In this segment ofIndustry Focus: Consumer Goods, Sarah Priestley is sitting in as host, and she's joined by Motley Fool contributor Daniel Kline to talk about the chains that are getting it right. The two break down how some chains have figured out how to change the shopping experience to improve the customer experience and drive sales.
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Sarah and Dan also talk about what they're willing to buy online and what they insist on buying in stores. And they break down some of the technology that might benefit physical and digital retailers when it comes to clothing sales specifically.
A full transcript follows the video.
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This video was recorded on April 25, 2017.
Sarah Priestley: I was listening to a webinar that wasdone by the same guy from Deloitte, andone of the things he was mentioning was, thedepartment-store constructactually doesn't work well for aholistic, natural kind of shopping experience. The example that he gave, which I'mgoing to paraphrase, is thatwhen you go to the luggage section, you may want to buyluggage for your vacation, andwhat would be great to have with this iswomen's summer dresses and bikinis and flip-flops andall those kinds of things. But because they'reterritorial about the space allocation, they'reincapable of being flexible toprovide customers want.
Dan Kline:Butyou are seeing more of that. We talked about Target before. The new Target setup that they'restarting to roll out, I think it's about a third of their stores this year, isgoing to have one entrance for Grab & Go. So you walk in, you want a snack, you want a drink, maybe they've found thattoilet paper is something that people just want to buy and leave -- they need toilet paper. That's a terrible example. The second entrance isgoing to be clothing and seasonal items and things people take more time to buy. So as a retailer,you have to align your store to your market. It'svery simple. If I walk into a liquor store, they'vefigured out a long time ago toput the gin next to the tonic, and that the olives shouldprobably be somewhere close by. But when you walk into a Macy's, shoes and socks arenot necessarily in the same place, or pants and belts, or totake it, as you did, to another level, where you go to these more esoteric connections. Youneed to see more dynamically changing stores, where they'reseasonally really making movesto captivate customers. Andyou have to just make shopping fun.
Priestley:Yeah,absolutely. I think another thing is, a lot of these retailers sell things that areso easilycommoditized online. Andlike you said, if they don't have that experience element to the shopping experience, they'regoing to lose out. If you takeHome Depot, for example, their stock is up 10%this year, which is completely different from the restof the retail environment. They offer something that you really can't replicateonline. They have expertswho are going to give DIY-ers advice. Youcan't really sell lumber or deliver lumberand paving slabs that easily. AndI admit that that's verydifficult to transfer to clothes and things like that,but it's a similar principle. You're getting a lot moreof a value proposition.
Kline:There'salso an immediacy. Obviously,if you're going to buydrywall at Home Depot, you're either going to pay them afortune to deliver it -- it doesn't really matterif you come into the storehow you get it. But if your sink is broken and you need aplumbing piece, you don't want to wait for two days. And [Amazon.com] (NASDAQ: AMZN) has some methods of dealing with that. They have apatent application on a truck that drives around that can 3D-print parts like that. Butuntil things like that exist, a lot of the demand at a store like Home Depot is, "It'sSaturday and I'm free and I'm going to build a fire pit outside." Or, "Oh my God,my toilet doesn't flush anymore,I have to get the pieces to do that." Butother retailers have to figure outhow to make that happen. Do you buy clothes online?
Priestley:No, I don't.I don't buy clothes online becauseI would like to try clothes onand feel them and everything else before. Andwhat my husband believes isgoing to happen is that you almost have a showroom where you go andtry the clothes on and then order them and they are delivered at home. I don't know if I buy into that,because I very much like to feel the weight of what I've bought when I've bought it. But that's another possibility.
Kline:I do a mix. I will go to aKohl'sor Macy's andI'll buy a shirt. Andif I like the shirt, I will then buy 10 more of the shirtonline. I agree, especially with women's sizing, a small doesn't mean things the way -- men's sizes are moreexact in terms of inches and length. So it can be a challenge. But I thinkthe tools are eventually going to make it soyou can virtually try things on.
Priestley:That's true. I wonder how much they'regoing to catch on. I know there's a lot of tech disruptionpeople are talking about. [Virtual reality],you can look at a screen and it will try on the clothes for youwithout you having to actually go into a changing room. I don't know how much they're going to catch on, andif that's really where the tech disruption is happening. I think the tech disruption is happening much more in terms of the granularity of information that you have over your consumers'social-media campaigns, all those things that probably weren't available when these big stores were established. But I really think, as you said, they could take lessons from these nimble start-up companies that have entered the market with zero barriers and are really cashing in on where the retailers are failing.
Kline:AndI think one of the things you're seeing with Wal-Mart,which is another retailer that's had its strugglesbut is quietly growing and adding stores, is the trueintegration of "buy online, return in store." I buy from Amazon almost every day. And I joked earlier, butif I buy a shirt and it doesn't fit, the odds ofme going through the trouble of returning it are very, very low. Ifall I had to do was walk to the mall anddrop it off at the Amazon kiosk,that would be a lot easier. For now,Target, Wal-Mart, evenCostcoisplaying with this a little bit, have that advantage thatyou can buy something digitally, and when it doesn't work out,it's a lot easier to return it thanhaving to figure out how to getUPSto pick up at your house.
Priestley:Andthat's really a small example of a bigger problem with this. Omnichannel, for a lot ofthe traditional retailerCEOs, really means you haveyour store and you have your onlinepresence, whereas those things,those two things are basically integrated, they'reessentially the same thing. We are online all the time -- I can be in a Target store andchecking on Amazon to do a price comparison. It's those kinds of things thatI think they need to stop looking at it like, "5% of revenueis from mobile and 95% is from in-store, soall my focus needs to go on the in-store," andactually focus on the two thingsas an integrated experience.
Kline:Marc Lore from Wal-Mart, whoruns their digital operation, talked about this. I think more chains needto bring in digital-first people and empower then.
Priestley:Absolutely. He came from Jet.comthrough the acquisition.
Kline:Andhe created Quidsi, which is Diapers.com. He's been a serial success-failure. He's hadcompanies that weren't making any money that scared Amazon. First Amazon brought Quidsi, and then Wal-Mart bought Jet, which was a company losing money on $1 billion in sales. He's a reallyinteresting case. When you inject himinto this old-line way of thinking at Wal-Mart, he goes, "Wait a minute,we are not going to compete with Amazon by selling a Prime knockoff. It isn't going to work. Solet's just give it away." Youhave to be willing -- this is a very tough thing for a retail CEO to deal with -- to have some bad quarters,because you're going to cut into your margins, you'regoing to do a lot of negatives. But if you can capture acustomer and have a good experience -- Ibought some things online at Kohl's, and theyshower you with discounts andall sorts of other ways to get you back; it was a pleasant experience, andI would absolutely buy from them again. And I think that's what more of your Macy's and your other chains --it might be too late for Sears. I'm not sure Shop Your Way, which they talk about being the future of the company, has any customers. Butyou really need to break everything and figure out, "I have this asset, these physical stores, how do I keep my customers a customer whether they're coming into that store or not?"
Sarah Priestley has no position in any stocks mentioned. Daniel Kline has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Costco Wholesale. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.