Fast Five | Starbucks Load Balancing, Nike’s New Fabric, & A WTF-AO Schwarz & Target Partnership
Anne Mezzenga: Hello, you are listening to the Omni Talk Fast Five, brought to you in partnership with Microsoft, the A&M Consumer and Retail Group, Takeoff, Sezzle, and Silk. The Omni Talk Fast Five Podcast is the podcast that we hope makes you feel a little smarter but, most importantly, a little happier each week too. Today is September 15, 2022. I'm your host, Anne Mezzenga.
Chris Walton: And I'm Chris Walton.
Anne Mezzenga: And we are here once again to discuss all the top headlines making waves in the world of omnichannel retailing. Chris, we're getting right to it today. This is a-
Chris Walton: We are.
Anne Mezzenga: ...no nonsense podcast. We've got some big plans coming up here in the next week.
Chris Walton: Big plans next week, Anne. Groceryshop.
Anne Mezzenga: Yes, no reviews today. We are going right into Groceryshop next week where we'll be broadcasting from the conference for your next week's Fast Five. So, to help us get right into the flow of the show today, Chris-
Chris Walton: Get that trade show mindset going. Get really thoughtful, insightful when we get up on stage.
Anne Mezzenga: That's right. We have guests today on the show, the A&M Consumer and Retail Group's David Ritter and Mohit Mahal back for their regular scheduled monthly appearance. You guys, I'm really excited to have you here today. We need your support today more than ever.
Chris Walton: We need your insights.
Anne Mezzenga: Yes, we need your insights. We need your support. We need your guidance. We've got a hell of a list of topics today, but how are you guys doing? Dave, it's good to have you back.
David Ritter: Thank you very much, doing fantastic.
Anne Mezzenga: Mohit, you and I go way back. I'm actually disappointed not to see Mohit's art behind him. He's also quite an artist in addition to his extraordinary insights.
Chris Walton: I did not know that.
Anne Mezzenga: Yes. Mohit, how's it going today? Welcome back to the show.
Mohit Mohal: Glad to be back. And I'm doing great. Maybe I'm taking some inspirations from the art here I'm in.
Anne Mezzenga: Fine. Fair enough.
Chris Walton: Fair enough. So, Dave, why don't you start too? First of all, have you lost track of how many times you've been on this show? I think I have.
David Ritter: Honestly, I don't think I could tell you exactly how many. Six I believe.
Chris Walton: Yeah. Six. Okay. I think you-
David Ritter: I got the green jacket last time.
Chris Walton: You did. So, remind the audience who you are. You've been on a lot, but remind the audience who you are, and what you do.
David Ritter: I am a long time consultant in the retail sector. I help my clients with big transformations, often kind of at the intersection of operation, strategy and technology. Very happy to be here.
Chris Walton: Awesome. It's great to have you back, man. We always love when you're on. Mohit, how about you?
Mohit Mohal: Large- scale turnaround and transformation expert. Really focused on specialty retail with a lot of work on apparel on a broad variety of topics ranging from top line, profitability, and growth. Glad to be here.
Chris Walton: Awesome. Well, we've got some definite topics on those subjects today. So, there's some good meaty topics in here. So, let's get right to it. Today's Fast Five is brought to you with the help and support of our good friends at Groceryshop. Are you a retailer brand still thinking about attending Groceryshop just three days before the event?
Anne Mezzenga: Heck yeah. Who doesn't-
Chris Walton: You better be, right?
Anne Mezzenga: You better hop a plane.
Chris Walton: There's still time.
Anne Mezzenga: Yes, they're probably still doing pool parties in Vegas. Get to it.
Chris Walton: Isn't that a movie," There's still time," or something? But anyway, book your flights and register using your promo code specifically for Omni Talk listeners. Just go to groceryshop. com and enter promo code RBOT1950. That's R- B- O- T- 1- 9- 5- 0 for your special discounted rate. In today's Fast Five, we've got news on a new material Nike has invented that it thinks could, quote," change the apparel industry." Wegmans calling it quits on scan- and- go shopping. I'm really excited about that one, Anne. Tuesday Morning getting a fresh injection of capital from Retail Ecommerce Ventures. Target's new partnership with FAO Schwarz. But we first take off today with news out of Starbucks. Anne, would you have the honors please?
Anne Mezzenga: I would and I was surprised I even got a personal experience with this this morning, so we'll see.
Chris Walton: You did, yes. I heard all about it.
Anne Mezzenga: So, Chris, according to Yahoo Finance," Starbucks is exploring developing technology to prevent US cafes from becoming overwhelmed by too many orders. The company is exploring load balancing technology."
Chris Walton: Big word.
Anne Mezzenga: I know. See, it still reminds me of PC load letter, I can't get away from it.
Chris Walton: It kind of does.
Anne Mezzenga: "Load balancing technology that can send orders to stores that have the capacity to actually fulfill them instead of sending it to your same store that's already being slammed by drive- thru customers, Chief Technology Officer Deb Hall Lefevre said in an interview with Reuters ahead of investor day on Tuesday. Such technology will help distribute the demand more evenly across multiple stores, especially during peak hours." Lefevre also said. And she also added that" the company is also focused on automating tasks and streamlining jobs so that employees can prioritize customer service." Mohit, we're going to go to you first on this one. What do you think of the ideas surrounding this load balancing technology? Are you in it? Are you asking questions about it? Where are you with it?
Mohit Mohal: I'm in this, and I think about this as a trillion- dollar disruption, right? With a" t". And to me, this just continues to highlight how technology, especially AI, will continue to disrupt retail at a breakneck pace. We've been seeing this with multiple clients when online demand went up during the pandemic. Retailers either capped the number of stores where they were taking BOPUS orders, we've all seen the crowded parking lots converted into," Buy online, pick it in store." Many capped the number of online orders they will process in a store not to break the system. What Starbucks is now doing is a step in," How do you capitalize on that new demand and the new normal in the most efficient manner?" And AI is going to play a big component of it. Frankly, I think of it as just one use case. Based on work we've been doing with our clients, we see AI being increasingly deployed in demand and deployment as it relates to inventory, merchandising, planning, customer service, pricing and promotion. You just name it. So, to me this is just one use case. The way I think about this is... Just a US alone retailer is a$ 6 trillion plus opportunity. And I think it is not far- fetched to say the kind of impact we're going to see on retail just over the next two or three years with all the different kind of AI use cases is going to be in at least a trillion- dollar plus range, significantly higher over the next five or 10 years. So, really exciting. I personally love Starbucks, so I can't be more happier about it.
Anne Mezzenga: Well, Mohit, I have to agree with you. And there's also a story that came out this week that said Starbucks is also going to be opening 2000 new stores, investing$ 450 million in modernizing stores with the type of automation and AI that you're talking about. I'm curious though, specifically, AI aside, of this specific thing, being able to move orders from one Starbucks to another, what about the consumer side of this? Because that's what I'm thinking about here, and I would question. Do you have any thoughts about what that's going to mean for my best friend who I ran into this morning who got rerouted to another Starbucks because her Starbucks had stopped taking mobile orders because there was too much load there at that Starbucks? I mean, where does that come into play with the addition of the new technology?
Mohit Mohal: I think there is going to be an element to it around how do you think about what is going to be the consumer feedback, and really taking that to the core. At the end of the day, this is not a technology play. Anything and everything which we need to do has to create exponentially better customer experience, which is what they're trying to do. So, I'm quite sure they'll learn a lot. They've probably done a fair bit of testing already around the kind of things where they might see a negative or an adverse consumer impact. But I think you're spot on. There would be adjustments, which they probably need to make down the road. Knowing Starbucks and its history, this is probably just the first salvo. So, there's more to come. And I think it's really exciting time.
Anne Mezzenga: Dave, you're the transformation expert and tech expert here. What do you think about marrying the customer experience with these new Starbucks stores and then this technology in particular?
David Ritter: I couldn't agree more with you, frankly. I think this is quite different than BOPUS. So, I think for delivery orders, this makes perfect sense. And they should immediately do it and reroute it. Because it doesn't impact the customer. I actually think Starbucks plays a different role in the retail ecosystem than a traditional kind of BOPUS retailer. Starbucks is a point on a path on your morning commute. Starbucks is a point on a path to pick up your kids. And being redirected I think could actually have really potentially negative adverse customer impacts in a pretty significant way. As I read it, I'm like," What? If they rerouted me five miles out of the way..."
Anne Mezzenga: Exactly.
Chris Walton: Or force you into the store itself. That's the other thing.
Anne Mezzenga: Chris, you have similar feelings on this.
Chris Walton: Yeah, a hundred percent. When I read this... I think it's so misguided. You can't load balance between stores for pickup. For the reasons Dave's saying. Because you're a point in the route that's routine for you. That can't be happening sporadically. So, I hate this idea, but I think it goes back... What it tells me, though, is that the real problem here is really that the stores aren't designed for how people want to consume coffee or buy coffee anymore. Which goes back to the point you made about the architectural overhauls and the stores, the new stores they have planned that hopefully, they'll create that capacity through that. And the idea is then you need to put better automation and AI technology into those operations to make them make the coffee more efficiently over time. Load balancing is probably not the right way to go. So, I don't actually even know why they're out there talking about it is what I would say.
Anne Mezzenga: I completely agree. I think that if I was going to put any effort into something right now, it would be," How do I start to deploy more automation in the stores?" versus load balancing and transferring around. How do I focus on... What we're seeing in Amazon Go, where you have a full on... I mean, that latte that you are programming in anyway when you're doing a mobile order and picking up, I don't know if that's being made by a person or by a machine at this point in time. And I think that that's going to be important for them to think about, as you're talking about, as they're building out these 2000 stores. Do they create a delivery or pickup only store, delivery pickup only stores in these interim areas where they're seeing such high load? But I do not like that Starbucks is not focusing on how you make that coffee making process simpler. It does not need to be made by a person.
Chris Walton: Which is a whole nother offshoot to this topic too is does this whole process make Starbucks even more mass commoditized and more of just the cheaper product over time? Are we going down that road, which could have brand consequences? But Dave, it looks like you want to have the last word here. Go for it.
David Ritter: One thing I thought... I agree, the article focused on something that was the smallest of all the things that were mentioned in the press release. Three things that weren't mentioned that I think are really important is they've got a new cold brew system that's automated. They've got the Clover machines, which is automated kind of single serve. And then they've got the Just Walk Out technology, which those three things are so much of a bigger deal and frankly more impactful ideas than the load balancing. So, I think it was kind of a focused on a small topic.
Chris Walton: It's always a good tell when you use a phrase like load balancing in quotes to get your thing. There's probably not much there. All right, let's keep rolling here. So, headline number two, Nike unveiled a new material that again thinks it could, quote," change the apparel industry." According to a Tuesday press release, Nike has introduced a material that is calling Forward, which is created by, quote," hacking punch- needle machines," end quote, which I have no idea what that means.
Anne Mezzenga: I looked it up.
Chris Walton: You did?
Anne Mezzenga: It's impressive.
Chris Walton: I can't wait to hear about it. Nike says the production process for Forward results in a carbon footprint that is about 75% lower than that for producing a standard knit fleece. According to Retail Dive," The first products with the material, which is comprised of 70% recycled content by weight will be a gray hoodie and crew neck." No surprise there. And," The products will be available globally on September 15th." Mohit, let's go back to you on this one since Dave closed out the last one. What are your thoughts? Will this move this sustainability effort forward, pun intended, in apparel, or is this not that much to ride home about at this stage?
Mohit Mohal: I mean listen, I'm not very close to the technology, but if you think about the concept, the headline here is a small step in the right direction. In respect to whichever we want to think about climate change. And I know people might not agree on the pace and the magnitude of change. This is something which is increasingly important for consumers and the next generation of consumers. I was reading on this, the fashion industry is responsible for more global carbon emissions than all international flights and maritime shipping combined. But that's a fairly big number, right? And you see examples of this, be it like the recycled raw materials which different companies have adopted or the recycling program in denim. Levi's adopted that, bunch of others which followed suit. There is going to be new ways where every single fashion and apparel company will have a version of their sustainability program. And we are increasingly seeing it with clients in the last, I would say, three to five years where they're starting to do things, which is again, I say, a small step in the right direction. But I think where the market is as it relates to the consumers and their buying behavior, it is still not materially raised itself to a threshold where, for your entire consumer behavior, it becomes one of the key purchasing prioritization criteria. But the market will eventually move there. Will we get there in the next five years or 10 years? I don't know. But this is everything which will become super more important where if you think through what really matters for a consumer in their purchasing intent. Price, value, is it sustainability? And it's a question of time before sustainability starts becoming the top priority criteria, if not the most important, but maybe in top three. And that's where every single fashion brand around the globe has been taking their version of it. So, definitely a step in the right direction. I'm personally very excited with the numbers. Around 75% reduction in emissions. That's great. I have worked with a lot of denim companies. And I remember... This was a decade back, but you end up going through 4, 000 liters of water to make one denim. That is a huge impact on the environment. So, I'm personally very excited with it, but I think there's a lot more which needs to be done in this space.
Chris Walton: Well, Anne, I'm sure you went down a rabbit hole, I'm guessing, based on how you responded when I did that read on the punch needle machine or whatever it was. So, what's your take? Are you kind of where Mohit is, or what are you thinking?
Anne Mezzenga: Well, I just wanted to learn about... I guess my question is always when you put out a product that's 75% more sustainable, that's a significant increase.
Chris Walton: It's a step change. I think that's a definition of a step change.
Anne Mezzenga: I'm always wondering," Okay, that's fine if you make two products. How does that look at scale? How realistic are we going to be about going from zero to 75% when you look at just the scale and quantity of product that Nike puts out?" So, I think that for me, the question is really going to come down to," What does this look like?" I don't mind the looks of these two products, but there's some key things about them that are different.
Chris Walton: You don't know how it feels yet either.
Anne Mezzenga: You don't know how it feels, you don't know how long it lasts. You can't put this in the dryer, which I'm sorry, but every single mom of kids who are buying Nike things are throwing stuff in the dryer. I don't know that they're going to be hang drying and whatever, all of the special care. Maybe they will. But then there's no reinforcement of the seams, all the finishes, it's raw. This is a raw garment. And so, I think it's going to take some time to see if fashion and the look and wear of this ends up being appealing or if Nike has to scale back, and maybe we start at," It's 50% more sustainable." Or," 30% more sustainable." And then Mohit is talking about work our way to really make this a product that's going forward at scale. But I think Mohit is right. It's a step in the right direction.
Chris Walton: So, step in the right direction. Kudos for that. But still a lot of questions about how this works long term and has an actual impact for the average consumer. Dave, what's your take here?
David Ritter: It's interesting, we just released a report on sustainability, and the term that kept coming up was greenwashing, where it's retailers that say they're going green, but the things that they're doing are so minor that's actually not really having a big impact. I agree with Anne, 75% feels like a real impact and I love that. If this innovation really is that big, then this might be one of this first step out things that isn't greenwashing that is really moving the needle. And I love that. The second thing is I agree with Mohit in that I think Gen Z and Millennials care more about this than I think some executives that aren't Gen Z and Millennials understand. So, activating Nike's marketing machine to tell this story might be a big unlock in terms of getting a ball rolling that other retailers will be forced to follow.
Chris Walton: I think that's a good point. I think I'm where you guys are too. And real quickly, I want to tell an anecdote here because this reminded me of something that I knew very well 10 or 15 years ago. I'm a little skeptical of it too. I want to buy into it. Like you said, it's a good move in the right direction, and kudos for trying it. But I can remember when I was a towel buyer at Target, and all the target executives demanded that I put organic towels into my assortment. Basically it was like," You're going to do it" kind of thing." You can't say no." And I did it, and it sucked. They didn't sell. They came in three crappy colors because, to your point, Anne, you can only get so many different colors on the material. They didn't sell. And honestly, they probably still don't. I don't even know if you can even get organic towels anymore. You probably can't, or there's probably not very many options of them. They didn't proliferate like you'd expect. So, I feel like that's the same thing that ultimately could happen here, which gets me a little bit depressed about it quite honestly when you look at how people want to consume things. But I think, Dave, to your point, I come back to you, saving grace is Gen Z still seems a little more conscious than the average towel consumer probably is circa 2007 when I was making these decisions. But anyway, let's keep rolling.
Anne Mezzenga: All right, headline number three, our favorite headline of the week, I think. Wegmans is pulling the plug on scan- and- go mobile shopping in its stores. According to Grocery Dive," Wegmans is ending the use of scan- and- go shopping in its app as of September 18th. Users of the app will receive a$ 20 digital coupon to compensate for the service being shut off." A Wegmans spokesperson also had this to say, quote, “ Unfortunately, the losses we are experiencing from this program prevent us from continuing to make it available in its current state.” End quote. What the losses were were not clarified despite request for commentary from Wegmans by Grocery Dive. Dave, let's go to you first on this one. What are your thoughts on this move? It's a big, big shift in where Wegmans was going before, and I know a lot of their clients and customers have a lot of feedback here. What are your thoughts?
David Ritter: I think this is a hundred percent a mistake from a company that I really respect.
Chris Walton: Really? Okay, we're going to have some debate here. Okay, go for it.
David Ritter: First off, I think we can all acknowledge that frictionless checkout completely aligns with customer preferences in a world where Millennials and Gen Zs are starting to become the primary shopper in grocery. I think this goes against customer trends in a pretty significant way. And while I'm sure there is a bump in shrink, a slight bump in shrink, it's also important to note that 30% of the labor in the store tends to be cashier in grocery. So, I really wonder if they've done the proper math to say every one of those transactions now has to go through a till and that's whatever, three to five minutes per transaction, that adds up fast. So, the economics around shrink get interesting when compared to the economics of labor in a store. I also think that the shrink issue tends to be organized crime. Like the average person that's using this isn't... I think they're using this as an excuse for their shrink problems. And I'm sure maybe perhaps organized crime is using it, but it's not peanut butter spread. This is one or two or three or four bad apples that are using it over and over again rather than a failure of the program more broadly.
Anne Mezzenga: I'm really glad that you brought the labor perspective into this, Dave. One of the many things we appreciate about having you and Mohit on the show. Because I didn't even thought about that and that's such a great point. Mohit, what would you add here? Is there any thoughts that you have before Chris and I give our...
Chris Walton: Yeah, do you agree with Dave or disagree?
Mohit Mohal: Generally, I try to disagree with Dave, but on this one unfortunately it seems like I have to. I was having a discussion with a small regional grocer probably three or four weeks back. They're evaluating these kind of technologies. And one of their biggest questions as part of the meeting was around shrink. But you think in the broad scheme of things around store labor in any kind of retail, especially in groceries, one of your biggest P& L line items. There are ways to get around it. And I think about the Costco experience where if you're standing in a long line and if there was a shop- and- go experience, but eventually you have someone checking the receipts. There are ways to get around it. I'm kind of little bummed on this one. And the fact that isn't a lot of commentary around why they are letting it, there is not enough detail around it makes me a little wonder whether it's really shrink or if it's something else which is kind of driving it. Maybe it's capital deployment, maybe it's around problems they're having in terms of recruiting for the store. I mean, it is becoming increasingly difficult to recruit in retail, especially after the pandemic. And as you start thinking about automation, are they running into issues with their existing staff? That could potentially be another hypothesis why they pulled the plug on this.
Anne Mezzenga: Well, Chris, you and I read this headline, we started going back and forth. What are your thoughts here?
Chris Walton: I think I disagree with Dave, but I'm going to say this with a caveat. I think I disagree with you guys a little bit. And the other part of this that was in the headline that we didn't mention is they actually said that they're still reformulating how they potentially want to do it. So in essence, I actually agree with the move because we've talked about on this show a lot. If you're going to do scan- and- go without a controlled exit point particularly, it becomes really difficult. And it probably does lead to shrink, probably shrink more so even than theft to Dave's point. And then that also has implications on your inventory accuracy as well in terms of is everything scanned, do they do it right? And then with all the bottom line pickup in- store capabilities, that becomes problematic too. And to give you an idea too, I think it's important when I say controlled exit points, that doesn't necessarily mean receipt checks at the door à la Costco or Sam's, which are already set up for that. That's normal for their customer. It just means that everyone has to still exit through a check lane, scan a barcode with some system of control, which is being deployed at Walmart. Otherwise, you're letting people walk out the door on their own volition as others are shopping normally. And yes, that's confusing to the customers, it's confusing to your employees to track that and therefore you're going to have a lot of theft and shrink. So, as an aside from this, I think the right approach is," Let's regroup, look at our stores architecturally, our design, our user experience of them. And let's also look at other technologies that I think can provide now the same functionality as scan- and- go." Scan- and- go was cool five years ago, but there's new technologies that can do the same thing. Computer vision assisted self- checkout can be a lot faster. Or what they're doing at H- E- B, where the computer is looking at the cart and you just roll the cart through and that basically approximates the same idea. Or you go the full kit and caboodle Just Walk Out technology à la Amazon and that's a better path. So, I think given all of those hiccups, that's why I actually kind of like this move, which when I first read I was like," Wow, I'm surprised they're doing that."
Anne Mezzenga: I agree with all the points that you're bringing up, Chris. I think the key thing is that this tech does not need to be scrapped, it needs to be reevaluated, so that they can solve for this shrink problem and all the other things that they've probably learned. Because we're talking about Wegmans here. This is one of the most beloved grocers in the country. And the feedback from their customers... I mean if you read, there's threads and threads on Twitter of like," Why are you doing this? This is the reason I come to shop at your store. And I love this." They're so frustrated by losing this component of their shopping experience. And so, I think that Wegmans just is going to need to communicate very quickly to those customers," We are adapting, we are evolving. We will bring this back."
Chris Walton: "Here's your 20 bucks" isn't going to cut it.
Anne Mezzenga: "Here'syour$ 20" will not cut it, because as we've seen this is causing a shift in where people are deciding to go and do their grocery shopping. And if they want to maintain that brand love and advocacy that they have, they're going to have to figure out, like Dave and Mohit are saying, how they're going to bring this back and how they're going to serve that next generation of customer.
Chris Walton: Dave, any final word here?
David Ritter: No, I think we all agree.
Chris Walton: I think so too.
David Ritter: I was just simply saying I agree. I believe in the future of that type of technology, I think it's an implementation problem, frankly, or an operational implementation problem more so than a technology problem. I'd hate to see them pull the plug on a forward- leaning technology because they aren't executing it well.
Chris Walton: Yeah. Awesome. I always like to give the final word to the person that we disagree with, or find out we agree with ultimately at the end. Funny how that works sometimes. But it's good. That's why we do this show. All right, headline number four. According to Retail Dive," Tuesday Morning is getting a$ 35 million injection of capital from an investor group led by Retail Ecommerce Ventures, the owner of Pier 1, RadioShack, Dressbarn and other retail brands."
Anne Mezzenga: All those brands you love.
Chris Walton: Yes. Right, right, right." With the deal, Retail Ecommerce Ventures and co- investor Ayon Capital will control a majority of Tuesday Morning’s board. Tuesday Morning will get access to Retail Ecommerce Ventures' distribution system, as well as rights to sell products from the Pier 1 brand." Which as loyal Omni Talk fans will remember," Retail Ecommerce Ventures acquired out of bankruptcy in 2020." David, make sense of this for us. How can two wrong retail brands ever make a right?
David Ritter: This one is tough. An innovative model from 50 years ago, I guess. Seriously, how many times can you try to save a dying brand? It feels like a zombie brand at this point. Discounters have better offers. Target and Walmart have improved their offers. And we're not even talking about Amazon. I mean at this point my take is let it go. Don't burn more capital attempting to save these zombie brands. It's like the Walking Dead.
Chris Walton: I'm curious, Mohit and Dave, what do you think? Why is Retail Ecommerce Ventures even going down this direction? Why do they think they can save it? What are the synergies there that they're trying to tap into?
Mohit Mohal: The way I think about it is, especially if you look at the off- price model, it has come a long way in the last five decades. But one has to remember in the last recession we saw both luxury and off- price grow four to five x versus broader retail. So, you have a scenario where you can strategically place the right bet on a segment. And in that segment, the question though is to today's point, right. T. J. Maxx, Ross, and others have really kind of taken off. So, how do you steer this alien ship? And to me, the question is, has the ship really sunk to the point where it is point of no return? I think time will only tell whether they can kind of bring it out. But this is a confusing one. It's difficult to really take a brand which has lost its way quite significantly and bring it back. So we can wait and watch. But if I was a betting man, I think this is at a point of no return.
Chris Walton: Yeah, the merchant in me too has questions about the pricing differences between these two brands too. But Anne, I'm curious, can you make sense of this?
Anne Mezzenga: No, I cannot. So, the only thing I could think of, one of these things is not like the other. When you look at Tuesday Morning and all of the other brands that Retail Ecommerce Ventures has purchased, Tuesday Morning is the only one that still has stores, from what I can ascertain. There may be a couple of others in there, but all the other brands, Pier 1, Dressbarn, those stores are shut down. So, could they be injecting this$ 35 million investment in something with the physical locations? Could they eventually be taking it and making it this hodgepodge of all the brands, where it's a return center, discounting center? I don't know. That's the only thing I could think of as I was researching this story.
Chris Walton: That's where I went too. It's like a risk- free way to try to get physical distribution for your brands. Because essentially, you're making a loan, so you're going to get, in theory, get that paid back. But I agree with you. It seems like a little bit of a hail Mary for me in terms of Pier 1 and what they did with Pier 1. The other thing I don't get, and I brought this up a minute ago, is Pier 1's prices were always pretty damn expensive in the home furnishings place. Now you're going to just suddenly put them into Tuesday Morning? How disjointed is that? How does the economics of that even work? Because you can't bring them down to that level and the world, to your point, I think David, I think you mentioned it, we don't need more cheap furniture products available out in the world, in any way, shape, or form. So, I guess none of us can wrap our heads around this. Is that what I'm hearing from all of us?
Mohit Mohal: No.
Anne Mezzenga: Mohit, there's no transformation story here?
Mohit Mohal: It is going to be a very difficult one.
Chris Walton: That's the greatest line of all time.
Mohit Mohal: I like to believe companies could be transformed. But this one is going to be a really difficult one.
Anne Mezzenga: Mohit's not touching this with a 10 foot... What are those... Tiki torch, from Pier 1? All right. Headline number five. Target will soon be offering FAO Schwarz toys via dedicated space in its stores, as well as online. According to Chain Store Age," The discount giant is entering an exclusive multiyear agreement with toy brand FAO Schwarz. Starting mid- October this year, FAO Schwarz toys will be available exclusively at Target stores, Target. com and FAO Schwarz stores. The FAO Schwarz assortment will include more than 120 items across all toy categories. Products will range in price from$ 9. 99 to$149.99, including 50 toys that will be priced less than$ 20. All Target store toy departments will feature dedicated space for FAO Schwarz, including store displays. And select Target stores and the Target. com website will also feature hands- on, interactive toy demonstrations throughout the holiday season with Target toy experts." Mohit, I'm going to go to you first. What are your thoughts here on FAO and Target teaming up for the holiday?
Mohit Mohal: The way I think about this, we had a publication last year, which was a$ 5 trillion opportunity and in essence, it was the growth in digital and marketplaces, which has been quite phenomenal after the pandemic. The problem every single major retailer is facing today is footfalls. Today in the US, Amazon sells more toys online than Walmart and Target combined. Target is the number three, but it's way behind in the segment. So, this is again clearly their attempt to see," How do we kind of use this space and the box we have with more shop- in- shop concepts to drive traffic?" I think they were in the news earlier where they're going to pilot Minneapolis stores in 17 or 20 stores. We've all seen Sephora and Kohl's. So, every single major big- box is thinking about,"Well, how do I drive traffic in the stores?" I think for me, there are two things which are really important and that is number one," How do you use deep data and analytics on your existing consumer base and make sure any kind of shop- in- shop concepts is accretive as it relates to traffic?" And then you can really maximize the basket size and all the other good stuff which follows. But also, rapid piloting and testing in an agile and accelerated matter. So, it seems they're doing the same thing with Apple. In this case, I'm not sure if this is a full- blown roll out or if it's a pilot, but again, step in the right direction. Everyone's vying for traffic. Traffic patterns continue to be depressed, irrespective of what kind of macroeconomic environment and headwinds we are facing. Five years out, 10 years out, we'll continue to see depressed traffic environment. So, good for FAO Schwarz that it gives them the physical retail scale, which they can never have by themselves. I'm personally very excited by the price point. I think I heard you say.
Anne Mezzenga: Yeah,$10-$150.
Mohit Mohal: $10-$150. So, it gives a good spread from a merchandising assortment price architecture perspective. But if it can really play to the value segment around the$10 and$ 20 mark, it could be a really good bump for Target and make them a serious contender in this space while having broader halo effect as it relates to traffic and growth in the store.
Anne Mezzenga: Yeah. I think bringing more people into the stores is always a benefit and having more variety is definitely a way to do that. Chris is stewing over here, Dave. So, I'm going to go to you before we let him light this up.
Chris Walton: I got a lot of thoughts on this one.
Anne Mezzenga: Because I can feel the energy coming off of him. But Dave, you have young kids. I mean, is FAO Schwarz going to get you-
Chris Walton: -Doyou care about FAO Schwarz, Dave?
Anne Mezzenga: Yeah, is that going to get you into a Target store?
David Ritter: So, first I was in Target store last week and their Buzz Lightyear, the new movie came out, that assortment. I got baited into buying a$50 Zurg toy.
Chris Walton: Nice.
David Ritter: Bit of a beef with Target right now.
Chris Walton: They're good at that.
David Ritter: I did notice their toy section isn't the most shoppable. It is a sea of toys. The Disney section is pretty shoppable, but the rest, it's just wave of wave of toys. So, I think from a shopability perspective, having another kind of module or FAO Schwarz section, it could help from a shopability perspective. Because right now it is a bit overwhelming, I guess. But overall, I like the concept. I think it makes a lot of sense. I don't have a lot more to add.
Anne Mezzenga: Okay. Chris?
Chris Walton: All right.
Anne Mezzenga: The floor is yours.
Chris Walton: So, you know how I like to say retail headline of the year? This to me is the most overblown headline of the year. I could not believe this was the lead on every email for the first two days it came out.
Anne Mezzenga: Fair. Fair.
Chris Walton: I have a lot of things to say about. First of all, brand wise, no one cares. Kids don't care. Kids don't know FAO Schwarz. They might know Toys" R" Us at this point, which we've talked about on the show, but they don't know this brand. Second, you're in a multi- year deal. That's what they said. Which means these items will be locked into planograms, which will become the bane of every buyer at Target's existence as they underperform and cannot be replaced because of that deal.
Anne Mezzenga: Debatable.
Chris Walton: No. And as a result of that, I would argue when you look at what is it at play here and how many toys they actually have and the amount of toys here, it's not going to drive a stitch of comp. The other inside baseball thing I would point out is who's talking about this in the media. And it's Jill Sando, the chief merchant whose background, by the way, is home and apparel, where partnerships like this matter. In toys, they don't. In toys, it's about," What's hot? What are the items people want to get for the year?" It's not about an FAO Schwarz partnership or a Toys" R" Us partnership. It's about what toys you have on your shelf, how many of them, and can you get them to the consumers the way they want? Which tells me something. Because normally Nik Nayar, the head of hardlines, the guy who runs toys, is usually the one talking about all the announcements related to toys. For some reason, he's not on this one. So, I find that curious, which means to me, it's a hill of beans that ultimately is not going to amount to anything and isn't going to drive the business at all.
Anne Mezzenga: Great points. I think that one thing that I challenge you as a merchant, you mentioned it, it's about the toys that you have on your shelves. Yes, you're going to have to prioritize the Buzz Lightyear toys that are coming out with a movie and those kinds of things that are going to be hot, that are going to be selling fast, and making sure that you have those on your shelves. But is there harm in having exclusive toys in your assortment as a merchant?
Chris Walton: No, that's fine.
Anne Mezzenga: Is that really a bad thing? And if they do this the right way, I think especially, there's a lot of ifs to be determined here. They said they're going to be doing toy demos and stuff in select Target stores. What does that actually look like once it's unfold? Because if they do, that could be cool, Chris. That could be a really exciting thing that Target has not had before. And if it takes the FAO Schwarz, I agree. No kids care about... I ask my kids," Do you know what FAO Schwarz is?" They're like," Ah, we have no idea. Don't care." But it's still another... It's an exclusive toy that you can only get at Target. So, if it does hit, and these toys are a success, and they're at all the price points that Mohit is bringing up, that could be a value. And no matter what, the best part of this of all the things is that Target now has 150 or however many more toys in their assortment in the same place that I'm going to the holidays to get my wrapping paper, to get my essentials and my food and booze for holiday parties. So, like net- net, I'm good with adding this. And we'll place some wagers on whether or not it's going to move the needle enough for you, I think.
Chris Walton: Yeah, I think it's a marketing story built for the analyst. But Dave, you raise your hand. Let's give you the final word here.
David Ritter: Yeah, so I think this is a grandparent gifting play.
Chris Walton: Gifting play. All right.
David Ritter: Grandparents reminiscing too big. They want to relive their childhood and give gifts to their grandchildren that they aspired for. I think it's much less about the children, and it's much more about the buyer, and this is about grandparents.
Anne Mezzenga: So, we're going to be seeing grandpa Dave riding the FAO Schwarz train around this holiday you think, Dave?
David Ritter: Yeah, exactly.
Chris Walton: In fairness, we have no idea how desperate FAO Schwarz is in this deal either, which could be a part of this too. So it could actually work out in other ways too, besides sales. All right, let's go to the lighting round.
Anne Mezzenga: All right, Dave, first question goes to you. A new Alexa feature was announced yesterday at Amazon's Accelerate conference that they're calling customers Ask Alexa, which now will allow brands to submit answers to common questions like," How can I remove pet hair from my carpet?" Basically turning Alexa responses into full blown ads for pain and set. Pain and set?
Chris Walton: I have no idea what you're trying to say there, Anne.
Anne Mezzenga: Pet and stain carpet removers.
Chris Walton: "Pet and stain carpet?" That's what you're trying to say?
Anne Mezzenga: Yes.
Chris Walton: Wow. Never would've gotten that.
Anne Mezzenga: I know. It's been a long week. Dave, what is the most random thing that you've asked Alexa for?
David Ritter: This is a strange one. I guess," How do you remove gum from children's hair?"
Anne Mezzenga: Oh my gosh.
Chris Walton: What's the answer?
Anne Mezzenga: Goo Gone. Do you want the 1. 5- ounce bottle or the 3. 3- ounce bottle? Dave, what was the answer?
David Ritter: I think it was baby oil.
Anne Mezzenga: Oh, okay. Baby oil. Yeah. You probably don't want to put Goo Gone on a person.
Chris Walton: I have no idea. All right. I'm going to go next and let you recover. Pepsi has decided it will no longer sponsor this year's halftime show. Mohit, what was your favorite Super Bowl halftime extravaganza?
Mohit Mohal: I was waiting for this one. It has to be more epic every year, so I'm little bummed.
Chris Walton: You're a little bummed?
Mohit Mohal: Yeah.
Chris Walton: So, you think they raised the bar every year and so now they're going to miss that opportunity. Okay.
Anne Mezzenga: Who is sponsoring it?
Chris Walton: I don't know.
Anne Mezzenga: They're still doing a halftime show, right?
Chris Walton: For sure. Yeah. Mine's Michael Jackson for sure. What was yours?
Anne Mezzenga: Beyonce was amazing.
Chris Walton: Beyonce was good.
Anne Mezzenga: I loved that one.
Chris Walton: Dave, do you have a vote?
Anne Mezzenga: Actually, last year too. That was fun.
Chris Walton: Last year was good.
David Ritter: Justin Timberlake.
Chris Walton: I like the first Justin Timberlake Britney Spears. But anyway, let's keep rolling.
Anne Mezzenga: All right, question three for Dave again. IKEA has sweetened the perks for its loyalty program members of the IKEA family program," which include 5% savings on eligible in- store purchases and offering special pricing on select delivery options online," according to a company press release. Dave, what perk would it take for you to happily shop at IKEA?" Happily" being the keyword there.
David Ritter: I think insurance. Every time I bought something from IKEA, it breaks really fast.
Anne Mezzenga: Oh, that's a good idea.
Chris Walton: Do they not have a warranty?
Anne Mezzenga: I don't know.
Chris Walton: You don't really see that on furniture.
David Ritter: I just said that. There may have some warranty in place.
Chris Walton: You just think you need to buy it. That would make you happier.
Anne Mezzenga: Exactly.
Chris Walton: They probably have some stuff, but I don't know.
Anne Mezzenga: Yeah, they probably do, but it's probably as much as the product itself, so people are like," Meh. I'll just take my (speaks in Ikea) back home and put it together."
Chris Walton: I don't know if that was a mispronunciation or what.
Anne Mezzenga: No, that's a shelving unit.
Chris Walton: All right. According to a new survey from personal finance membership group SoFi," A majority( 53%) of respondents admit they haven't been sober when making an online purchase. Men are more likely to shop while intoxicated than women."
Anne Mezzenga: So crazy.
Chris Walton: Mohit. Gosh. See? It's contagious, Anne. Have you ever purchased anything online while under the influence, and if so, what was it? Enquiring minds want to know.
Mohit Mohal: iPhone 14. Waiting for it.
Anne Mezzenga: That's amazing.
Chris Walton: That is awesome.
Anne Mezzenga: I'm surprised that it's men. I kind of didn't...
Chris Walton: Are you really? I don't know.
Anne Mezzenga: I guess so.
Chris Walton: I bet men are more like... Women are always... In the stereotype, are always shopping. Men are probably like," Oh yeah." Throw back a few," Oh, I need this iPhone 14." Right? Is that what happened, Mohit?
Mohit Mohal: They need a little bit of courage to, you know...
Anne Mezzenga: Pull the trigger. I see. I see.
Chris Walton: Oh, all right. Well, that wraps us up. Happy birthday today to Prince Harry, Tom Hardy, and the man I would let do a" hard target search on my outhouse and doghouse" any day he wants, Mr. Tommy Lee Jones.
Anne Mezzenga: What?
Chris Walton: Yeah. Fugitive. You don't remember that quote? Ah, now you do. It's coming back now, right? All right, David, if people want to get in touch with you, learn more about what you guys do at A&M CRG, what's the best way for them to do that?
David Ritter: The best way for them to do that is to go to our website, which is alvarezandmarsal- crg. com. They can also check us out on LinkedIn, the Alvarez& Marsal Consumer and Retail Group, or email us directly. You can reach me at dritter @alvarezandmarsal. com.
Chris Walton: Awesome. And remember, if you can only read or listen to one retail blog in the business, make it Omni Talk. Our Fast Five podcast is the quickest, fastest rundown of all the weeks top news, and our twice weekly newsletter tells you the top five things you need to know each day and also features special content exclusive to us and just for you. And we try really hard to make it fit all within the preview pane of your inbox. You can sign up today at www. omnitalk. blog. Thanks as always for listening in. Please remember, like and leave us a review wherever you happen to listen to your podcast or on YouTube. Remember as well, you still have two or three days basically left to use your promo code. RBOT1950 to register for Groceryshop. That's R- B- O- T- 1- 9- 5-0. And on behalf of Mohit and David and Anne and all of us at Omni Talk Retail, as always, be careful out there.
Anne Mezzenga: The Omni Talk Fast Five is a Microsoft sponsored podcast. Microsoft Cloud for Retail connects your customers, your people, and your data across the shopper journey, delivering personalized experiences and operational excellence. And is also brought to you an association with the A& M Consumer and Retail Group. The A& M Consumer and Retail Group is a management consulting firm that tackles the most complex challenges and advances its clients, people, and communities toward their maximum potential. CRG brings the experience, tools and operator like pragmatism to help retailers and consumer products companies be on the right side of disruption. And Takeoff. Takeoff is transforming grocery by empowering grocers to thrive online. The key is micro fulfillment. Small robotic fulfillment centers that can be leveraged at a hyper- local scale. Takeoff also offers a robust software suite so grocers can seamlessly integrate the robotic solution into their existing businesses. To learn more, visit takeoff. com. And Sezzle. Sezzle is an innovative buy now pay later solution that allows shoppers to split purchases into four interest free payments over six weeks. To learn more, visit sezzle. com. And finally, Silk. The Silk Cloud DB virtualization platform is a virtualization layer between your workload and the cloud. It helps you scale your cloud without scaling your cost. Visit silk. us to learn more.
In today’s Omni Talk Retail Fast Five Podcast, sponsored by Microsoft, the A&M Consumer and Retail Group, Takeoff, Sezzle, and and Silk, A&M’s David Ritter and Mohit Mohal joined Anne and Chris to discuss:
- Starbucks’ efforts to load balance online orders at its stores.
- The long-term impact of Nike’s new, more sustainable fabric, Forward.
- Wegmans calling it quits on scan-and-go mobile shopping.
- The value of Pier 1’s owner throwing Tuesday Morning a lifeline.
- And closed with a saucy roundabout on Target’s new FAO Schwarz partnership.
There’s all that, plus buying iPhones while intoxicated, Super Bowl halftime nostalgia, and asking Alexa for tips on how to get gum out of a kid's hair.
Music by hooksounds.com