Tom Goodwin, futurist and executive vice president of innovation at Zenith, joins Alizila’s Adam Najberg on Alicast to explain why the U.S. retail sector is in turmoil, despite 8 straight years of overall economic growth. They discuss disruption and future trends in retail and how and where we’re likely to see them.
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Also below is a full transcript of this podcast.
Alicast Full Transcript
Are We Witnessing a Retail Apocalypse?
Adam Najberg: Time now for Alicast, a deep dive into innovative and emerging trends in e-commerce, online payments, and digital entertainment. Brought to you by Alibaba Group, we’ll offer insights about Chinese consumers and brands doing business in China. We’ll delve into global online retail, cloud computing, big data and other must-know topics and issues in and around one of China’s largest companies.
I’m Adam Najberg.
Adam Najberg: The Atlantic Magazine recently wrote surprisingly breathlessly about the so-called retail apocalypse of 2017 in the United States. The article’s tone was somewhat akin to National Geographic writing about the mysterious death of bee colonies around the world. The story notes that there have been nine retail bankruptcies already this year.
Big retailers are shutting down hundreds of stores and outlets, stocks of clothing companies are hitting multi-year lows and I read that some hedge funds are short-selling the shares of mall operators. What’s surprising about this, of course, is that the US economy has grown for eight straight years. Retail sales are climbing and gas prices are low which leads the Atlantic to ask, what the heck is going on?
On today’s Alicast, we’re asking that same question and we’re asking it to Tom Goodwin, Executive Vice President of innovation at Zenith. Tom is a retail expert and I mean this in a positive way when I say he is a futurist. Without further ado, let me ask you, ‘what the heck is going on?’
Tom Goodwin: [LAUGH] What the heck is going on? I think there are two things going on. One is you only ever get headlines and people to read a piece if you proclaim something in the most dramatic form. To say that a number of very large retailers are cutting their footprint by 5% to 8% probably doesn’t get many people to click on an article.
So I think we are seeing people to proclaim this to be a great moment of change, and a complete shift in everything in retail. While I think that is not really true, but I do think we see the kind of start of another paradigm. Technology tends to work in eras, and often within those eras, vast structures and infrastructure is built based on the assumptions of that time.
So whether it’s kind of building vast, fleets of ships with sails before motors came in, whether it’s building canals before railways, it may well be the life as we know it today with retailers on every corner, with shopping malls being the go to destination for American teens, it may well be that we have to accept that that’s part of a kind of dying paradigm.
One wonders what will be unleashed by a whole different form of logistics for the future, with Internet-based retail.
Adam Najberg: So is this kind of a winding down of traditional retailing as we know it?
Tom Goodwin: I think probably. I mean, it has to be sort of this is something I think about a lot and I talk to many people about, and I’m open to the fact that change may not be as significant as we may think.
And I’m also open to the fact that it may be wildly more extreme than any of us predict. It’s genuinely possible to imagine a complete shift in the retail landscape. There almost follows this tipping point because high streets and main streets and malls, they are somewhat reliant on each other.
And there’s a little bit of economics behind the logistics of e-commerce, as such that they also have a tipping point. So it’s possible to imagine a situation where, actually, virtually everything that we order outside is delivered to us. And where the supply chains don’t focus so much on a wholesaler landscape and a regional distribution landscape.
And instead, we have a wildly different last mile delivery system, where everything from food is ready cooked, to milk, to furniture, to TV sets. You can imagine a situation where physical retail for whole categories actually disappears and we’re just left with a kind of a completely destroyed version of what we see today.
Again, it’s possible to imagine that we may go shopping by sticking on virtual reality headsets more than we actually go and visit premises themselves. So, it’s not helpful to say this, but my role as a futurist you have to be open to all sorts of different plausible scenarios.
And it’s certainly plausible to consider a situation with very few physical retailers. But it’s also plausible to consider a situation where much of the economics of home delivery don’t work out and the stores do become a kind of place for entertainment and a place for people to kinda hang out instead.
Adam Najberg: But one of the things that I’m kind of surprised about is, if you look at the proportion of e-commerce to traditional retail. In a lot of places, a lot of developed countries and a lot of developing countries, it’s 8%, 9%, 10%, 11%, 12%.
Tom Goodwin: Yeah.
Adam Najberg: That’s not a huge number, yet it seems to be having a large adverse effect on traditional retail.
I’m not sure what it’s like with other industries, at what point the horse and buggy industry was disrupted by the horseless carriage. What percent did you need before, but it just seems like this is very early in the game, yet it’s having profound changes.
Tom Goodwin: But it’s important to sort of know the distribution of that because, I think, it varies radically depending on the category and it also varies radically depending on the country.
So, in places like Mexico where it’s pretty much impossible to use a credit card to buy things online, the world there is such that e-commerce is tiny. So that figure between about 7% and 12%, that also, of all the goods bought online, that also includes things like gasoline which is never gonna be bought online.
It also includes things like groceries, which even in the most developed economies, normally less than 30% of all groceries bought. So, there’s a lot of complexity to that overall picture. For me and it’s probably gonna be quite hard for me to express this but for me there are certain things in life that have this tipping point.
I cycle around New York quite a lot and I’m aware that lots and lots of people don’t cycle because it’s dangerous to cycle because there are so many cars. Now, in theory, there could be a point where so many people start cycling, that everyone suddenly does it because it makes sense.
Similarly, the economics of Uber, the degree to which they’re losing a lot of money, it’s almost based on this assumption that there is a paradigm shift where our mental model goes from, I own a car and occasionally I get an Uber, to every single trip I’m ever gonna do, I’m gonna take an Uber.
And at that point, all of the economics suddenly makes sense, and the service is so good, and even if you’re going for a weeklong camping trip out of state, you decide to get an Uber because you just know there are gonna be Ubers everywhere. And I think e-commerce has a fairly similar sort of paradigm shift where at the moment because only 7% or 8% of certain products, of the whole category is e-commerce, lots and lots of things are still too expensive to deliver especially if they’re returned.
Lots and lots of things people don’t buy online because they don’t quite trust it. But it’s entirely possible to use our imagination where we have five or six different deliveries per day per apartment, where every apartment if you don’t have a doorman has a sort of lockbox outside.
Or where there are certain people do much more local delivery and they come and find you wherever you are at that moment in time and they sorta give things to you directly. So, we would be wise to keep our imagination open to the fact that there is this ability to be a tipping point, and many of the things that we assume to be problems can probably be solved in different ways.
Adam Najberg: Let me get a little bit more granular if l can. Alibaba’s take is that even e-commerce, which is still pretty new, is gonna be unrecognizable in a few years. The company, the group, has been saying that retailers what they need to do, is instead of just bolting on an e-commerce unit, they need to re-imagine the whole shopping and retailing model.
So you wanna take the best of the brick and mortar, and the best of the online world. How do you think retail needs to change? If we’re not in an apocalypse situation right now, if this is a moment of great change, how should those retailers change the way they think and do business?
Tom Goodwin: I think you actually explained it brilliantly with the Alibaba approach. What tends to happen in the world is that when something new arrives, we create a new unit to understand that, and we sort of stick them on the edge. And then normally we do fairly small sort of gestures of innovation largely to kinda get headlines but also to kind of inform the financial markets that these companies really get it.
So, two or three years ago it was very popular for retailers to stick an iPad somewhere in their store. And they would use some big announcement about how they’re now an ominchannel retailer. But using the iPad was a terrible experience. You’d have to enter your credit card details even though there was someone with a card reader at the till next to you.
The item would then arrive to you directly to your house. If it didn’t fit, you couldn’t take it back to the store because it was considered not their inventory. And the salespeople in the store would get quite annoyed because they wouldn’t get any commission from what you bought.
Now that for me is not only a literal example but also a massive flaw for how companies tend to use technology. So, whether it’s the car rental desks in airports that still have dot matrix printers but then will have a snazzy app. We have this sort of hybrid of complexity where we have the old and the new.
The companies that will do incredibly well in the future are the Alibabas of the world that have just constructed themselves in the kind of canvas of opportunity. Which is described by very contemporary sort of user interface design, very contemporary supply chains and customer service systems, the way the kind of data is used and is kind of centered around people rather than around silos and servers.
So it’s those kind of retailers that look at modern behavior, look at modern expectations and then create a great retail experience for them that will do best. And I know you’re probably gonna be asking me for examples, but I can’t think of any. I think the only companies I see doing this particularly well are largely the ones that have been set up in the last kinda three or four years.
Adam Najberg: Well let me give you one example of omnichannel winning, but it’s not on the front end of it, it’s at the back end of it, in logistics and sales. There’s a German company called Otto, and they’ve melded online and offline inventory systems. And it’s basically made everything faster, more efficient, it uses big data and artificial intelligence to make the whole process of getting you this stuff more efficient and faster.
That’s the kind of use of big data and artificial intelligence that the customer doesn’t see but they certainly feel. Let me ask you this, though. If you can find the systemic efficiencies, what works to make the experience better? Experimenting with digital marketing, re-designing the retail experience from the ground up in a world where you know that your consumers are always connected?
And where retailers have a lot of information about those consumers, is it realistic to expect that going to the mall is gonna be dramatically different years from now?
Tom Goodwin: I think it’s not unrealistic to imagine it being very different. I think, it speaks a bit about what I’ve sorta spoken about before on here which is this idea of, how do you sorta work around the assets you have?
Most of the time when I do work, it tends to be for sort of legacy retailers who wish that they were someone a bit like Alibaba. But I think sometimes when you’re dealing with clients like that, it’s really important to realize what they have going for them. So, the degree to which they have a physical premises, the degree to which they have branding everywhere, the degree to which there is inherent trust within that company because it’s sort of been around a long while.
The degree to which you have human staff that can serve people best. So, I think probably the secret for success for these retailers who feel threatened by online only ones is to work around all those amazing assets that you have. It’s very unfashionable in the modern age, and if you’ve got a word like futurist in your title to talk about it, but training staff to serve people better is probably a better strategy than getting robots to help people out.
Making your stores places that people want to come to, by coffee shops, more smoothie bars or noodle bars is probably a good idea. Finding ways to sort of leverage that trust to get people to spend more is key, and to use that as a sort of starting point to leverage the power of the Internet is vital.
There are so many assumptions that we’ve made about retail that are based on the past. So we assume that inventory has to be limited because we need to have some sort of stockroom at the back of the store which has it. Whereas, actually with the Internet, you can sell anything the world has ever made and you don’t even need to keep hold of the stock yourself, you can just be the front end for someone else’s logistical supply chain.
We assume there is this purchase funnel that people go through where they are aware of something, and they understand something, and they like something. And in the modern age, quite often people just buy something with a quick flick to the right or by entering their phone number or something.
So, a lot of the kind of fundamental limitations of retail are quite firmly fixed in our heads, and I do think it would be interesting for sort of brands and retailers to rethink those. One tiny point as well is, retail has always been somewhat kind of vertically split.
We tended to have kinda grocery retailers and high-end fashion and beauty and electronics. And the general dynamic in the industry now is almost to sort of smash through those vertical lines and instead have horizontal ones where you will get very slimmed companies that just do payment infrastructure. You’ll get companies that come along and completely outsource all of the logistics for you.
Companies that will turn any website into a shoppable site. Companies like Facebook, or to some degree Alibaba, itself, become essentially customer interface companies which kind of bolt onto other people’s horizontal structures. So, it’s interesting, if you’re a retailer or if you’re a brand, to think about what your role is within that very sort of horizontalized structure.
Adam Najberg: What is it that customers really want? Do they want a seamless online offline experience? Do they want it to be the same when it’s online and in the store? Do they not care or do they ultimately just care that what they have, what they want is in stock, is it a good price and gets to them quickly? Whether it’s picking it up at the store that they’re in at that very moment or getting it two hours later in their office. What do the customers want?
Tom Goodwin: I think more than any other time you have the most loyal customers we’ve ever could imagine where their expectations tend to be set by the best in class in other environments.
So, people kind of expect delivery to be almost immediate because many retailers do that now. People expect to know where their driver is in real time because Uber does that. So, I think we have very spoiled customers who kind of want it all and on their own terms.
Now, that’s obviously not necessarily commercially possible. I don’t think it looks like a one-size-fits-all approach. I don’t think it’s the case that all websites have to be like this and that all stores need to be the same. I think it’s probably best to focus on reducing the pain points.
So, if you’re a physical retailer then make sure that the payment structures that you use don’t require people to enter their credit card, swipe their credit card, enter their pin and then sign, because that’s just an incredibly annoying experience. Don’t be out of stock on a website, and only tell people when you actually check out at the end of it.
So, more than anything else, it sounds kind of boring, but it’s about the systematic reduction of pain throughout the process. Many sort of jeans stores seem to think that if you’re shopping for jeans, what you really want to see is 132 different types of jeans sort of displayed in a really funky display in front of you.
It may actually be easier just to have a couple of jeans on display, and then if you want to get the size, you just ask someone and they bring you that size. I think more than anything else, our sort of choice architecture, we probably want things to be easier more than we want things to be sort of confusing.
Adam Najberg: So, what I hear you saying is, it’s not the sexy and glamorous stuff. We don’t want people, brands, or retailers to be telling the consumer necessarily, we have this amazing new system. Customers just want stuff to be efficient, pain-free, work fast, have stuff in stock, fit them and cost the right price, yes?
Tom Goodwin: [LAUGH] Just that, just everything. I mean, so which is interesting is the target in the US of now sort of design stores, almost there’s two different types of consumer, there used to be a store called Argos in the UK. I don’t know if many people are gonna know about it globally, which is basically a catalog store where you went in, you sorta looked through the kind of book of dreams with everything you could buy and entered a number and then someone would come and deliver it to you in the store.
They have taken this approach where there’s kind of like an element like that to some of their new stores. And you can go there and you can kind of pick up items that you’ve ordered online but then there’s also a whole other entrance to the store. You go in and you sort of look at pots and pans and you try out spatulas, and you kind of get to smell different candles and stuff.
So, they started to sort of create a hybrid environment where they’re kind of designing for all sorts of different use cases.
Adam Najberg: Tom Goodwin, we always love having you on Alicast and sharing your wisdom with us. We are out of time. I wanna thank you for being here.
Tom Goodwin: My pleasure.
Adam Najberg: And for listeners, I want to encourage you to visit us at www.alizila.com. Alicast, of course, comes from the staff of Alizila, which is part of the Alibaba group.
Adam Najberg: You’ve been listening to Alicast, a regular podcast from the Alibaba group. Thanks for tuning in. I’m Adam Najberg.