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EP232 - rue21 CEO John Fleming
John Fleming is the the interim CEO of rue21. John was formerly the global e-commerce CEO for Uniqlo, Chief Merchant at Walmart, and CEO of Walmart.com. He has also served as a board member at Bed Bath & Beyond and Untuckit.
rue21 is an American specialty retailer of women’s casual apparel and accessories with 670 stores that primarily designs and fabricates its’ own products.
In this broad ranging interview, we discuss the challenges and opportunities presented by Covid, Amazon, the direct to consumer model, and the future of retail.
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Episode 232 of the Jason & Scot show was recorded live on Thursday, August 13th, 2020.
http://jasonandscot.com
Join your hosts Jason "Retailgeek" Goldberg, Chief Commerce Strategy Officer at Publicis, and Scot Wingo, CEO of GetSpiffy and Co-Founder of ChannelAdvisor as they discuss the latest news and trends in the world of e-commerce and digital shopper marketing.
TranscriptScot:
[0:40] Hey Jason and welcome back Jason Scott show listeners today on the show we are super excited to continue what I like to call our summer of Blue Chip guest we are welcoming John Fleming to the show John is currently the interim CEO of rue21 and previously had stints at Uniqlo Walmart and he’s on the boards of Bed Bath and Beyond Visual Comfort and untuck it
John welcome to the show.
John:
[1:05] It’s great to be with you guys this afternoon.
[1:25] Yeah I got it to retail in 1981 when the economy was terrible and I needed a job and I had a liberal arts degree which didn’t really prepare me for anything.
And I stumbled across Dayton’s department store in Minneapolis and got into their training program thinking I do this for a while and.
I liked it and I was pretty good at it and I’ve been at it ever since and I’ve seen a lot of changes in retail during my almost 40 Years of.
Being in the retail business.
[2:02] That’s right I started at I was seven years old when I started.
[2:16] I was the second so I followed Jean Jackson who was you know a rock star CEO
that was leading Banana Republic and she came over to put the dream team together and she hired me to be the chief Merchant so I was the first Chief Merchant at walmart.com I was then technically the second CEO.
[2:56] Yeah.
[3:01] That was a pretty good gig except so I got into that because they were,
pretty far behind in e-commerce had an incredible you know store program building Flagship stores all over the world and you know very dominant in Asia but weren’t really doing much with e-commerce so I got
sort of lured out of retirement to come back in and get in the game and we put a team together in San Francisco because that was part of.
What I felt needed to happen to run a global e-commerce team.
And what I learned pretty quickly though it was the only way I was going to get anything done was to get on that plane and fly to Japan and I think over three years I went to Tokyo 36 times and,
and that got to be a little difficult at my age so we we put a great team together and we jump started the business and.
You know got them to a really good level and then I went into my second retire.
[4:04] Interim right you’re not fully committed but you can you’re focused enough that you can make stuff happen.
Yeah so I then as I got into my second retirement that I,
started looking at different boards that I wanted to get involved in and I and I got onto three or four boards and was really enjoying that and sort of a broad range of consumer and or retail companies
and one of them was rue21 and they were coming out of bankruptcy in the fall of.
[4:35] 17 I think it was September 17 and I was recruited to go on the board and I did and we work very hard to,
the interesting thing was you know in my background I’ve only worked for like world-class companies and so at the first board meeting they spend all the time talking about liquidity and I’m like what is this you know and vendor terms and I’m like.
Really because those were things that I Really Ever focused on in my retail career but fast forward.
[5:05] Having that exposure and training has served me very well during this covid crisis because then I was on the board for a couple of years.
Then we made a change in February and I was the board member that they kind of all pointed to and said we need to step in and.
Sort of take this to the next level while we look for a new CEO and I did and at the time I remember this so clearly it’s the only time I went to Pittsburgh in this role I flew in and we had a meeting and,
that’s together with the team and we charted out that year and the next three years and we’d come off the pretty successful year and things were looking pretty good and I think the first week of March we were up ten percent year-to-date and,
you know the world look pretty bright and then all of a sudden three weeks later we close 673 stores and for a load 9000 people so it’s been quite the ride but we did then,
open our store starting in May and had each week we open the stores that we could.
[6:05] And the time that we were closed gave us
an opportunity to sort of rethink the business and to sort of reposition ourselves because there were a number of things that as I came in I saw we could do differently and we’re starting with you know becoming more customer-focused and digitally LED
and and not just thinking about stores and we learned a number of things about our customers and the way we
we did our pricing and promotion and the inventory that we carried and we were able to make a number of changes and as we open the stores again
the customers came back quickly I think the fiscal stimulus helped a lot but we’ve been able to sustain that and we’re in a very good position right now.
[7:31] Well it’s interesting that’s that’s an internal debate we aspire to be aspire to be faster we definitely call ourselves fashion
what we aspire to be faster and that is part of the learning so one of the things that we learned during the shutdown when the stores were shut down and we had a really you know a skeleton crew that was guiding the business
at that point is that was as we did a sort of an evaluation of all our processes and,
you know and how we presented the customers and you know how we engage with customers we came up with a new mantra which is simple fast and new
and so that everything we looked at we wanted to simplify it we wanted to move more quickly and ultimately we want to deliver newness to our customers.
Much faster and so we are you describe this true we have 670 stores.
I think your view of us as a you know a successful omni-channel retailer is the little overstated.
We’ve been a very successful store based retailer but we’re building omni-channel capabilities and that’s a big part of our growth strategy in fact we are migrating to a new platform.
In September and it will be the latest technology so it’s you know headless technology cloud-based.
API driven and this will improve our site performance dramatically,
and and and then ultimately you know we will take some friction out in some of the.
[9:00] The customers path primarily around check out and make it a little more mobile friendly but then the the real features and functionality that I think will take us to the next level will happen after holiday.
And the covid thing slow this down a little bit there because of the you know uncertainty in April as to you know what the outcome of this is going to be so we had the kind of.
Slow down some of the projects but then as we open the stores and could see things were going well we accelerated again.
We’re really excited about the holiday season but yeah we serve a younger consumer our customers you know 16 to 28 would be The Sweet Spot.
We actually compete quite well with other,
fashion young retail Brands and one of the things that I learned when I got onto the hood will become a board member to the interim CEO.
Is that our best format is actually in a mall.
[9:54] Yeah and as a board member I was way more familiar with the strip centers that we had and those have been the storms that we had grown more recently but we do really well we have a full competitive set.
And the findings there are that you know that consumer is not super loyal to anybody goes to the mall.
Wants to see what’s happening with their friends.
And in the end our prices were quite good and I know for my Walmart days is you know price is a good lover but we’re trying to get better at is is what’s the news and the fashion newness and telling the story that really,
emotionally connects with the consumer based on what the product is and then the promotion is more an outcome of you know how much you own,
but we have the low price position and we have the potential to be a fast fashion retailer meaning you know new newness to our customer and more frequently but there are some internal things that we had to work through to sort of speed up the process.
Scot:
[10:53] Greek was the father of two daughters I’ve been in miniature rue21 so it’s always interesting to see the.
Yeah the the displays and you know obviously have a young audience and it’s always kind of vibrant and a lot going on in the store how many of the stores are Mall based versus non Mall.
John:
[11:10] About half of all based and half or strip centers yep 5050.
Scot:
[11:14] Yeah since we’re here kind of hopefully in towards the end of the pandemic I’m The Optimist on the show Jason would say it’s only the beginning.
John:
[11:22] Is the end of the pandemic you think this is the end of the panda.
Scot:
[11:24] I do I’m The Optimist I said I’m The Optimist Jason thinks for enough five year cycle.
John:
[11:28] I hope it’s well I don’t know that I mean I I think I’m not a doctor I don’t know anything but it seems to me like will be living this way into next spring.
Scot:
[11:39] Yeah hopefully not well given that you’ve talked a little bit about the impact on the business so maybe walk us through
it seems like you guys have done a good job as good a job as you can navigating this so kind of March came we did shelter-in-place your stores were closed what what are you tell us some of the actions you guys have taken and what it’s looking like
today now that we’re kind of coming out of it a little bit.
John:
[12:04] So we’re really quite quite happy with how we came through this and I think that the reason we were able to do as well as we’ve done.
Is because we were very decisive so if you think back and it seems like so long ago but I can remember day by day.
And I remember even a friend of mine that’s a Walmart supplier called me let’s say the end of February and I think I just assumed this role and was talking about hey so what are you thinking about this this virus thing.
And the entire conversation was around Supply.
Well you know we’re worried you know because we going to be able to get the product that we have on order and for the next week or so.
Every discussion that I had you know with every company I’m involved in was really around Supply
and then all of a sudden somewhere early in March probably five six something like that in March I remember the same dye called me and we have the same discussion and he said you know you keep talking about Supply what about demand.
[13:06] And I’m like what do you mean he goes what if customers don’t go to stores and I’m like wow oh come on it’s not going to be like that.
And he was definitely the canary in the coal mine and I remember him saying and then at that point they’re my CFO and I started talking and you know we were and all this session was still about Supply.
And I said to her like we should model what happens if we drop 10%.
And I remember having this discussion I was like I was on the phone with her I was in California at the time and she was in Pittsburgh and you know she we’re looking at she said I think we’ll be okay at 10% I’m like what about 20.
She goes well that gets a little dicier and then I remember talking to my friend again and he said what did you do to close your stores and I’m like.
[13:50] That’s never going to happen I remember this so clearly and that was like Mark 6.
Well I’m March twelfth the world changed right that’s when the NBA shut down and like just the dominoes just started falling and at that point,
we were doing everything we could to stay open,
so for the next week I would say you know it’s kind of like the change management pack like At first we were in denial then we were in resistance right and so from March 12.
To about March 18 around us there were you know municipalities and or states that were mandated closing and so every day on our call.
[14:26] AP how many stores do we have to close and you know on the first day it was like 12.
That was another 20 and I remember even doing a virtual town hall because I was in California and and and I was headed back to Pittsburgh like on that.
Monday which would have been like 15th or 16th and talking to the team about you know we’re going to do everything we can to keep the associates and customers healthy and safe,
but we’re going to keep our stores open because clearly our customers you know they still are coming to the store because at that point we were just running down let’s say 10 12 % you know it had really dropped yet.
But then on the I think it was the 18th or 19th of March and again I’m in California and Governor Newsom likes.
He’s going to shut down the state and San Francisco is going to shut down and I just was struck by the fact like oh my God this is real this is happening and the next morning it was a Friday I got on the phone with the team.
And I said.
I think I think everything’s getting shut down and we had a discussion about it and I said I think we should get ahead of this and we should plan to shut down.
[15:34] For two months because this isn’t going to play out quickly and on that Friday at 11 o’clock Eastern time we made the decision.
To shut down 673 stars and furlough 9,000 people and we did it by end of business day the next day on a Saturday we did it and we focused on being shut down.
For two months and I think that was a huge success factor for us because if you remember at that time everybody was having the same discussion but they were thinking.
I’m going to close till the end of March you know I’m going to close till the first week of April and I think being in that middle space paralyzed a lot of retailers,
because we were able that we cancel the inventory,
we shut down the stores it gave us a chance to what you evaluate our processes to think about what we look like when we open to do Talent evaluations I mean we went through all these steps and we were
I think we were a month ahead everybody so by the time we opened and magically it was about exactly two months.
We started open stores opening stores the second week of May and we opened a hundred and eighty or something the first week and a hundred the next week and you know just went through that and got you know the majority of them I think in California we still have some stores closed because it’s mandated by.
[16:45] By law
but we have we have over 650 stores open and we’re doing well and we have a you know a Slimmer team than we had before and we streamlined a lot of processes and we’ve started to take steps towards being digitally first,
because we’re using the digital channel to better understand you know our customers and and demand and you know using that information to better run the stores and so we’re getting there,
and we’re in a good place and I you know what I would say even you know outside of room the lesson that I’ve learned is that there’s three things that are going to make company successful.
During covid and coming out of covid you got to be relevant.
So if there isn’t something that’s clear that you do and you can differentiate yourself and your brand stands out from the rest.
[17:34] There’s no reason and that’s where I think department stores are going to have a problem because I just don’t think they’re relevant anymore second thing is you got to be agile.
You know there’s going to be things that change I still think you know I’d like to think we’re almost it’s almost over but it’s not.
And we’re going to be thrown into a number of different situations over the next six or eight months we may have to close stores will be opening stores
we’ll have to you know pivot to more you know digital distribution there’s going to be things that are going to happen and the companies that are agile will be able to handle it and thirdly.
You got to be very disciplined
and that program primarily around financials and that’s where I go back to the first thing I told you is when I got involved with Ruth you know I’m not used to working and financially distressed companies and yet
you know seeing a company come through bankruptcy and get back on its feet was very valuable experience to me because you know on that day we decided to close all the stores.
We immediately you know shut down all of our payables we shut down all of our capex we focused on liquidity you know we renegotiated terms with lenders I mean we were on it
and I had a great financial partner to help me through that but you know that little bit of experience that I had early on in being on the Rue board which is a company out of
coming out of bankruptcy sort of prepared me for this.
Scot:
[18:55] Very cool one what kind of tactical question is so you’re you know it’s early March you’ve got your storage kind of Imagine loaded with Summer inventory what do you do with that stuff now that you’re opening do you do you have to flush some of that or do you have enough of a season that you can kind of get it work it out
of the store.
John:
[19:11] Yes so actually the stuff in the store was was good because it was just we had just been getting receipts for spring and they were you know the floor set was only a couple weeks.
By the time we shut the stores down so we basically just bought follow the stores are locked it down the issue was more what was coming.
Because we knew we were going to miss two months of sales and so thankfully we.
[19:38] We eliminated all that and and we were very and again I think you know on March 20th we were looking at that number you know.
We knew what the number was we knew it had to go away and we made it go away so by the time we opened in mid-may.
We were about where we wanted to be in terms of inventory and it was fresh enough.
And I think the combination of the pent-up demand from the consumer the fiscal stimulus.
And the lack of other alternatives for our customer to spend money on because think of it during that time frame.
[20:13] There were bars and restaurants there weren’t movie theaters there were places to go spend your money so
they actually looking for places to spend some money and they in some cases they had more money than they had before so we got a good jump start I think and that
you know it gave us a chance to sort of refine you know the presentation is in the stores you know we did some training
we got our stores Focus going back to this simple fast and new mantra
we removed a whole bunch of tasks that we used to do in the store and just got the the stores focused on serve customers we’re going to we’re going to flow the products better,
we’re going to be much clearer as to where you put it and we’re going to streamline the promotions because in the past
we were always you know messing around with the promotions everyday based on you know what we thought was going to drive traffic and at the end it didn’t it just created confusion in the store so this,
the simple fast and new approach really was,
adopted very well by the entire organization and even the store organizations is felt like we simplified their lives and let them focus on customers the other thing that we were able to do.
[21:19] Is we launched a loyalty program and this was all in the works before I even took over but it was all store focused so our company was really a store focused company and that was one of the first things that I wanted to change when I you know took.
Scot in the chair was that you know my background is going back to 2000 is more you know retail has changed and I grew up in an era,
when retail was you know product focused and store driven and I was a product Merchant for the first 20 years of my career but then you know I was very fortunate that I got into the online space.
And the visibility to customer information in real time you know and I don’t know that I would have articulated this this way in 2000 but
you know if old retail was product focus and store driven new retail is customer focused and data-driven and so that.
[22:11] That gave us an opportunity to start to make that pivot at Rule and really get focused on who our customer is we launch the Loyalty program online,
it’s been fantastic,
you know it’s driven engagement with our customers and now we’re now we’re rolling it out in the stores and you know we expect to have two thirds of our customers enrolled in this loyalty program by next year.
[23:28] Right right.
[23:35] Right so there’s a couple things that went on I think everybody was pretty happy with June and I do think there was a pent-up demand you know in basically all retail channels I think June.
You know there may see be some laggards I’m not sure that the department stores did that great but but most retailers I think had a nice June into July but then you have two things that created headwind Mid July into August.
And they’re actually all impacted by covid right so as the business started to soften a bit mid-july if you charted my business.
[24:09] Nationally and we have stores in 46 States.
It looked like a covid map so any place mid-july where the virus was starting to increase our business was running down in those States who are red.
And any place where it was under control primarily you know the north parts of the Midwest parts of the northwest.
Business was very positive and that’s sort of played out as you know we’ve had this surge of increases with the virus now that combined.
With the uncertainty around back to school and I think this has been you know fairly well-publicized is you know.
It’s not clear.
Like when schools are starting it’s different by municipality some schools have pushed it out there’s some schools in the South that have started again some are going to days on two days off and that uncertainty.
Has basically.
[25:07] Kill the opportunity to hit the peaks of back-to-school so like Saturdays are terrible.
For two reasons one those are the biggest volume days and there’s there was urgency in the past from consumers because they it was almost like holiday they knew I had two more weekends before school started well there’s that urgency doesn’t exist,
and the second thing is.
In most cases the hours are reduced,
which isn’t a bad thing it actually it paid off really well in June from a profitability standpoint I know in our case we used to be open 10 to 9 in almost every location we’re now open 11 to 7
so there’s three fewer hours and during the week it hasn’t mattered,
because the patterns to the customers have evolved and there isn’t the urgency and so we don’t need the extra hours and we just we just bank that and savings on operating cost,
but on Saturday it’s a problem when you get into these peak time frames now what I will say is it looks like we’re getting the other side of it because.
We’ve been charting our business based on you know school starts early mid-late and the first stores that really had a difficult time with the early starts both in terms of.
[26:18] It’s not clear when they’re going to start so there wasn’t the urgency and they’re up against these big numbers including these tax free events that all moved out so the first wave of that was very difficult,
but now we’re seeing that that first wave of stores are running positive cops for us again,
because we’re past we’re past the hill from last year and we’re more into our base business so we still have to work through the the mid and the and the and the late.
Waves but I think what’s going to happen and what I told my team is we’re going to evaluate our back-to-school business on
more of an eight or nine week time frame instead of a 6 week because I think it’s just going to extend a lot longer because there isn’t the same sense of urgency and so that could be what part of what he’s talking about.
Because the traffic has been very very mixed and that.
[27:36] Right.
[27:47] Well and pricing too because you know if you run the same if you’re trying to drive some kind of promotion that you’re trying to get incremental say you know unit sales out of but you have no traffic,
you’re just going to deflate your sales and that was the one that was hard for the team because this is a team that you know is used to a highly promotional business and you know and even talking through you know past back to schools,
I mean they were changing prices all the time because there was the six-week window back to school which was the second-biggest six-week period in the year next to Christmas
for this business and you couldn’t miss a day.
So there was always these adjustments on price and you know that’s where I just had to convince them like look at this I mean sure you could you could we could drop the price on denim too,
you know BOGO free which is basically 50 off but you’re just going to deflate your sales because you need to get a 60% lift.
[28:39] To offset the mark on and as we went through it and we really looked at like let’s price the stuff so we think we can solve the regular price it’s a fair value.
And you know we’ll make adjustments along the way but if there’s if there’s if the traffic is off 50% in Florida Texas,
you know and it’s and it’s flat in Michigan you know you can’t run the same pricing everywhere so yeah it’s been but we’ve kind of erred on the side of like let’s not be as promotional.
Let’s let’s try and go out with fair prices and let’s try and you know manage the units are the margin on a unit basis and its work
in some ways I think and I’ve always sort of had this theory that
you know like you get into the holiday season you get in the December and like everybody goes 50 off everything for one thing I hate that because that means you’re selling your very best things at the same price you’re selling your very worst things and as a merchant that’s a bad idea
and so I’ve always been sort of a verse to this
like 50 off all or 40 off all and I believe that you know pricing and promotion is as much about merchandising and understanding what the customer wants and where your ownership is so that’s that’s like another process that we’ve been able to learn and discover
and the team is now you know fully supportive of because they see the results.
[30:03] Yeah the holiday though I see the holiday a little differently.
I think the back-to-school thing is very uncertain and I’m sure that when everything gets added up there will be much less spent in total even in school supplies I gotta believe it’ll be less because.
You know people just you know if your home school versus going to school I don’t know I mean it just seems to me like it’ll be less because it’s uncertain what’s for certain for holidays Christmas is on the 25th.
And they’re going to be packages under the tree the challenge is how do you connect with the consumer and what your distribution strategy to take full advantage of it.
So like that’s one we’re a true you know we had one single Warehouse.
And we’re very quickly trying to enable ship from store because that way even if the source get shut down.
We have the ability to broaden our distribution Network and that’s what I think everybody saw that in April I mean.
E-commerce bounced in April and went from you know I don’t know if it was running the market was running probably up fifteen percent or something in February and then it went up to like 40 and 50 percent in April and the same things going to happen for holiday.
Scot:
[31:17] Quotes I’m the e-commerce guy on the show so I like to hear those numbers,
speaking of e-commerce it wouldn’t be adjacent Scott show if we didn’t introduce the topic of Amazon just a little bit and you’ve you know since you’ve got your career in the started in the 80s you’ve kind of had a really interesting view you know you kind of saw Amazon come on the scenes is this
ratchet online Bookseller and then become the Behemoth they are today what’s your overall view of Amazon are they this Unstoppable,
you know 800 pound gorilla or they’re just kind of going to be 20 or 30 percent of of e-commerce and you know.
High single digits of retail where do you fall on the Amazon topic.
John:
[31:57] Well it depends you know listen they they have built the 21st century retail infrastructure.
And honestly they’re almost less of a retailer and more of a platform because they’ve got so many lines of business now,
so you know as a business they’re huge they’re going to continue to grow
as a retailer though I still think and I’ve been saying this for a few years and I have yet to be proved true because they’re still running up twenty percent or whatever on there
retail business is that right I feel like up 20-25 percent or something on there if you just look at their retail line of business.
Scot:
[32:31] Yeah covid gave him a bit of a boost but yeah.
John:
[32:33] Yeah so yeah so you don’t know and so they’re still growing but by the way you know we could have had this discussion about Walmart in the late 80s and 90s when they were running up twenty percent every year right.
Um you know and then at some point you get so big that it’s hard to put twenty percent on top of a really big number so I think that’ll happen to Amazon.
I still think there are a number of things that are that could create headwind for.
Amazon at some point I think direct-to-consumer if I don’t want to direct consumer 11 get to be like 40 or 50 percent of total retail.
For two reasons a it’s inefficient The Last Mile costs a fortune and second of all the infrastructure is not built for that just
you know UPS and FedEx and Amazon trucks with Jam every street in America if we were driven delivering 40 percent of all retail direct to the consumer
so I still think that this idea of having these distribution points which is an advantage for Walmart where the consumer could do all the things they love about online they can go online
you know they could put things together they got the information that they need they could do the comparisons it’s all done on their phone
you know it’s easier making a choice online than it is like standing in a crowded grocery store looking for you know the tomato sauce you’ll.
So so I think there’s some limitations in direct-to-consumer I also think that.
[33:56] E-commerce grew because of search,
and I still think the primary driver to e-commerce is the consumer knows what they want and they go find it and Amazon gives them a lot of choice and clear comparisons,
and has taken tremendous friction out that’s that 21st century retail infrastructure that I thought.
However if I go back to when I started in retail and especially in the Glory Days of department stores.
The majority of retail aside from like Grocery and consumables was Discovery based so you know a woman would go into a department store and 8 1983.
[34:32] She caught it if she wanted to buy a dress but wasn’t exactly sure and she came out with you know a handbag and a pair of shoes and you know and so this whole idea of discovery which is much more of an emotional shopping trip,
is something that
isn’t great online still isn’t great online I keep thinking with all the tools with personalization and you know understanding the customer it’s going to evolve,
but I still think the best Discovery is in a physical store that tactile experience of,
you know looking and feeling and seeing things and the Art of presentation I still think there’s a role for that and I think that stores have to up their game in terms of
what’s the experience you know what’s the differentiator in the store why do you go to a store.
[35:19] Just to go to a poorly merchandise store that’s dirty and that clear how to shop is not a great experience but going into a great store that gives you inspiration and,
gives you ideas and allows you to discover things that you didn’t before so I do think that omni-channel retailing is is a is the the long-term sustainable
scalable retail model and I just don’t know how Amazon plays in that you know they’ve tried a number of things because I’m sure they have a bunch of smart people,
you know in rooms with whiteboard saying we got to figure out how to do this digital distribution thing because if we can get a bunch of customers to come to a location and we had all their packages there it’s a lot cheaper for us,
um but nothing’s really taken hold yet I mean I’ve always thought that you know if it’s Amazon would buy like a Target or a Kroger that could be a game-changer
because then they’d get broad distribution and and one Fell Swoop and be able to sort of discover how do they take what they know and obviously they got more data than anybody
and how do they then integrate that into what customers still really want and need which is a
Tommy experience and I think the challenge has been for the physical stores and I saw this I learned this early on in my
walmart.com days is the physical companies had a very difficult time going digital because they thought of everything by function.
[36:44] And and digital to them meant let’s just digitize the function.
You know even going back to the days of like the Sunday circular that used to drive the retail business in the 80s and 90s you know they and Magazine still do this they digitized what they did before.
And they call that their customer experience the digitally native companies start with what’s the customer experience,
and I’m so my wife and I were talking about this today it’s like I’m still kind of Blown Away by these magazine companies that still just want to digitize you know Vanity Fair Sports Illustrated you know they just want to digitize what they did before.
As opposed to using this new medium to be able to create a new experience for the color for the consumer to consume their content.
And they just haven’t gotten there and it’s because the physical companies can’t get their head around it and that’s where I do think the value in these digitally native companies in a lot of them when you really look at it if you think of e-commerce.
[37:39] There’s only
like three really big companies that were digitally native That Grew into like real businesses and e-commerce the rest of just kind of come and go they get to a hundred million dollars and then they fail you know or they get maybe to a billion dollars but they don’t make any money you know I still am I still sort of question Wayfarer,
I mean they have no path to make money and yet you know they’ve got this crazy valuation and it’s the future and this is what the customer wants but they shipping all these big Cube things,
sitar heavy and expensive to ship so you know that there are these these these spaces in e-commerce like small cube.
High-value ding ding ding it works and there’s value to the customer and you can ship it directly.
But I still think I mean going back to the original thing I just think five ten years from now it’s the omni-channel retailers they’re going to grow.
Be relevant.
[38:32] And also they need to be agile and I think even the omni-channel retailers need to figure out how do they shift their PL to be a little bit more towards variable costs and less around fixed costs.
Because that gives you the agility required to sort of maneuver through any situation that’s thrown at you.
[39:21] That’s why that’s like UPS and FedEx or putting all these surcharges on any any volume you do above what your normal volume is I think they’re throwing a buck a package on.
Because they know it’s going to be a problem too yeah I’m sure I’m sure yeah my team probably just hasn’t wanted to tell me that yet.
Yeah but I think when you see 52 percent that’s not all direct-to-consumer that’s e-commerce.
You know buy online pick up in the store or could be curbside and I think that that could take some of that and honestly there’s going to be a lot of it I mean I expect the economy to grow.
Forty or fifty percent this holiday.
[40:01] So it’s going to be either a traffic jam it’s going to be very expensive to distribute or you know the winners are going to figure out how do I use my stores get the customer to start online
but then use my stores the place to you know fulfill that,
that product and actually I mean this is its it reminds me of you know in 2002 at Walmart we launched,
we called at the time site to store which is Opus.
And and I remember the stores were so opposed to it because this was back in the days when the stores thought that you know e-commerce their competitor it was just taking their customer away from the store but we are able to show them and this is what we got.
The Walmart storage to really adopted quickly in 2002 as I recall was that when we showed him the basket.
That you know the customer was coming in and they were buying something online picking it up in the store and then they added to the basket and the basket back then was five times bigger than the at the average basket and so once we got the store managers you know to see that they’re like,
okay I’m in.
Because it’s a it’s even if it’s not an incremental trip it’s a bigger basket sized so I think that’s going to be a big part of everybody’s Playbook is how do you give him the start online and ultimately how do you use your,
your distribution Network beyond your traditional distribution Network to be able to you know fulfill for customers.
[41:31] Yeah yeah yeah.
[41:36] Oh yeah yes yes and that’s hard that’s all that stuff is I mean the devils in the details on all this stuff and.
You know understanding where the you know how do you set your your mins and Maxes and what’s the floor and what’s the Water Bar all that stuff you got to go through and figure it out and test it.
So yeah that’s that’s those are table Stakes got to do it or doesn’t work.
[42:10] I ain’t seen that that makes sense no I haven’t no I’ll look into that haven’t seen that but that makes sense too because if you could just ship it to the mall.
You know they could they could so they have capacity and you know they could meet again they have to figure it out there’s a whole process you have to put in place and mean and that’s what I think.
As everybody rapidly tried to get you know curbside was kind of the new buzzword as we got into the.
The the covid situation and there’s a lot of confusion around that because like as a customer what does that mean does it mean I just pull up to the door and wait.
You know and and some companies did it pretty well you know that you’d call a phone number and you talk to somebody and they bring it out and other ones,
you know you’d like still have to like park and go inside and find the person that was supposed to bring it out to your car that’s where I think Walmart has an advantage
you know I remember back in like oh 9 and 10 we were trying to do.
Grocery delivery online and build that capability and this was still where it was a bit of a
like an organ transplant that didn’t take because the costs were high but we just kept pushing and pushing and pushing and I think thankfully for Walmart
they stuck with it because I think their drive-through has been then ultimately that morphed into you know drive to a pickup.
But you still had to have that capability with them in the store to figure out how do you pick pack and and and get it ready for the customer and I think that’s a huge Advantage for Walmart.
Scot:
[43:35] Yeah another Trend I wanted to pick your brain on because you
been in the retail industry so long is you know we talk a lot about this on the show of these Brands going direct so first you had kind of electronics like obviously Dell and then now it’s leaked into apparel where the CEO of Nike said they want to be majority direct to consumer
my understanding is it rue21 you mostly carry other brands right do you worries.
John:
[44:02] No no we care no no we care on yeah yeah so we’re direct-to-consumer with our own brand.
Scot:
[44:07] Okay alright so you’re almost like part of the trend in a way I guess what.
John:
[44:11] Yeah as long as your part yeah I just think they’ll but but we’re a retailer right we’re a retail brand I think it’s a little different I think with consumer brands.
With consumer products there will be winners and losers not it doesn’t work for everybody
and if you have a path look like I think the Shave Club thing you know and I don’t even I’m not close enough to it anymore to know which one’s winning and which ones not but you know when you can get a customer on a specific product and then you can broaden the offering into
sort of adjacent products that are complementary and you know this idea was a Dollar Shave Club or one of them that were basically wanted to own the bathroom for the guy right.
And that’s an interesting idea especially if you can get the consumable thing going and you know especially younger people there their they’re okay with this subscription
you know I mean they grew up with Spotify and Netflix this is not where it’s like the older generation hates all that stuff because they think in terms of like
what I’m going to sign up for a you know monthly fee for this thing every but that’s the way the other people think they’re more about like subscriptions than they are like actually going to the mall buying clothes
so I just think there’s winners and losers I don’t think it works for every every brand and then the economics have to work so again you know it’s like.
[45:25] Small cube high-value okay there’s you there’s a and then especially with frequency of purchase okay that sounds good.
Now is the brand distinctive is that unique how is it positioned against competitors and you kind of have to just work through all that I don’t know that
you know it’s one-size-fits-all and this is a trend where all these companies are going to go direct to Consumer and it’s going to completely disrupt any kind of you know physical distribution.
Scot:
[45:50] When I saw your on the board of untuk it and they they kind of went down this path I kind of put them in this digitally native vertical brand bucket like butt
Bose in August
then you know it seems like there’s this trend where those companies all get up to a couple hundred million in revenue and then they start opening stores and I’ve noticed untuk it has been opening a fair number of stores or sometimes I’ll call them guide shops and stuff do you think that’s you think the mall is going to be full of just kind of brand stores in the future.
John:
[46:18] Well I did a really good job because what bonobos did and I’m obviously much closer to untuk of time to vote bonobos when a little bit about it you know they got their business to like an online business it was a hundred million dollars and
I don’t think it was ever profitable but then the way to grow was ad stores untucking actually went out a little differently they did start as an online business but very quickly.
They saw the opportunity to have a physical location to be able to get customers to understand the quality of the product and the.
[46:49] And so the stores I mean the stores are primarily around getting into the store and find what their fit is
get them comfortable with the quality and then the repeat is online and so they’ve been very surgical about you know where do the stores go and what’s the,
what’s the role of the store because they didn’t come in and just do like you know full on apparel stores like a lot of the competitors what it does,
it’s a different it’s a different experience in the store there’s a lot of service and and the objective is really about,
you know quality fit experience which ultimately leads to more engagement and fulfillment online.
So I think some image and then they did that sort of like step by step and and every time that we’ve added stores you know we get more online business and it just kind of they work hand-in-hand and then there was a very good,
strategy to understand the customer,
to understand the cost of acquiring a customer and then figuring out how to monetize that by having this on the experience I think a lot of the other digitally native companies sort of backed into.
[47:55] A store because they ran out of growth and and this is the one thing that’s just you know so clear when you’ve been on both sides it’s like.
Once you build a store you have some marketing that’s built in it’s called traffic that goes by your store every day.
Online you have to buy the traffic everyday and I think you know part of the problem with these digitally native companies they get started and their marketing is pretty viral,
and it doesn’t cost them a lot until they get to a certain level
and then they got to play with the big boys they got to get involved and they got to start like bidding on keywords and they got to start you know paying the price of what it takes to drive traffic,
when you get to a certain volume and a lot of these than the the the the startups behind and we’re coming in loaded with cash,
and so they’re being the prices up so all the digital advertising just keeps going up and then also there’s a correction
bunch of these companies go out of business they go away the prices come back out and so it’s just like then the self-fulfilling prophecy it’s like nothing I’ve ever seen in media before where you know the small guys are actually driving up the prices is they’re trying to scale and they’re funded by you know.
But by Venture and and then they drive the prices up and then they can’t they get to a certain point they can’t afford it anymore I mean that’s what happened with Walmart in Jackson.
Is that you know as they got into it and tried to scale jet.
[49:11] The return on ad spend was terrible in Jack compared to Walmart like every dollar they spend on Walmart would be much better return because they have a much bigger scale.
[49:34] The spend more right and the spending just doesn’t work and it but they sell their investors on but if I can get to a million people you know it’s there are these thresholds if I can get to a million people
if I can get to two million people and I’m sure somebody started this whole thing is you know you start out and if you have a really good value prop
it kind of happens virally through social media that doesn’t cost too much.
But you take it very big that way and then you know then you just keep making these steps up and every step up cost you more and so it’s the opposite of like how Walmart built its business where you know the scale actually brought costs down.
[50:17] Right right.
[50:57] Yeah there’s more big players than that though I mean there’s there’s Walmart Amazon Target targets targets got a reason for being because they’ve got a distinctive.
You know their product and their experiences is distinctively different.
It’s in Walmart’s and so you know there’s at least three players the place where that that I think goes away as Department source,
they’re just in this long slow Decline and you know the advantage Macy’s has is they’ve got some really good locations.
But you know and then people could argue like a coals well they’ve got like this really convenient format and yet in and actually the covid big plays back to coal strike
because there was this migration away from the suburbs you know the soccer mom that they built their business on
wasn’t like a gross segment anymore but now all of a sudden people may be moving back to the suburbs so maybe there’s more traffic there the problem I have with department stores is when you go in and look at their product offerings category by category.
[51:55] They’re not great at anything.
Like you know they somebody does each thing that they do better than they do there’s still a few you know like you know cosmetics and some department stores Home Furnishings housewares there’s a few,
that are still quite good but I do think it will be a series of big players both you know food and geom.
With a lot of specialty players underneath it that will be you know it’ll just be social Darwinism with the with the specialty players you know it’s interesting when I was at Walmart.
[52:28] You know I was the co.com then they finally got in the book about Bill and I took on the chief marketing officer role and and I wasn’t really a marketer brief tour but I you know I think I understand retail marketing but the challenge that they gave me was
you know go out and recruit a team of classically trained marketers to really you know.
Take our capability out dramatically and I did I brought in this guy named Stephen Quinn who succeeded me and went on and had a nice career at Walmart I remember about.
Three months into it four months into it we’re putting something together for presentation and he said.
Man this retail game is brutal and I’m like what do you mean and he pulled out a chart so he’s a cpg market it right.
And he pulled out a chart of like the top 10 cpg companies from 1980 to what they were in.
And they were exactly the same.
And you could name them PNG craft Coca-Cola Pepsi you know Unilever and there’d been some reconfiguration and maybe one was three and three they’re all the same.
[53:31] You do the same thing in retail there was only one company on the chart that went from being a top-10 to staying on the top 10.
[53:40] And that was targeted because they reinvented themselves they were dating Hudson as a department store chain and morphed into Target which kept him on the on the chart.
Everybody else had moved from because the old chart was all department stores and variety stores.
And the new chart was all like value players you know big box and and increasingly internet you know like you know like eBay and Amazon we’re starting to crack the code so over a 20-year period the whole thing it just completely changed,
and and that’s going to just keep happening I believe.
[54:21] Yeah.
[54:40] No no and that’s already has the before Walmart wasn’t on it and Sears was at the top right and then and then and the ones from 2005 whenever Steve Quinn put it together was like Walmart was at the top.
Yeah who knows I mean listen Amazon’s of force there’s there’s no doubt about that.
Scot:
[55:21] Do you do pontificate online or.
John:
[55:24] No not really no no I it’s funny no I know actually the only reason I even pay attention to it is because I need to understand how it all works.
You know and I asked my kids questions and stuff like that but no I don’t really I have no social media presence I think it’s just a stage in my career,
you know I’m not really looking for something else and I’m not really looking to build my brand now I’m sort of like to be behind the scenes and.
You know I enjoy the role I have right now because I think I’m able to help some people make a difference but I don’t really need much attention.
Scot:
[55:55] They want to see your work they can stroll through a rue21 store.
John:
[55:57] Sure absolutely thanks guys.
Jason:
[56:00] And until next time happy commercing.
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