First-Party Data and Third-Party Brands: How to Future-Proof Your Business

Andrew (00:00):

All right, well welcome everyone. Apologies for the technical delays there. Welcome to recession Retail. We are live from my basement in Denver, Colorado. I'm Andrew Goodman. I'm the head of marketing at Convictional and we are the supplier enablement platform that helps retailers onboard drop ship vendors in minutes. It has been 13 years since the end of the grave recession in 2009, 13 years of retail growth, 13 years of e-commerce evolution, and unfortunately 13 years of muscle memory loss for operating in environments when cash is tight. In this series, we are chatting with retail experts like Rick Watson, Lisa Amani, Neil Saunders, Jason Goldberg is here with us today and Brian Lang about navigating the current state of retail. Our guest today as I mentioned, is Jason Goldberg. He's the chief commerce strategy offer at the Publicis Group where he advises omnichannel retail clients on e-commerce and digital marketing. For the audience today, my colleague Mkeel is keeping an eye on the chat, so please use that generously. We would love your participation. So great to have you Jason. Very excited to chat through some retail data with you today.

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Jason (01:06):

Super excited to be with you. I'm trying to figure out why I have to sit in the dark corner of your basement. Seems much brighter in your corner, but-

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Andrew (01:13):

Yeah, it is a little brighter here. In Denver, we get about 300 days of sunshine a year. This is not one of them actually. We got a mix of hail, sleet, and snow this morning, but I guess the lights are working today, so we at least back got that going for us.

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Jason (01:27):

At the risk of going down a rabbit hole, that whole 300 days in the sun is a scam. What that means is for at least one second during the day, it's possible to glimpse the sun. That does not mean people are walking around in shorts and t-shirts.

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Andrew (01:42):

Absolutely. I couldn't agree more. And hopefully we can shine some of that sunlight and some trends happening in retail today.

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Jason (01:48):

Good segue. I love it.

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Andrew (01:50):

Thank you. At least just a moment of it. So let's start with shining a light on some of the latest data from the US Census Bureau. They noted that the retail and food service categories were up about 8.2% year over year. I'm curious, we are in an environment where inflation is almost exactly that. How much of that growth year over year is related to inflation?

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Jason (02:16):

More than all of it. Turned out it's kind of fun. I picked up a pandemic hobby, which is I learned math and so I applied some of that to the US census data and in most categories the inflation story's overblown. It's part of the story but not the total story. But in food actually this year is quite a bit of the story. So yeah, 8.1, 8.2% growth is the raw numbers. If you adjust for inflation and take everything back to 2019, dollars were down 1.2% this year.

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Andrew (02:52):

Got it. So it's in fact not a growth story, it's a market shrink it story.

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Jason (02:57):

Yeah, slight decline. Even if you look at the whole pandemic period, if you say like, hey, three years total sales would be up 21%, which is pretty healthy. That's right about the industry average for retail. But again, you adjust for inflation and most retail would still be up 10 or 12%. Grocery is only up 4.4% when you adjust for inflation. So it's one of those hidden stories. We all thought grocery would be a big winner in the pandemic. There was a lot of reason , I thought that as well, but the numbers haven't born that out.

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Andrew (03:39):

I'm quite surprised to hear that, especially given all the, I would say rapid innovation from some of the grocery retailers in the space with buy online pickup in store and some of the other food delivery services. I'm curious, why do you think that didn't have the intended impact?

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Jason (03:56):

Well I think there was another surprising trend that counteracted some of the potential tailwinds of the pandemic for grocery. Before the pandemic grocery and restaurants were about 50/50 for share of stomach, when you look at American family spend, and then of course during the pandemic it was 70/30 in favor of grocery stores. So you would expect, that should have been a big boom for grocery stores. And every grocery store in America was working hard to lock in a slight percentage of that as a permanent change in behavior. And so now we roll forward. Obviously the pandemic's not over, but we all call it post pandemic because there's so much pandemic fatigue that we're not seeing a lot of the pandemic behaviors anymore. And guess what happened? Restaurants are five percent a ahead of grocery stores, so about 53% of all consumer spending is at restaurants, not grocery stores.

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(04:52):

And you go, huh, that's weird because the dining rooms all look empty. They do because what Americans want to do is buy meals from restaurants and consume them off pram. So that's this huge new trend. American families at the moment have been getting more of their food from restaurants. Restaurants have actually been impacted by inflation less than grocery stores, interestingly enough. So even though they're not thought of as much of a value, it's actually a decent inflation value right now. So whether that's going to be permanent or not is anyone's guess. But I think that a big part of grocery not doing as strongly as we expected is that the traditional swim lanes that separated restaurants from quick serve from grocery are all off and they're all competing for every dollar.

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Andrew (05:43):

Absolutely. Interesting to hear that some of the innovations and rapid changes that restaurants made at the beginning of the pandemic, rapidly relocating staff to pick up orders, delivery, that kind of thing, and to really help overcome their labor shortages, which are obviously a big thing in food right now. I'm curious, outside of restaurant, if we dig deeper into the retail data, are there any winners and losers here? So were there any categories within retail that beat the 8.2% that were able to grow significantly and who fell below 8.2% indicating that not only were they losing share but losing a significant amount of share?

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Jason (06:26):

There definitely are winners and losers. There's two horizons to look at it. You can look at it year to date sales versus last year, which again is a weird comparison because of all the pandemic stuff going on. So I tend to look at a year over three years ago at the moment. So if you say, year over three years ago, the overall retail industry grew 22%. By historic standards, that's astronomical, that's twice traditional growth. So the industry average is an amazing story. As a mentor once taught me, averages are pretty dangerous, on average Nepal is flat because there's a lot of elevation and decline.

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Andrew (07:14):

I've got another one for you. My statistics professor helped us understand that averages are when your head is in the freezer and your feet are in the oven.

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Jason (07:23):

I will borrow that in the future. So in that 22% there are a bunch of winners and losers. To me they've been somewhat shocking. Grocery is a minor loser in that. And again, I would've predicted them to be a loser. Gasoline is a huge winner, which I would've predicted to be a loser. The biggest winner of all, and this is pretty funny, it's unfortunate that this is a category because it's not really a category, but the way the US Department of Commerce counts categories, non-store sales or e-commerce is a category. And the biggest chunk of retail spending went from stores to online. And on the one hand you go, oh, that's intuitive pandemic scared people away from stores, they shopped online.

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(08:11):

The reason that's slightly controversial is because there's an article every week in the Wall Street Journal with this same graph of the same US Department of Commerce data from some company laying off all their e-commerce employees talking about how we had this big spike during the pandemic and then it regressed right to the mean and everybody over invested assuming e-commerce was going to be this huge acceleration and it wasn't.

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(08:39):

So if that's true, then why is Jason-

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Andrew (08:43):

How do you explain the discrepancy there?

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Jason (08:45):

Again, this new hobby, I'm discovered math, which I'm now terrified to say because I realize you took a statistics class. So now I'm feeling over my head. But here's the deal, that chart that everyone's familiar with, redressing to the mean is not a chart of e-commerce sales, it's the ratio of e-commerce to retail. So it's what percentage of retail is e-commerce. And it turns out when the denominator, the number on the bottom retail is wildly fluctuating because of all these pandemic trends, then that ratio wildly fluctuates. But if we just graph e-commerce sales, how much up are they from before the pandemic? Just 94%. So they've nearly doubled. And there they're wildly ahead of our pre pandemic forecast. So e-commerce is a big thing.

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(09:41):

It's a bigger thing in categories that were less mature before. So e-commerce did redress in apparel for example, where it went to a hundred percent during the pandemic and then has come back down to earth. But in places like automobile and grocery and even home improvement that under indexed on e-commerce share before the pandemic, there's been a very permanent adoption of e-commerce.

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Andrew (10:09):

So we're really seeing customer behaviors in categories that were perhaps less mature in e-commerce really stick around post pandemic. Glad to hear that. Of course. I'm sure retailers in those segments are also glad to hear that as well. I want to switch topics over to timing and sequencing for retail this year. As everyone knows we are heading into or really are into retail's golden quarter right now where the vast majority of retail spending happens throughout the year. UPS put out some data about a week ago saying that they're expecting shipping volumes to spike later in December this year than they have in previous years. I'm curious, is this the harbinger or the end of shop early?

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Jason (10:54):

No, the real answer is I don't know. I'm pretty confident UPS also doesn't know. I work with a lot of big retailers and they certainly don't know. There's so many variables. This is such a complex ecosystem that we really don't know. Remember, UPS is not a surrogate for e-commerce, much less for retail. So historically, people that shop later do lean into e-commerce more or at least a significant subset. So UPS could be absolutely right that they're going to have a more pronounced spike this year versus last year when a higher percentage of overall retail sales was e-commerce and therefore a higher percentage was attached to UPS. There's this weird dynamic. Amazon has largely weaned itself off of UPS. Amazon is, depending on how you count about 40% of e-commerce by themselves. So the UPS trend is really the non-Amazon e-commerce trend.

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Andrew (12:04):

Yeah, it makes sense. Retail for the rest of us.

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Jason (12:07):

So there's some panel bias in there. And so the folks that want to get from Macy's that are late shoppers and this year I just think there's going to be so many micro trends going on it. Holiday started earlier than ever in Amazon had a second prime day. All the other retailers matched it with early sales. So on the one hand that has all these flat in the holiday potential trends not necessarily pull everything in, but it would make the Cyber 5 or Turkey 5 shallower. That's a common trend that almost certainly is going to continue this year. Those are still important days, but not as important as they once were. Supply chain is still a cluster right now. I'm talking some of the largest retailers in the world and the CEO of one of them said to me, I did a fun thing this year. I went to the docks in Long Beach and watched them unpack my Christmas last year and this year together.

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Andrew (13:06):

Multiple seasons in store at once.

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Jason (13:10):

And so there's a lot of inventory that may or may not match what customers wanted to buy. A lot of the goods that are coming in were purchased at a time when consumers were a little more flush and were doing pandemic spending. So that skewed them to certain categories. And now they're less pandemic spending and more economic headwind spending on more essentials. And so there's a mismatch between a lot of the inventory coming in for retailers and a lot of the current consumer spending trends. So all of those things are going to play out in a complex ecosystem. And at the end of the day, I have no idea. Because planning is so hard. I will be very surprised if folks like UPSs actually end up with enough a capacity for their demand. Because I think it would be too risky for them to muscle up for what they potentially will get.

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Andrew (14:05):

Makes sense. So hard to predict. Of course every retailer is going to take a different approach with the glut of inventory. Obviously discounting and liquidation are common tactics there. I'm curious for some of your thoughts here. Hasbro was the latest retailer to report an inventory related operating loss. Just piling onto the inventory glut story in retail right now, that operating loss was 31% change year over year. Significant, massive. If we were talking about the impact of inventory forecasting, it couldn't be more important. We're talking about a third of operating income lost by Hasbro this year. Between Hasbro, Target, Walmart, Nike, Adidas, you name it. Any big lessons learned here?

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Jason (14:54):

So I certainly think that is going to be the trend this year. I think revenue's actually going to end up being pretty healthy, but profitability will be horrific because of that particular trend. It's hard to take a long-term lesson because so much of that inventory mismatch was this unique blend of circumstances of zero COVID policy in China and bottlenecks in shipping that are now gone and wild pivoting consumer spending from the pandemic to the recession. It's hard to say let's write this down in the books and make sure we apply it to next year's formula because, I'm going to be pretty depressed if the same factors are impacting the market next year as did this year.

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Andrew (15:45):

Absolutely. A hundred percent. What I was more thinking of were some of the secondary effects. So obviously, or not obviously we're all hoping that there's not another pandemic next year or something related or anything like it. The lessons perhaps I was alluding to were how quickly consumer behaviors can change and really from any factor pandemics included. I think some of the lessons that I'm hearing from retailers that they have learned is that maybe some of the bets and investments that they're making, they can't make with 18 month timelines anymore because consumer behavior is changing. Curious if you're hearing anything similar?

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Jason (16:31):

For sure. There's the great quote, the pace of change has never been this fast before and it'll never be this slow again. It's absolutely true that everyone is saying, Hey, if this is the rate of change, then I need a more agile operating model. It already has caused a lot of retailers to rethink sourcing, to be more agile.

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Andrew (17:00):

I want to dig into that for a second, rethinking sourcing. How are they rethinking sourcing? Any examples you could say?

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Jason (17:06):

Twofold like the superficial one is multi-sourcing and multi origin sourcing. So instead of buying everything from China, let's make goods in China and in Thailand and in Costa Rica and have a little more robustness in our supply chain. But the bigger thing is to get better and faster at matching supply and demand. So the model that a lot of us are talking about out there right now is a vilified company. The largest apparel retailer in the United States of America is this company called Shein. And they're thought of as a evil, fast fashion company that makes a bunch of disposable apparel, which might be partly true. But here's the dirty fact the vast majority of apparel manufacturers in the world throw away 50% of their apparel without ever selling it because we're so bad at matching supply to demand. Shein is a realtime demand system.

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(18:11):

They're listening to signals on social media in a matter of days, not weeks, months or years. They're fabricating goods and selling them to a consumer. So they've dramatically narrowed the window and therefore are able to match to supply to demand much better. And almost every apparel retailer in America, their model is merchant prints. Let's have the smartest dude because it usually is a dude, sadly, but smartest person decide what Americans will wear next year and then they go order all the styles. And Shein absolutely is not dictating any styles. They're listening to the consumer saying what style she's interested in and getting those in front of her really quickly. And so I'm not super bullish necessarily on Shein, but I am super bullish on replacing the sort of intuition of a merchant with very fast realtime data. And I think we're starting to see a lot of other retailers take baby steps in that direction to match supply, to demand better and certainly faster.

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Andrew (19:17):

Absolutely. The merchandising is often called an art and a science and it feels like that balance is shifting really into science almost entirely. Retailers like Shein are really digging into big data, AI and really trying to process that data quickly enough that they can basically meet trends on demand with the right inventory at the right time, which is pretty incredible. Curious, kind of taking a shift back toward multi-brand retailers. So retailers that aren't doing a ton of manufacturing themselves aren't private labeling a ton, any big lessons they're learning in sourcing> they've been so reliant on brand and vendor partners who didn't have stock. Are they expanding the number of brands that they carry? Are they leveraging vendor fulfilled or virtual inventory more? Just curious for your opinions there.

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Jason (20:12):

Well so in general I think they're trying all those things. I don't think any of those things are being particularly successful. I think the big lessons for those retailers is it's becoming harder and harder to make a living selling other people's stuff. And so we've all heard the old joke, it's been around for 30 years, get rid of the middleman. Wholesale retailers that buy stuff from Nike and sell it to consumers are middlemen. And not saying that's going away tomorrow, but it's a less lucrative business than it ever was before. And for a lot of the traditional reasons that middlemen go away, they provided a valuable service when it was really hard to get the goods from the idea of the inventor to the consumer. But as the world gets more efficient and more object oriented where all these services that inventor needs are just an easy click away, the need for those middlemen become less.

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(21:12):

And so increasingly you don't see a lot of new brands being born on the shelves of retail stores with one notable exception. So it feels like they're doing lots of things to elongate that model as long as possible. But the general evidence out there is there's going to be a few consolidators in every market that sell everything. And they're going to win on huge breadth of assortment and convenience and price. And then there's going to be a bunch of curated retailers that largely sell exclusive goods that are only available through that retailer. And we're going to see a lot less Bed, Bath and Beyonds that are a specialty retailer selling other people's stuff.

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Andrew (22:02):

That makes a lot of sense. In the enterprise space, I imagine those that use and leverage customer data as much as possible are the folks that will win there, they'll have the right assortments, they'll have the right breadth and depth. Curious for your opinion there, is data truly the advantage?

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Jason (22:21):

It certainly is one of them. Going back to our previous point, again, you can make a lot of money in an eroding market, you can make a lot of money in a shrinking market. The people that will do the best are the people that can be most accurate. And data is certainly one of the competitive advantages that can give outsized returns to people that are collecting more of the right data and more importantly, being able to act on that data. At the moment I see a lot of retailers skewing towards the former than the latter. They're really focused on trying to improve their data collection and they're not doing enough with the data they've already collected.

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Andrew (23:07):

Absolutely. Wanted to turn our attention to a brand that's perhaps using their data in a highly valuable way. And it was a leader that got up at grocery shop about a month ago and talked a little bit about their trends and how they see the future. So the head of Thrive Market got up and basically told the audience that private labels at Thrive Market are the wave of their future. They're the best selling and they're the most reordered brands that Thrive carries the business does a hundred million dollars alone for them. Obviously this is a success. From a data perspective, what long-term advantages are they building?

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Jason (23:49):

Well numerous, so specifically in response to your question, they have a direct relationship with the customer. If you are a brand that doesn't sell direct to the consumer, so you're selling through intermediary, you actually don't know anything about how the customer found your brand. So you don't have a search engine that sees that everyone is searching for sriracha flavored broccoli and you're only selling regular broccoli. But if you're Thrive Market and you go, huh, we sell these wildly popular broccoli chips and everyone's searching for sriracha flavored and they're getting no results found, guess what the next private label or I elevate that term, I'm going to call what Thrive Market is doing an exclusive brand, which I differentiate from a traditional private label.

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(24:45):

But you can use all that data of the pre-shopping behavior of the consumer to inform what products you make. And in the same way Shein has to go out and listen to all these social signals to figure out what customers want. If you're a retailer like Thrive, you already have a bunch of buying intent on your platform. You have to listen to those first party signals to tell you what customers want and they're doing a good job of that. Certainly in the overall retail ecosystem. I think of Target as doing a particularly good job of that as well.

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Andrew (25:17):

Absolutely. Major retailers are making quite a bit of hay with private brand and of course exclusive brand investments. I'm curious, there have been failure stories in private labels, they're not over prevalent I would say, but there are failure stories in private label. How can a retailer that perhaps either hasn't engaged in private label before or has had a rocky start perhaps leverage other brands to test the waters before they enter?

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Jason (25:52):

Well, so I would say if you're just trying to toe dip, you can eliminate a lot of the complexity by partnering with wholesale brands on an exclusive offering. So that could be an exclusive variant, it could be an exclusive pack size. You can start to get some experience around merchandising these exclusive brands. You don't necessarily have to be the inventor and the manufacturer of those exclusive brands, although there's some additional benefits to taking on that fully integrated supply chain. So that certainly is a way to toe dip. But what I would say is the ones that are successful and there absolutely are ones that are not successful, the correlation I tend to see is the ones that are successful are not doing private label, they're doing exclusive brands and the ones that are not successful are running the private label playbook that was wildly successful in 1995 and they're trying to do it now and it just doesn't work.

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(27:02):

And so for folks that might not know what I'm talking about, private label is you knock off the value prop of a popular product and you offer it at a lower price. And you don't have to pay any marketing or customer acquisition cost because your customer acquisition it's on the shelf next to the national brand. So you got a headache listening to Jason on a webinar, you go to Walgreens and right next to Advil is Wal-buprofen and Walgreens didn't have to advertise Wal-buprofen, it's just sitting there next to the Advil and there's a big sign on the bottle that says same as Advil only cheaper. And that worked pretty well for a while and was an important part of the mix. It's 18% of most grocery stores. When I'm talking about exclusive brands, I'm talking about a retailer inventing a version of a product that didn't exist and appeals to the consumer more than the existing options.

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(28:01):

And in order for that to work, the retailer has to market that product. They have to act like a brand. So they can't simply act like a retailer and pretend they got this product from someone else and just throw it on the shelf. They have to take on all of those brand building responsibilities that Proctor and Gamble would've done for the product before. And so for the retailers that understand that and execute that play, it's working pretty well. But for retailers that just go to a factory and get some new Tupperware made and put it on the shelf and go, this Tupperware isn't selling really well, it's not working.

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Andrew (28:41):

They're finding out why. So it sounds like there's just been a real shift in strategy in terms of trying to capture demand that's really a proxy or an offshoot for a national brand. So that makes perfect sense. We have a couple of minutes left. I wanted to get to a question where we're showing some data that there's an increase, this is from a JLL survey by the way. There's an increase in folks that are planning to shop in store this holiday season. I'm just curious, what do you think is driving that increase? Is it folks want to trial stuff, they want to experience the ambiance of stores again after not having done so for a couple of years, they're trying to avoid shipping costs. I'm just curious, what do you think some of the drivers are behind a return to store?

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Jason (29:29):

So my first answer has to include my smart ness. The main thing driving that is that consumers don't actually accurately answer surveys, right? Sure. So that's a stated intention and they probably also taught you in statistics class that observed behavior is a lot more accurate than stated behavior. I did a study of alcoholics and it turns out they can all stop drinking whenever they want. So I do think people are likely to return a store in some categories. Earlier in the year, there was a lot of pent up demand as people kind of rolled out of their pandemic bunkers. We certainly saw pent up demand to go back to stores. That's starting to dwindle. We've actually seen actual data from the people counters on the front doors start to wane for some of those stores.

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(30:32):

Traffic still is not back in many categories to pre pandemic levels. And so when they say they're going into the stores more than when they never left the house or more than 2019. But for sure probably the answer you were more expecting is in the cases where people are going to the stores, it's for a differentiated experience that adds some value you can't get from Amazon or UPS or e-commerce experience.

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Andrew (31:03):

I'm curious, what are those just in your opinion, when you look at retailers out there today, what are the differentiated in-store experiences they are offering?

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Jason (31:13):

Well the trite answer is always experiential retail. Again, shopping is 97% subconscious. And so needs fulfillment is something certainly. I need toilet paper so I go to the store to get toilet paper or I order toilet paper online. But often when I go to the store, I'm also going out to get a coffee from the Starbucks and I'm seeking some interaction with the sales clerk. There's this joy of discovery and when we talk about e-commerce does some things really well, we talk about e-commerce solving, buying, but breaking shopping, there's not a lot of great discovery experiences online. And so when people just want to find a fun new food or a fun game to entertain their kids or something else, the go-to answer to that is a great experiential retail store, not a website. And so I certainly think that is a primary driver.

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Andrew (32:19):

Absolutely. We just have a minute left, so I just have one more follow up question before we wrap up today. If the in-store experience is differentiated by interaction with the store clerk or discovery, an item you mentioned before was that the big retailers that are going to win are going to have the widest assortment, the greatest breadth. I just want to marry those two concepts for a second. Do you see differentiated experiences driven by things like endless isle where someone can go talk to a store clerk, maybe they do some discovery around the store and the store clerk can offer further options based on maybe there's a kiosk or a tablet or just in the knowledge of the store clerk of what they have that perhaps isn't on the store floor?

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Jason (33:07):

It depends on how you count. So the real answer is traditional endless aisle, I'm not that excited about. If someone went to the store to get an item and it's not available on the store and we go, okay, well we're going to let them pull out their phone and order it while they're standing on the aisle, that happens. But is that a huge opportunity that a bunch of retailers are missing out on? I actually don't think it's the last click happening in that store as a result of that store experience. It's mostly a fail if you need to use endless aisle for someone that visited a store. So if you're counting through our traditional attribution system, I would say no. But the reality is what's really happened is the shopping journey has been fragmented and decoupled. And so who wins are omnichannel retailers that provide a great experience at every touchpoint, wherever and whenever she wants.

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(34:09):

And so in that context, I could go to the store for a discovery experience, have a discovery experience, not buy anything, and then buy that product a week later in a totally different context. That visit to the store, totally drove that sale. Another social post I made recently is Forrester does this great study of digitally influenced sales, and that's 61% of all retail sales in the United States of America right now are digitally influenced. So digital is the front door of every shopping experience. It's going to be 70% by 2027. So through that lens, the retailer that can earn that sale, it's a tragedy if you're brick and mortar retailer that can only capture the money in the store and you create demand that then gets fulfilled by Amazon. That's not a very sustainable model. But if you're an omnichannel retailer who can use that touchpoint to increase customer lifetime value, then that that's a great way to play it.

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Andrew (35:19):

Absolutely. And what a great note to close out on digitally influence sales. Obviously hard to attribute, but I think all retailers are certainly getting better at it. We are just about out of time. Thank you to everyone for joining today. I want to encourage everyone to please follow Jason on Twitter at Retail Geek and listen to the Jason and Scott show, a great podcast for retailers. This has been the fourth episode of Recession Retail. Next week we have Brian Lang coming on and we are going back to basics. We are going to discuss how retailers can revisit some of their core principles while they are chasing the next big thing. Again, this has been Recession Retail. I'm Andrew Goodman and thanks for joining today.