 1: were all using data analytics. Of course, finance has always
Speaker 1: been dated heavily data driven. You'd be surprised that's a
Speaker 1: relatively recent phenomenal. By relatively recent, it's a couple of decades.
Speaker 1: It was not as endemic as you would suppose any
Speaker 1: forty six years ago. That's interesting, quite fascinating stuff. Let's
Speaker 1: talk a little bit about some of the older brands
Speaker 1: who may not be quite as hip as um the
Speaker 1: Warby Parker's or the old birds of the world. How
Speaker 1: would you advise companies like Kellogg's or Coca Cola to
Speaker 1: appeal to the next generation. You know, it's really interesting
Speaker 1: to watch because I've been teaching marketing for a long time,
Speaker 1: and we would teach branding, and we would talk about
Speaker 1: what are the biggest brands forever the same biggest brands Coke, IBM, whatever, Toyota.
Speaker 1: All of a sudden, the last five years, we all
Speaker 1: know who the biggest brands are, right I mean, And
Speaker 1: that's a change that happened very very quickly in the
Speaker 1: last five years. And if you look at their stock prices, Kellogg's, Gillette,
Speaker 1: they're hurting. The CpG companies are hurting, and they do
Speaker 1: have to do something to wake up and smell the roses,
Speaker 1: just like the retailers. So Gillette, for example, has you know,
Speaker 1: started subscription services to compete with Dollar Shave Club and Harry's.
Speaker 1: Coca Cola just bought a coffee company. Look what Nike
Speaker 1: is doing. That's pretty interesting. So let's let's discuss that
Speaker 1: because I was just reaching from my phone to grab
Speaker 1: a data point that I wanted to ask you you're here.
Speaker 1: The day after it was announced that Colin Kaepernick is
Speaker 1: going to be UH, he received an extension of his
Speaker 1: contract with Nike, and on the thirty year anniversary of
Speaker 1: their launch of the Just Do It campaign, they made
Speaker 1: um they made him part of that. And there seems
Speaker 1: to be quite an interesting backlash. However, and and this
Speaker 1: is what's so fascinating. A data point I read I
Speaker 1: might have been the Journal of the Times specifically said
Speaker 1: something like two thirds of Nike's customers are under thirty five.
Speaker 1: So there, you know, Nike is not marketing to old, fat,
Speaker 1: white conservative dudes. That's not their target demographic. Is it?
Speaker 1: The people who are burning Nike socks and shoes? They
Speaker 1: really don't care about that, do that? No? I mean,
Speaker 1: I think that's the calculated decision they made. And they
Speaker 1: had to do some things because they also had been
Speaker 1: getting a lot of negative publicity on the women issue.
Speaker 1: I mean, they support Serena and she's a fantastic role model,
Speaker 1: but that's not that's not where the news is about
Speaker 1: Nike and women. That the lawsuits and all these other things,
Speaker 1: and that's been a news and Nike has to face that. Um.
Speaker 1: And I think you asked me before about the difference
Speaker 1: in millennials and baby boomers. One of the things I
Speaker 1: see that's different is that millennial millennials seemed to hold
Speaker 1: brands accountable, and so it's not just enough to brand
Speaker 1: a product. You kind of have to take some positions.
Speaker 1: You have to be responsible, and I think Nike, you know,
Speaker 1: is taking that position. Now. They're standing up to social
Speaker 1: issues that do concern their core market, and they took
Speaker 1: a stand on it. Look what happened at Starbucks, you know,
Speaker 1: one incidents in one Starbucks restaurant in Philadelphia caused an
Speaker 1: incredible reaction around the world. That was something I was
Speaker 1: talking to someone in You're a bit better than I said.
Speaker 1: I don't suppose you heard about what happened in Philadelphia
Speaker 1: with Starbucks and they had it was you know, it's
Speaker 1: always amazing when you have such a diffuse company with
Speaker 1: tens of thousands of stores, how hard that is to
Speaker 1: um really get a consistent message in a consistent behavior
Speaker 1: across tens of thousands of employees. It's uh, it's really
Speaker 1: quite astonishing, all right. So here's the Times article. It's
Speaker 1: not the journal. Nike returns to a familiar strategy with
Speaker 1: the Kaepernack ad campaign. The Time suggested that Nike as
Speaker 1: a brand has courted controversy. Charles Barkley, I'm not a
Speaker 1: role model, Tiger Wood saying, Hey, some of these uh
Speaker 1: golf courses wouldn't let me play because I'm an African
Speaker 1: American years ago. So coming back to Colin Kaepernack, is
Speaker 1: this just tacking into that controversy. Here's the data point
Speaker 1: I wanted to find. Nearly two thirds of individuals who
Speaker 1: wear Nike in the United States are under thirty five
Speaker 1: years old. So so this wasn't a coincidence. This was
Speaker 1: a very conscious Oh, they had to know that they
Speaker 1: get I mean, Trump made it clear they were going
Speaker 1: to get some backlash on this, and he, true to form,
Speaker 1: responded um yesterday, though not as extremely as one might
Speaker 1: have thought, but he did respond um. And and that
Speaker 1: then the boycott Nike kind of hashtag boycott Nike, and
Speaker 1: the crazy videos that are coming up with people burning
Speaker 1: their expensive shoes, which is kind of silly because a,
Speaker 1: you already gave them your money and be really shouldn't
Speaker 1: if you really think it's a veterans issue, then donated
Speaker 1: to Veterans group. By the way, yesterday, I'm doing this
Speaker 1: from my memory, so I'm going to get the numbers wrong.
Speaker 1: But it was something like Nike stock fell two point
Speaker 1: seven percent, but Adiita stock felt two point It was
Speaker 1: almost no difference that if their biggest rival felt the
Speaker 1: same amount, it might have just been uh, you know,
Speaker 1: the whole segment is going to suffer backlash for a
Speaker 1: couple of days and then back to back to usual.
Speaker 1: But when you take some of these positions, you're gonna
Speaker 1: get polarization. And they must have calculated, um, you know,
Speaker 1: we'll lose some but will gain loyalty in other markets,
Speaker 1: and they thought it was worth it. So let's talk
Speaker 1: a little bit about the paradox of luxury. You you
Speaker 1: referenced it earlier. People have to either have some very
Speaker 1: positive affiliation with the products, or the brands or the experience.
Speaker 1: What is the paradox of luxury. Well, you know, usually
Speaker 1: in economics, which I'm sure you know very well, supply
Speaker 1: and demand says you lower price, make things more accessible
Speaker 1: than your market share is going to go up. In luxury,
Speaker 1: that's the paradox. If you lower brands too much, like
Speaker 1: Michael Core's a lower price too much like Michael Cores
Speaker 1: and Coach did inadvertently by having a lot of discounting
Speaker 1: and selling a lot of their products and out, that
Speaker 1: diminishes the value of the brand. So if the and
Speaker 1: if you make it too accessible, it diminishes the value
Speaker 1: of a luxury brand. Luxury is for elite luxury. Special
Speaker 1: luxury is inaccessible. So when you make it a little
Speaker 1: bit more affordable, of the notion of affordable luxuries almost
Speaker 1: an oxymoron. That's the paradox of luxury doesn't follow the
Speaker 1: regular rules of supply and so this goes back to
Speaker 1: the old days of general motors when they would sell
Speaker 1: essentially the same car. The high end was a Cadillac,
Speaker 1: the middle was a Buick, and the cheap car was
Speaker 1: a Chevy. They were all essentially rebadged and and up
Speaker 1: um scaled versions of each other. Is that the concept? Yeah,
Speaker 1: I mean, so maybe the guts of the car was similar,
Speaker 1: but the trappings or that we're really different. And the
Speaker 1: dealerships were dealing right, and the service was different, the
Speaker 1: brand was different, that materials in the car might have
Speaker 1: been different higher value. So there was I'm not saying
Speaker 1: it was silly. I think there was value to what
Speaker 1: going on. But that's the paradox of luxury, and part
Speaker 1: of what makes it special. It is not everybody has it,
Speaker 1: so it's the scarcity creates creates a specific value that
Speaker 1: that's kind of that's kind of interesting. So within the
Speaker 1: existing world of brands that are being disrupted. How can
Speaker 1: they jiu jitsu this? How can the disrupted become the disruptive? Well,
Speaker 1: that's interesting to think of. You know, you're seeing a
Speaker 1: lot of pressure on these digitally native vertical brands. They're
Speaker 1: they're considered some of the disruptors. A lot of what
Speaker 1: they have done by going direct without all these intermediary channels,
Speaker 1: they've been able to lower the price. And so a
Speaker 1: Warby Parker is a very high designed glass, but it's glasses,
Speaker 1: but it's sold at nine rather than a five hundred dollars.
Speaker 1: So that's part of what the disruption is. It goes
Speaker 1: back to that notion of your margin is my opportunity.
Speaker 1: So I'm giving you what you really want, but I'm
Speaker 1: charging a lower price. So that's one way that they've
Speaker 1: been disrupting. And the other way the disruptions have been
Speaker 1: is making it more convenient. Um. I suppose there's something
Speaker 1: lurking out there that we haven't seen yet, but right
Speaker 1: now that's what people are doing. Um. I can't imagine
Speaker 1: what it will be. But maybe there's another dimension in
Speaker 1: my matrix I haven't thought about yet. So so you
Speaker 1: you said you can't imagine what what they'll do next.
Speaker 1: How challenging is it to predict trends or even just
Speaker 1: extrapolate trends. It seems that there's a new meme and
Speaker 1: a hot new flavor every other day. Are these things
Speaker 1: just passing fancies or is there really a bigger shift
Speaker 1: taking place in a lack of consistency and brands over time?
Speaker 1: I mean what I think what you're talking about is
Speaker 1: the way retail changed over time and got people to
Speaker 1: buy more, which was changed style, change trends. So in
Speaker 1: the old days, heym's went up and down or colors arc,
Speaker 1: wasn't it? That was what a long arc of time.
Speaker 1: It didn't change see from day to day, would change
Speaker 1: season and season to season, but it gave you a
Speaker 1: reason to buy more. Same thing with electronics or innovations
Speaker 1: or cars. The technology just got better and better, and
Speaker 1: so you needed so that you do need to see
Speaker 1: something new in order to get people to buy because
Speaker 1: products just don't wear out that fast. You know, if
Speaker 1: they wore out that then you'd have to replace. But
Speaker 1: a lot of things don't, so you need fashion style,
Speaker 1: new technology. What Amazon did and the digitally native vertical
Speaker 1: brands did was I do think significant disruption which is
Speaker 1: different than this changing in styles and trends. And they
Speaker 1: realized that the whole model of retail had gotten stale um.
Speaker 1: And that's when I went back to that salesforce commission
Speaker 1: kind of idea, the idea that if you would go
Speaker 1: into a department store and try to run away from
Speaker 1: the perfume women, you know that we're going to surray you. Like,
Speaker 1: what were they thinking, You know, they were thinking that
Speaker 1: these are commissioned people who are going to do anything
Speaker 1: to So let's talk about that. We we've been other
Speaker 1: folks have been discussing the death of the mall for
Speaker 1: years and years and years. Is that overblown or has
Speaker 1: that sort of post war suburban shopping experience. Is that
Speaker 1: also circling the draink Yeah? No, I think that that's
Speaker 1: what's happened, Like it got stale. So we have way
Speaker 1: too many stores in the US. We're over called, overstored, overbuilt,
Speaker 1: like a substantial amount versus Japan and the UK even Yeah, right, substantial.
Speaker 1: So even if you didn't see all this change, those
Speaker 1: stores were gonna have to go out of business. We
Speaker 1: had too many, and if you look at the malls
Speaker 1: that are going out of business, they're called the B
Speaker 1: and C malls. They were terrible malls. You know when
Speaker 1: the Macy closed down is that as the destination. All
Speaker 1: those stores in the middle had to go out. There
Speaker 1: was no traffic. So that's what's going down. But just
Speaker 1: as those stores malls are going down, some exciting, beautiful
Speaker 1: new flagship malls are being built. Look what's happening in
Speaker 1: New York City. There's some beautiful stores being built that
Speaker 1: should attract a lot of traffic. Can you stick around
Speaker 1: a little bit? I have a ton more questions. Okay,
Speaker 1: we have been speaking to professor Barbara on she teaches
Speaker 1: marketing at Wharton. If you enjoy this conversation, be sure
Speaker 1: and come back for the podcast extras, where we keep
Speaker 1: the tape rolling and continue discussing all things retail. You
Speaker 1: can find that at iTunes, Overcast, SoundCloud, Stitcher, and Bloomberg
Speaker 1: or wherever final podcasts are sold. We love your comments,
Speaker 1: feedback and suggestions right to us at m IB podcast
Speaker 1: at Bloomberg dot net. Check out my daily column on
Speaker 1: Bloomberg dot com. You could follow me on Twitter at
Speaker 1: rid Holts. I'm Barry Riholts. You're listening to Masters in
Speaker 1: Business on Bloomberg Radio. Welcome to the podcast, Barbara, Thank
Speaker 1: you so much for doing this. I find this subject
Speaker 1: absolutely fascinating. And I have a bunch of of sans
Speaker 1: too that we didn't get to. Um. But I have
Speaker 1: to come back to the luxury as a scarce good um.
Speaker 1: And I'll share a quick funny story with you. My
Speaker 1: wife teaches fashion illustration and design, so when I get
Speaker 1: dragged around to various stores, it's not so much retail
Speaker 1: therapy as it is research and and where I am
Speaker 1: the reckless, Oh that's nice, get one of those. Um.
Speaker 1: She is the much more fiscally prudent of the two
Speaker 1: of us. And one day we're I forgot where we were,
Speaker 1: but she sees this product bag and it's ungodly expensive.
Speaker 1: It's this leather fringe bag. I want to say, it
Speaker 1: was like twelve or fourteen thousand, some insane insane number
Speaker 1: that I gasped. I'm like, you know, you could buy
Speaker 1: a small car for the cost of that that bay
Speaker 1: and um, And speaking of cars, I troll around eBay
Speaker 1: all the time looking at old cars to occasionally, um
Speaker 1: tickle my fancy. And on a lark, I started searching
Speaker 1: for that bag and one day there it is. It's
Speaker 1: less than a thousand dollars. It's which to me is
Speaker 1: still a ridiculous price for bags, but you walk into
Speaker 1: the store and hundred is pretty typical. So for her birthday,
Speaker 1: I surprised her with an eBay purchased product, ungodly expensive bag.
Speaker 1: What does the used market due to luxury? And what
Speaker 1: do things like you mentioned Netta Porta and some of
Speaker 1: the Cpretta Porta, what is Netta Porte? And far fetch? Okay?
Speaker 1: So they sell rents repurpose, well, they do both, some
Speaker 1: of them on marketplaces. Some of them have their own inventories.
Speaker 1: Some of them concatenate a lot of little stores on
Speaker 1: their platform. They're different models there. But luxury is a
Speaker 1: really interesting business. There's catches on it. One of them
Speaker 1: is this whole counterfeit market. Oh for sure. That was
Speaker 1: the concern with eBay. I actually had to write the
Speaker 1: person and say, listen, I'm interested in this bag, how
Speaker 1: do I know it's real? And they sent me a
Speaker 1: thing back here. I've sold ten thousand items. I've been
Speaker 1: on eBay for whatever a decade. I have all the
Speaker 1: paperwork with this, and and so my wife's I I
Speaker 1: When I gave it to her, I said, and make
Speaker 1: sure this is real. And she looked at and she goes,
Speaker 1: if this is fake, it's a fantastic alright. Was she happy?
Speaker 1: Thrilled to death? Can I tell you? She at we
Speaker 1: The reason I even remembered this is she just said
Speaker 1: to me, well, falls coming up, and I'm excited about that.
Speaker 1: And I'm like, why Jean sweater. She's like, no, I
Speaker 1: get to take the product bag out of the closet.
Speaker 1: It's it's a leather fringe bag, so it's her fall bag.
Speaker 1: Very she's very excited about it. But that's a real
Speaker 1: big problem. Like it's a big problem, particularly in China
Speaker 1: where a lot of these things are manufactured, and some
Speaker 1: of the luxury products would be the branded products would
Speaker 1: be done during the day and after hours on the
Speaker 1: same manufacturing, some of the counterfeits would be dead. So
Speaker 1: what is the difference between counterfeits? So in that case,
Speaker 1: the counterfeit and the real product was actually the product
Speaker 1: was the same. The branch wasn't authorized, it wasn't didn't
Speaker 1: have the paperwork, the certificates and things, so they were
Speaker 1: bringing in they were using the same materials in some
Speaker 1: now those counterfeits are expensive. There's different levels of counterfeits.
Speaker 1: Want a good, counterfeits want cheap. The very best counterfeits
Speaker 1: are actually quite good. Um. But you have to know
Speaker 1: what you're doing. You have to have the eye to
Speaker 1: see the difference. Is some of the counterfeits are terrible.
Speaker 1: But that's a real There's been pressure now on Ali Baba,
Speaker 1: on and on Amazon because they hadn't been policing whether
Speaker 1: resellers and third parties sellers were selling real products or
Speaker 1: counterfeits are all of that, and so luxury products never
Speaker 1: wanted to go on those platforms unless they could be
Speaker 1: assured that there were no counterfeits. So if you if
Speaker 1: you go down to Chinatown, you could buy a nice
Speaker 1: Rolex watch for about fifty bucks. The problem is it's
Speaker 1: Rolex with two ls other Other than that, it's hard
Speaker 1: to tell the difference. That some of the fakes are
Speaker 1: pretty spectac Yeah. I mean in Rolex, I doubt it's
Speaker 1: real gold if it's for sure, um. So, so that's
Speaker 1: the issue with with um luxury. I it's really fascinating.
Speaker 1: I know in China they've had fake Apple stores and
Speaker 1: all sorts of stuff. What was has there been a
Speaker 1: resolution with eBay or Amazon or is this still an
Speaker 1: on way is ongoing, but I think that they are.
Speaker 1: Amazon has now acknowledged that they're going to have to
Speaker 1: control their counterfeit issue or they're not going to get
Speaker 1: the luxury brands to come on. But you know, we're
Speaker 1: talking about luxury. Was interesting this notion that accessibility makes
Speaker 1: luxury less desirable because, as you said, scarcity or exclusivity
Speaker 1: is what luxury is, and yet people still want to
Speaker 1: buy online. Now online makes it more accessible, So that's
Speaker 1: another paradox. Luxury had to figure out, how can I
Speaker 1: have the luxury experience and still have the convenience of online.
Speaker 1: And they've been doing all sorts of experimenting with how
Speaker 1: to keep the convenience of online but keep the exclusivity
Speaker 1: of luxury. So for example, they'll have specialized buyers or
Speaker 1: personalized buyers where you can talk to them online and
Speaker 1: do the business online, but it's still a one to
Speaker 1: one luxury experience like a personal shop, personal shop or
Speaker 1: something like that. And so they've been trying to do
Speaker 1: things and then when they ship you the product, the
Speaker 1: packaging is beautiful. You know, some of the luxury comes
Speaker 1: in the packaging that goes around the product. Have you
Speaker 1: been reading about these unboxing videos on YouTube? So I
Speaker 1: just saw this this weekend. Apparently there's a little bit
Speaker 1: of a dopamine hit if you watch a video of
Speaker 1: someone unwrapping a delivery, whether it's an Amazon box or
Speaker 1: something else, they unwrapid the unpacking and it's like right
Speaker 1: now and off the shop. I've gone through that experience.
Speaker 1: I don't know how much I really buy into that UM,
Speaker 1: but it's fascinating. But what what I do recall reading
Speaker 1: about UM earlier. Uh, to your point about the experience,
Speaker 1: if you go into Tiffany's and for whatever reason, they
Speaker 1: think you're a high roller type shopper, you get brought
Speaker 1: up into the special, secret private room that the public
Speaker 1: doesn't get to see, and it's apparently a very different
Speaker 1: and much more expensive experience. Tiffany's is an interesting example.
Speaker 1: They're coming back up. Tiffany some people say is the
Speaker 1: only true American luxury brand. It started and I think
Speaker 1: the same year Airmez started, so it's been around for
Speaker 1: long enough. Luxury really has to have history, it has
Speaker 1: to have legacy to be a real luxury brand, and
Speaker 1: Tiffany's really the only American brand that can claim that credit.
Speaker 1: But they kind of lost their way maybe thirty years
Speaker 1: ago when they had too much silver in their store
Speaker 1: and they had all these young adolescent teenage girls coming
Speaker 1: into the store right next to these very rich people
Speaker 1: buying diamonds in private rooms, and that was not a
Speaker 1: good juxtamosition. Yeah, that's what should have been online, the silver. Yeah, right,
Speaker 1: so now they have they still sell some silver, but
Speaker 1: it's a a small part of it. And they've really
Speaker 1: tried to re up the luxury vision of Tiffany's. Make it.
Speaker 1: You know what Audrey Hepburn saw in it. Nothing can
Speaker 1: go bad in the Tiffany's store, you know. So that's
Speaker 1: an interesting point that Tiffany's might be the only luxury store.
Speaker 1: I'm thinking of things like Ralph Lauren. But they make
Speaker 1: everything from the low end to the Purple label, which
Speaker 1: is crazy expensive, um and whatever you can find a
Speaker 1: name and Marcus. But I assume half that stuff is
Speaker 1: coming from Europe. So the traditional luxury brands are French
Speaker 1: and Italian. You know, that's where you made in Italy.
Speaker 1: You know, Gucci's off the charts right now. Gucci is
Speaker 1: crazy doing crazy well, Louis buiton MS. Those are French brands,
Speaker 1: you know, some of those um But Ralph Lauren had
Speaker 1: this what I call a branded house strategy, which is
Speaker 1: what you described under the same brand name from Purple
Speaker 1: Label or Collection all the way down to outlet. You
Speaker 1: could tell it was all Ralph or Paolo. Whereas the
Speaker 1: luxury houses in Europe a house of brands, and each
Speaker 1: house is a special brand. They don't have one brand
Speaker 1: name over all of their different offerings. So when you
Speaker 1: look at Coach, which I recall back in the day,
Speaker 1: at one point Coach was pretty high end. I don't
Speaker 1: know if that's the case. We were talking about Professor
Speaker 1: Scott Galloway, an n y U Stern. He's made the
Speaker 1: claim that Apple is the first technology luxury brands. I
Speaker 1: agree that you do. It's kind of when you look
Speaker 1: at their prices, they're certainly premium, and they're counterfeited also,
Speaker 1: just the way luxury is, which almost a badge of
Speaker 1: honor to be counterfeited. You know, nobody is counterfeiting Android,
Speaker 1: so so, but you know Coach that you mentioned that
Speaker 1: was an American brand, but they're now starting to copy
Speaker 1: the European strategy. So they changed their name to the
Speaker 1: holding company Tapestry, and now they have a house of brands,
Speaker 1: So they have Coach, they have Stuart white Smith, they
Speaker 1: have Kate Spade, all under the house Tapestry, and so
Speaker 1: they're moving and they're trying to take back the too
Speaker 1: much outlet selling and trying to resurrect the grandeur that
Speaker 1: Coach used to have. And they're doing well. Their stock
Speaker 1: prices went up, their their sales are going up. They're
Speaker 1: doing very well with that strategy. My wife taught me
Speaker 1: a shocking data point way back when the stuff you've
Speaker 1: seen in the outlet centers, that's not the same stuff
Speaker 1: that you can get in the stores, although occasionally there
Speaker 1: are um leftovers and end runs and they do get
Speaker 1: dumped there, but a lot of stores specifically manufacturer for
Speaker 1: the outlet right, which that was what Coach did wrong. See,
Speaker 1: but your wife said, is the right strategy. You want
Speaker 1: to you have to keep it separate because why would
Speaker 1: anybody pay full price if you get the same product
Speaker 1: in an outlet. But Coach had some of the same
Speaker 1: product in their outlets, and what that did was under
Speaker 1: undermine the value of the brand. If you're paying a
Speaker 1: high price, and someone else got the same product, the
Speaker 1: exact same product, at an outlet price. Why would you
Speaker 1: want to pay the higher price? And and and Coach
Speaker 1: was hurt by that, so let me push back on that.
Speaker 1: I notice I'm wearing Brooks Brothers. Is probably the wrong example.
Speaker 1: This is a Brooks brother shirt. But I noticed that
Speaker 1: a lot of products, the same exact products are sold
Speaker 1: at multiple times at different prices. So I could walk
Speaker 1: into a Lord and Taylor. So we're recording this in September.
Speaker 1: All the new full stuff has already been out for
Speaker 1: a month. If I want shopping last month for full stuff,
Speaker 1: it's full price, it's not discount that, it's not coupons,
Speaker 1: it's not on sale. And then by the time I
Speaker 1: don't know, November rolls around, the coupons start, and then
Speaker 1: as we get closer to Christmas, the big discount start,
Speaker 1: and then by the time we hit January, the same
Speaker 1: product you could pay buy a shirt for a hundred
Speaker 1: and twenty five dollars sixty dollars. Now, you may not
Speaker 1: get the right color, you may not get the right size,
Speaker 1: you may not get exactly what you want. But if
Speaker 1: your price sensitive, there seems to be a range. You
Speaker 1: can buy the same product across six months at all
Speaker 1: these crazy different price points. That is that a purposeful strategy.
Speaker 1: When started, it made sense, you know, because you would
Speaker 1: target people at different willingness to pay, and so you
Speaker 1: get the people are willing to pay at the beginning
Speaker 1: of season to pay high. People who couldn't afford it
Speaker 1: or didn't want to would wait till the end of
Speaker 1: season and pay low. Unfortunately, people got addicted to those
Speaker 1: price promotions. They could predict those pressure promotions, and consequently
Speaker 1: they were very reluctant to pay full price, and it
Speaker 1: got really bad around holiday seasons where it's big, you know,
Speaker 1: that's the big bonanza for retail, where it said if
Speaker 1: you waited long enough, you know you're going to get
Speaker 1: the discount or Black Friday and all these other things.
Speaker 1: People got addicted to the discounts and that was very bad.
Speaker 1: Undermine the value of the branded It is what hurt
Speaker 1: Michael Cores for a while. Michael course has pulled back
Speaker 1: on that so they can be seen as more luxury
Speaker 1: now um And part of the reason for it was
Speaker 1: the price sensitivity or price discrimination. Another reason was if
Speaker 1: they didn't forecast demand correctly. And it's hard to forecast
Speaker 1: demand for a fashion product because you don't know what
Speaker 1: the consumers are gonna like or not like, So you
Speaker 1: over order certain things and then you've got extra inventory
Speaker 1: that you've got a discount at the end of the season.
Speaker 1: And you're doing that years in advance. It's not like
Speaker 1: thirteen months in advance typically crazy. So that's now that's changed.
Speaker 1: And this is another thing that's not just Amazon has
Speaker 1: done that. Zarah has changed this a lot. Zarah has changed.
Speaker 1: They do like not a lot of turnovers in the store.
Speaker 1: They don't have this eighteen month lead time or anything
Speaker 1: like that, and there's all this pressure. The part of
Speaker 1: the disruption is to give customers a better experience, so
Speaker 1: they have to be better at forecasting demand. They have
Speaker 1: to get the right product in the store so they
Speaker 1: don't have leftover inventory at the end. Because what the
Speaker 1: process you described, you could see, you know, long term,
Speaker 1: it's not gonna work. People understand it that, you know,
Speaker 1: everybody knows that happens. Why wouldn't they wait for the
Speaker 1: discount price, especially given I would make an argument that
Speaker 1: there hasn't been a whole lot of wage growth in
Speaker 1: the real wage growth after inflation from the middle class
Speaker 1: over the past twenty or thirty years. That has to
Speaker 1: have an impact on the selling strategies of retailers. Yeah,
Speaker 1: I agree, but that's what you're saying, Like with all
Speaker 1: with Macy's and stuff, when you talk about whether their
Speaker 1: new strategy they're announcing, one of them is much more
Speaker 1: meticulous forecasting a product assortment, having a better idea before
Speaker 1: you put you know, excess inventory in the store. And
Speaker 1: is that just big data? I mean, I would imagine
Speaker 1: that if they they don't just get to turn a
Speaker 1: dial and say, okay, now we're better forecasters. Couldn't they
Speaker 1: have been a better forecaster five or ten years ago.
Speaker 1: Computer technology has improved, but not so much over a decade.
Speaker 1: That is it the algorithms? Is it just? It's also
Speaker 1: the changing the system so you can see what sells
Speaker 1: and reproducing faster, you know that business intelligence that well,
Speaker 1: that's the data, but also the operations like don't order things,
Speaker 1: see what's selling and then order it um rather than
Speaker 1: and the other thing that Zara did. They also were
Speaker 1: customer focused, where the design luxury houses a product focus.
Speaker 1: So the luxury housers say, I'm the designer, this is
Speaker 1: what you like, Zara says, is I'm gonna look and
Speaker 1: see what the customers like, and then I'm gonna put
Speaker 1: what the fashionista is like in my store. So they
Speaker 1: have their sales associates at the end of every single
Speaker 1: day report back to headquarters what they've observed, their customers
Speaker 1: are coming and wearing, what they've observed their customers asked for,
Speaker 1: and they use that customer data in addition to what
Speaker 1: the fashion houses are doing to try to better predict
Speaker 1: what customers are gonna like or what they're not gonna like.
Speaker 1: How unique is that what Zara is, Well, Zara was
Speaker 1: one of the first ones to do it, and then
Speaker 1: they do a very good job and they're doing very
Speaker 1: very well. But again this gets back to like this
Speaker 1: shouldn't have been rocket science, that you should that you
Speaker 1: should ask the customers what they actually like before you
Speaker 1: just load up on inventory in your store, you know,
Speaker 1: But that just didn't happen until recently. But what about
Speaker 1: I'm no, I'm gonna mangle this term. What about the
Speaker 1: knockoffs and the fast fashion? How significant is that too? Well,
Speaker 1: I mean, Zara sometimes called called fast fashion, but it's
Speaker 1: a higher, a little bit higher price point fashion. But
Speaker 1: that is the idea instead of, like you said, waiting
Speaker 1: the eighteen months for luxury to come in, let's get
Speaker 1: people now want to buy in season. That's a very
Speaker 1: big difference in season. Yeah, so like if it's fall,
Speaker 1: I want to buy fall now? Where they the luxury
Speaker 1: houses were treating teaching you to buy fall? You know
Speaker 1: before it was right? Who wants to go shopping in
Speaker 1: July and August for a winter coat? It makes no sense?
Speaker 1: Can see what I mean? It's like that should have
Speaker 1: been obvious to people, but they looked at it from
Speaker 1: the product and operations side. I mean, obviously there was
Speaker 1: a logic to doing it. Getting You have to manufacturer,
Speaker 1: you have to get the supply, you have to do
Speaker 1: all these things. It took a long time to get
Speaker 1: the product to the store. But guess what, Zara figured
Speaker 1: out how to do it in a way that took
Speaker 1: a lot less time. I will admit to once so
Speaker 1: I had this disan ski coat for years and I
Speaker 1: made the mistake of buying a light colored coat, which
Speaker 1: is a terrible idea in New York City, it just
Speaker 1: gets filthy. And I tried on this black and sort
Speaker 1: of neon yellow one and Dessaunt is an exorbitant French
Speaker 1: luxury brand or wherever it comes from, and I couldn't
Speaker 1: pull the trigger on it was too expensive. That September,
Speaker 1: I just happened to stop into a ski shop that
Speaker 1: at a giant preseason sale and literally found the same
Speaker 1: exact code for thirty off for a third of what
Speaker 1: I would have paid last year. And I couldn't couldn't
Speaker 1: resist that. But that said, really, how how did we
Speaker 1: ever get trained to buy winter clothes in August? It
Speaker 1: doesn't make any sense now, and that now that customers
Speaker 1: pushing back, that's again what the millennials are doing. One
Speaker 1: of our young designers, Rebecca Minkoff, which is she's considered
Speaker 1: a millennial designer. She was one of the ones on
Speaker 1: that New York Fashion Week saying, you know, I'm going
Speaker 1: to start showing during fashion week what people want to
Speaker 1: buy now? Um, and that was considered revolution right, It
Speaker 1: makes it makes so much sense. What else is you
Speaker 1: have a bird's eye view of what's going on in
Speaker 1: in retail and fashion and related areas. What do you
Speaker 1: think is really interesting? What is something that you're kind
Speaker 1: of intrigued about these days. Well, one of the things
Speaker 1: I think is interesting is how important in store tech is.
Speaker 1: I think that, yeah, you know, like the beacons in there,
Speaker 1: or the smart boards and the magic mirrors mirror mentioned
Speaker 1: Rebecca Minkoff, she does that in her own stores. If
Speaker 1: you go to the Soho store, you'll see it, which
Speaker 1: is where all the items in the store are coated
Speaker 1: with r F I D code And when you walk
Speaker 1: into the dressing room, on the mirror in front of you,
Speaker 1: they show the items you're bringing into the kids in
Speaker 1: the dressing room. It's right there on the mirror. And
Speaker 1: then if you want a different size, you can push
Speaker 1: on the mirror and the sales different size. They'll also
Speaker 1: give you suggestions. If you bring in a you know,
Speaker 1: a pencil black skirt, they'll say this blousse will go
Speaker 1: with it, this person go with it. All of that
Speaker 1: makes me perfect sense. How has no one ever thought about? Now?
Speaker 1: The thing about that that's interesting is it makes perfect
Speaker 1: sense and apparently has increased sales. You know, it is expensive,
Speaker 1: but apparently the upsale up cell has worked very well
Speaker 1: on that. But more importantly is collecting the data online.
Speaker 1: If you go online and you put something into your
Speaker 1: car and you don't buy it, you know, you get
Speaker 1: all these ads for the next two months, right, because
Speaker 1: they figure if you went all the way through what's
Speaker 1: called the purchase funnel to put something in your car,
Speaker 1: you must have really liked it and maybe we can
Speaker 1: get the price tweaked right, or maybe and we'll get
Speaker 1: you to buy. So they'd spent a lot of time
Speaker 1: on that last miles. So to speak up the car. Well,
Speaker 1: in the physical store, if you went to the trouble
Speaker 1: of bringing something into the dressing room, you must have
Speaker 1: liked it. And then if you didn't buy it, why
Speaker 1: did you not buy it? What was wrong with those items?
Speaker 1: That data was never collected in a physical store. Now
Speaker 1: that we're taking this into the dressing room, I can
Speaker 1: see what you bring into the dressing room and what
Speaker 1: you purchase or what you don't purchase, and that's very
Speaker 1: useful information. So now you're capturing all the data that
Speaker 1: you previously were to disadvantage versus online retailers. Right. How
Speaker 1: you can do that in this and what are they
Speaker 1: actually using that data for? Is it productive for them? Yeah?
Speaker 1: You can figure out like why is this item not selling?
Speaker 1: Maybe it's not sized right, maybe it's too much money
Speaker 1: for this. You know, you can figure out reasons why
Speaker 1: people are choosing not to sell. I mean, so one
Speaker 1: of the things that things aren't making it into the
Speaker 1: dressing room. Maybe they don't look good on the rack,
Speaker 1: maybe they're in the wrong place in the store. All
Speaker 1: of a sudden, you can fine tune your merchandise to
Speaker 1: be what customers want. You're getting customer input right there
Speaker 1: at the store, which they didn't used to get that.
Speaker 1: That's quite fascinating. So I know I only have you
Speaker 1: for a finite amount of time. Let's jump to my
Speaker 1: favorite questions that I ask all of my guests. Tell
Speaker 1: us the most important thing that your students don't know
Speaker 1: about you. Well, I don't know if my students, but
Speaker 1: one of the things that's happened recently to me is
Speaker 1: that I can't drive over bridges anymore. Really, I'm scared
Speaker 1: of driving over bridges. This is what happened in Italy,
Speaker 1: or just it seems crazy to me to drive over
Speaker 1: a bridge. I don't know. I can walk over bridges,
Speaker 1: but I don't like to drive over bridges, and as
Speaker 1: a result, it's limited how much i'd drive. Now. Really,
Speaker 1: that's not you're okay with tunnels, I'm okay with you.
Speaker 1: I will tell you that as a kid driving over
Speaker 1: the Williamsburg Bridge in the outer roadway, where it was
Speaker 1: just this sort of metal um framework, like a mesh framework,
Speaker 1: where you can look down through the road at the water,
Speaker 1: and I made this horrible humming sound on the tires.
Speaker 1: I was never thrilled with that particular bridge. It's funny.
Speaker 1: I can be a passenger in a car driving over bridge.
Speaker 1: I just don't want to drive it myself. I don't
Speaker 1: trust myself, even though I don't know what I could do.
Speaker 1: I'm afraid i'd freak out. But you know, if you
Speaker 1: have to have that fear now, I didn't have it
Speaker 1: when I was younger, I haven't now. If you have
Speaker 1: to have it now in the land of uber and driving, okay,
Speaker 1: it's not as as it could be. Who who are
Speaker 1: your early mentors, who guarded your career in academia and
Speaker 1: who led you into the world of marketing and retail.
Speaker 1: Well you know, um, if you're a doctoral student and
Speaker 1: you get a PhD, which I did a lot of times,
Speaker 1: your your dissertation advisor is a big mentor, and my
Speaker 1: dissertation I got my PhD at Columbia and my dissertation
Speaker 1: advisor was Don Morrison, who just recently retired UM. And
Speaker 1: he was he called himself a full service advisor. He
Speaker 1: advised everything in my academic life and my personal life,
Speaker 1: so he made a really big difference. More recently, I
Speaker 1: UM left Wharton for a few years to go down
Speaker 1: to University of Miami to be the dean of the
Speaker 1: Business school there. And when I was there, Donna Leela
Speaker 1: was the president of Miami. Um Clinton administration. Yeah, she
Speaker 1: was the Secretary of Health and Human Services under Clinton
Speaker 1: for the longest serving Health and Human Services, and then
Speaker 1: she was also had a big career in academia. She
Speaker 1: was president of Hunter College and she was president University
Speaker 1: of Miami. More recently, she headed the Clinton Foundation when
Speaker 1: Hillary was running, which was kind of an interesting least
Speaker 1: to be I would imagine. And now she went back
Speaker 1: to Miami and she just won the Democratic seat for
Speaker 1: a congress for you know, the counsel. Yeah, so she
Speaker 1: was very ray. Very recently, she won the Democratic primary
Speaker 1: for that seat, which I think was held by a
Speaker 1: Republican but so hopefully she can still win it. And
Speaker 1: she's seventy seven, and I gotta say she's an amazing
Speaker 1: role model. She really taught me what it was like
Speaker 1: to be a leader. Taught me, you know, how to
Speaker 1: face adversary, adversity, you know, to figure out what you
Speaker 1: should do. She taught me the importance of low hanging fruit,
Speaker 1: visible signs, and long term strategy. She was really amazing.
Speaker 1: I had no idea she had she was running or
Speaker 1: had won that. And just last night I think it
Speaker 1: was Massachusetts. Um there was a woman challenger to the
Speaker 1: sitting Democrat uh in the House, and she beat him.
Speaker 1: And there's no Republican running against them. This year very
Speaker 1: much looks like the year of the woman, a giant,
Speaker 1: giant shift. It's quite fascinating, Donna La, that's really interesting.
Speaker 1: Um So tell us about the retailers who influence the
Speaker 1: way you look at the world of retail. Well, you know,
Speaker 1: that was one of the things I tried to do
Speaker 1: in my book, also to look at who's winning, and
Speaker 1: and that's what I focused on. Who's losing I wasn't
Speaker 1: as interested in. And so the retailers I think are
Speaker 1: doing a great job. Of course, at Amazon, I'm really
Speaker 1: impressed with Walmart, Costco is a very interesting reach. They've
Speaker 1: been a them and BJS have both been doing really well.
Speaker 1: And there's a data point I saw that said of
Speaker 1: Costco members are Amazon Prime, which means they're holding two memberships. Um.
Speaker 1: And that means and Amazon sells the same things Costco sells.
Speaker 1: So Costco is doing something right. Get the Giant if
Speaker 1: you have like five kids and you want those giant
Speaker 1: like I personally don't need two gallons of salsa, But
Speaker 1: if you walk into a Costco when you want those
Speaker 1: giant packages, I love the idea. Yeah, business is like it,
Speaker 1: but it's all so. You know, they sell gas, so
Speaker 1: you have to drive there anyway. They have the in
Speaker 1: store sampling. There's a bit of a treasure hunt feeling
Speaker 1: in Costco. So the point is that there's something they're
Speaker 1: doing right in the physical store to make people have
Speaker 1: two memberships. That's I'm really impressed with them. I visited
Speaker 1: Costco in Seattle and I just loved that. I love
Speaker 1: their philosophy, I love the way they think. You mentioned
Speaker 1: Mickey Drexler and the Gap previously. Um, any of the retailers, Starbucks,
Speaker 1: anybody else come to mind. As as doing anything innovative. Well,
Speaker 1: obviously Starbucks invented customer experience, you know, they the third
Speaker 1: Place and all of that stuff. I can't tell you
Speaker 1: how many Harvard cases are written a bad start, really,
Speaker 1: you know. Yeah, so that whole idea when they described
Speaker 1: experience is different than than the way Amazon I'm described it,
Speaker 1: but they understood that also, so that I also like
Speaker 1: t J Max and Burlington give the notion of the
Speaker 1: treasure hunt in those stores, um, and how they keep
Speaker 1: the prices way down and still understand scarcity and exclusive civity.
Speaker 1: You know, that's kind of interesting. You don't want to
Speaker 1: go into a store and see twenty different of these
Speaker 1: A dresses on a special price. You want to find
Speaker 1: one that's just for you. You know, that's an interesting idea.
Speaker 1: So let's talk about books. This is everybody's favorite question.
Speaker 1: Tell us about some of your favorite books, be they fiction, nonfiction,
Speaker 1: retail related, or not. You know, I was an English
Speaker 1: lit major, so I read lots of fiction for a
Speaker 1: really long time, and my best my favorite books would
Speaker 1: be the classics or some of the best selling fiction.
Speaker 1: But most recently I have been reading more nonfiction, so
Speaker 1: I really like, um, you know, Malcolm Gladwell, Michael Lewis.
Speaker 1: I also like to read female comedians. So I like
Speaker 1: Sarah Silverman and I like Tina Facebook. I like. I
Speaker 1: read both of those and they're both very amusing. Yeah,
Speaker 1: they're very amusing and I like their take. So the
Speaker 1: Sarah Silverman's book was The Bed or something like that
Speaker 1: and ums Pants. Yeah, yeah, they were both um absolutely.
Speaker 1: Uh any other female comedian books you would recommend, because
Speaker 1: those are the only two I have. Those are the
Speaker 1: two ones I read. I don't. I have to read
Speaker 1: so much academic stuff that it's sometimes hard to read books.
Speaker 1: So what what has you excited about retail today? What
Speaker 1: do you really jazzed about. Well, one of the things
Speaker 1: I'm starting to do, I'm thinking of developing, working with
Speaker 1: a partner to develop a new course on visual marketing
Speaker 1: and visual markets. So what we can learn by eye
Speaker 1: tracking and what people are attracted to the website or
Speaker 1: in a physical stuff. You can wear goggles and see
Speaker 1: what people look at the store, you can see what
Speaker 1: they look at online. We start to see what's automatic
Speaker 1: reaction to visual You know, you said your wife as
Speaker 1: a designer, it's kind of interesting to see what people
Speaker 1: are struck by how they scan a product. So this
Speaker 1: new neural marketing idea, the idea of new ways to
Speaker 1: collect data, new ways to get in people's heads or
Speaker 1: to see what they automatically and can't tell you they appreciate.
Speaker 1: When you start to care about what customers want in retail,
Speaker 1: these different ways of measuring it is pretty exciting. Uh
Speaker 1: that that that's quite interesting. Um, what do you think
Speaker 1: is the most significant change we're going to see in
Speaker 1: retail over the next couple of years. I think we're
Speaker 1: going to continue to see retailers that just don't cut
Speaker 1: it go out of business. And I think that's okay,
Speaker 1: you know, And I think Amazon is gonna keep pushing.
Speaker 1: They're gonna They're gonna go into other businesses that I'm
Speaker 1: really interested to see what happens. They're talking about the
Speaker 1: retailization of healthcare, talk about the situation that is so
Speaker 1: non customer focused healthcare. I mean, you can't get worse
Speaker 1: service than in healthcare, you know, cable is probably so.
Speaker 1: I think you're gonna see changes in all of that.
Speaker 1: And the idea that this retail model has legs that
Speaker 1: it should appuied to lots of different ways of thinking.
Speaker 1: I think that we're going to see big changes there.
Speaker 1: You know, as I mentioned earlier, I am a car guy.
Speaker 1: The car shopping experience is horrific. Any chance we're ever
Speaker 1: going to see that improved tesla see SEMs to be
Speaker 1: making some headway. Yeah, he's an interesting guy, Wharton grad.
Speaker 1: Oh is he under to say the least? He's an
Speaker 1: interesting guy. Of all the retail experiences there is, there
Speaker 1: is none more entrenched in the past than going out
Speaker 1: and trying to shop for a call. Oh my god,
Speaker 1: I can't stand it. I just so, why has nobody
Speaker 1: disrupted that yet? Well, some people have tried to do it.
Speaker 1: I guess some people like the game of that. I
Speaker 1: don't know very you know, it's it should be disrupted
Speaker 1: them that That's what you're looking for, Things that are
Speaker 1: not pleasant, that people don't want to do. Somebody's going
Speaker 1: to come in and do it, right you You Wharton
Speaker 1: students get busy on that. Um, so, tell us about
Speaker 1: a time you failed and what you learned from the experience. Well, uh,
Speaker 1: you know, there's a couple of times. They're difficult to
Speaker 1: talk about. So, but what characterized the times and several
Speaker 1: points during my life that I failed where something came
Speaker 1: as a surprise to me. That's what I would say.
Speaker 1: It's it's a function of mine not being a very
Speaker 1: good self monitor And what I mean by that is
Speaker 1: I think I have a lot of empathy, and I
Speaker 1: can see what's going on and I look around. I
Speaker 1: see a lot. I can feel people's emotional reactions and think.
Speaker 1: But what I am not good at is understanding how
Speaker 1: I come off to other people. So that's called self monitoring.
Speaker 1: I don't anticipate maybe if I get angry, how people
Speaker 1: will what people will feel about that, or if i'm
Speaker 1: you know, short, tempt you know, or say something very
Speaker 1: in a quick way. I don't appreciate that, and that's
Speaker 1: gotten me into trouble to not like understand. It's not
Speaker 1: just what I see, but it's how people see me
Speaker 1: that that that's intriguing. I will plead guilty to that
Speaker 1: as well. Um, what do you do for fun when
Speaker 1: you're not in the classroom? What what do you do
Speaker 1: to to kick back and relax? You know? The more
Speaker 1: the older I get, it's interesting for this, The more
Speaker 1: important I find running, working out, being outdoors walking. I
Speaker 1: could spend when I was younger, long times at a desk. Now,
Speaker 1: if I do that crazy, I just can't stand it.
Speaker 1: That's why I'm glad I teach, because you walk around
Speaker 1: the classroom. But I really like the outdoors. I like running.
Speaker 1: I like working out. So you have a fitbit and
Speaker 1: an Apple Watch on the same hand, at least I
Speaker 1: have things on two different hands. Why bo I like
Speaker 1: I like when I'm working out to monitor, you know,
Speaker 1: self quantify, so they measure different things. So I have
Speaker 1: social networks that are connected in different ways. I compete
Speaker 1: on all of this stuff. I love it. I love
Speaker 1: to see how my heart rate was today, how well
Speaker 1: I slept. All of that stuff. My wife wears it
Speaker 1: when she sleeps. I hate having something on my wrist
Speaker 1: while I'm sleeping. It's a distraction. Um So is it
Speaker 1: an accurate monitor of your sleep? Pause? Oh? Apparently you know.
Speaker 1: I guess I take it. It works for me. So
Speaker 1: you work with millennials and young people. If someone were
Speaker 1: to come to you and say they were interested in
Speaker 1: exploring career in marketing or digital brands or retail, what
Speaker 1: sort of advice would you give them. Well, one of
Speaker 1: the thing, you know, when I was the dean of Miami,
Speaker 1: I talked to a lot of successful deans, always talked
Speaker 1: the successful alums, and I asked around, like what advice
Speaker 1: would you give students? And from talking to all those people,
Speaker 1: I came up with three things that they said really
Speaker 1: made a difference. The first one and they seem obvious,
Speaker 1: but sometimes people don't know this. The first thing is
Speaker 1: work hard. You know, don't take it for granted. You're
Speaker 1: given a job, a job that maybe you like, work
Speaker 1: hard at it. The second one is be nice to people.
Speaker 1: Be nice to everyone. You know, from the receptionist all
Speaker 1: the way down up to the CEO. Pay attention because
Speaker 1: people watch that behavior, and you know, going back to
Speaker 1: this notion of self monitoring, understand how you come off
Speaker 1: to all these other people, and that matters. And the
Speaker 1: third piece of advice that people said over and over
Speaker 1: was don't just learn what you do. Learn what your
Speaker 1: people on both sides of you do also, so learn
Speaker 1: other skills. And then when you do that, you're in
Speaker 1: the right place at the right time for potential promotion.
Speaker 1: Because a lot of movement and firms are not so systematic.
Speaker 1: It really is an accident or somebody got hurt and
Speaker 1: someone needs to step in and do something. These things,
Speaker 1: these opportunities come up, and you know, they say luck
Speaker 1: is you know, hard work or however they say that
Speaker 1: you know something, someone's lucky, was working hard for that
Speaker 1: lucky opportunity, opportunity or something like that. Yeah, yeah, I'm
Speaker 1: angling it too, but it's that's the idea interesting and
Speaker 1: our final question, what is it that you know about
Speaker 1: the world of retail and marketing today that you wish
Speaker 1: you knew twenty plus years ago when you first started
Speaker 1: your career. You know, like I said, when I was
Speaker 1: writing this book, it was shocking to me that I
Speaker 1: have been teaching marketing for a hundred million years and
Speaker 1: we always achieved these principles of customer value, differential advantage,
Speaker 1: and the third one is selectivity and concentration, which has
Speaker 1: to do its segmentation. And that I did not realize
Speaker 1: until I sat down and wrote this book and thought
Speaker 1: about what Amazon did, that retail was not customer focused.
Speaker 1: That's like so amazing to me, because that retails about
Speaker 1: selling to the consumer. How could they not understand that
Speaker 1: the consumer input is important and it shouldn't just be
Speaker 1: a push strategy. It's amazing to me. Well, for how
Speaker 1: long did that strategy work before it's suddenly stop working.
Speaker 1: It's yeah, if the market gets competitive enough, if you
Speaker 1: don't have enough competition. And that's why whenever I give
Speaker 1: a talk on any of this stuff, I asked the room,
Speaker 1: is Amazon a good guy or a bad guy? And
Speaker 1: it's always fifty if you're a customer. If you're a customer,
Speaker 1: you say Amazon is a good guy. If you're a competitor,
Speaker 1: you your face gets you read and you just hate
Speaker 1: Amazon because competing against Amazon is so difficult. But most
Speaker 1: people will agree what Amazon has done is raised the
Speaker 1: bar for everybody, frost the board across lots of different industries. Huh.
Speaker 1: Quite fascinating. We have been speaking with Professor Barbara con
Speaker 1: of the Wharton School of Business. If you enjoy this conversation,
Speaker 1: we'll be sure and look up an inch or down
Speaker 1: an inch on Apple iTunes and you can see any
Speaker 1: of the past two hundred plus conversations we've had previously.
Speaker 1: We love your comments, feedback and suggestions right to us
Speaker 1: at m IB podcast at Bloomberg dot net. I would
Speaker 1: be remiss if I did not thank the crack staff
Speaker 1: that helps me put together these conversations each week. Attica
Speaker 1: val bron is our project manager. Medina Parwana is my
Speaker 1: producer slash audio engineer par Excellence. Taylor Riggs is our
Speaker 1: booker slash producer. Michael Batnick is our head of research.
Speaker 1: I'm Barry Ritults. You've been listening to Masters in Business
Speaker 1: on Bloomberg Radio