The Need for Speed in a Market Downturn

Andrew Goodman (00:00):

Thank you everyone for joining this morning, really appreciate your attendance. Welcome to Recession Retail. We are live from my basement in sunny Denver, Colorado. My name is 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. For everyone listening, it has been 13 years since the end of the great 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 retail when cash is tight, which of course it is, has never really been tighter than it is right now. In this series, we are chatting with a wide variety of retail experts.

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(00:41):

Last week we had Rick Watson. This week we have Liza Amlani. Next week we have Neil Saunders, and then in the weeks following, we have Jason Goldberg and Brian Lang, and all of these conversations are really about one singular topic.

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(00:55):

How can retailers navigate the current state of the world? So our guests today who just joined us, welcome Liza. She has spent over 20 years in really every retail position you might imagine in buying, in merchandising, in product development, in sourcing. She's had kind of tactically and functionally every role that you might be able to imagine in retail and of course, which then led to her launching her consulting firm, the Retail Strategy Group, and of course the well-known retail newsletter that if you haven't subscribed, please subscribe The Merchant Life. For my audience today, my colleague Nikhil is keeping an eye on the chat, so please use it generously. We would love your participation. Great to have you on this morning, Liza, thank you for joining us.

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Liza Amlani (01:41):

Thank you so much for having me, and thanks for plugging the newsletter.

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Andrew Goodman (01:45):

Oh, absolutely. It's really one of the best retail newsletters out there. It's where I get a lot of my retail news, constantly scouring your website, which I'm sure you're seeing with some of your intent tools if you've got them installed on your website. It's right up there with everything I see from Retail Dive and Retail Wire. Such good advice and I would say some of the more unique advice out there that isn't on other platforms, so absolutely keep it up. Speaking of The Merchant Life-

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Liza Amlani (02:12):

Thanks, Andrew.

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Andrew Goodman (02:14):

Oh, of course. Speaking of The Merchant Life in a recent issue, I think it was two issues ago, you mentioned that if it looks like a duck and talks like a duck, it's probably a recession. I'm curious, in your engagement with retailers and several of course engagements with retailers, what are some of the indications that they're seeing that kind of lead you to that strongly held belief?

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Liza Amlani (02:40):

Yeah, great question and thanks for again highlighting the newsletter. And I think it's helpful to provide additional context as that addition of the newsletter was released in August and at that time we studied different indicators of economic activity and analysis that we receive as being part of the FDRA, the Footwear Distributors and Retailers Association. Shout up to those guys obviously, and the data that pointed to two consecutive quarters of economic contraction and according to economists, this is a textbook definition of a recession.

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(03:16):

Other things to consider of course is inflation is still trending upwards. Consumer debt levels are climbing and the rise in interest rates means that it's getting more expensive to service that debt. However, as discussed in that newsletter, we have to consider that we're coming off of a fairly historical high-end consumer spending and demand. So I would argue that there is a strong element of resettling more so than a recession, and a resettling of demand spending priorities.

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(03:49):

In the short term, there will be pain to be endured, but in the long term, I think there's a really good opportunity for retailers to recalibrate how they go to market. This is something that we are seeing, of course, with all the news on excess and re-forecasting. So I think this is really the time that the retailers need to take that opportunity to shift and rethink how they go to market.

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Andrew Goodman (04:13):

Interesting. Resetting is a very unique way to frame it, and I think this is, you're absolutely right. This is a great opportunities for retailers to reset. In the past, one of the kind of mantras you've put forth is that this is a great time for retailers to act and see versus wait and see. I'm curious from an opportunity perspective... Well first, what does that mean? What does act and see versus wait and see mean? And then second, if this is a good time during a reset for retailers to kind of reconsider how they operate, what sort of consideration should they really be holding right now?

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Liza Amlani (04:49):

So when we think about act and see versus wait and see, what we want retailers to do is to take this opportunity to rethink how they're going to market, how much product they're assorting, how they're creating that product, and what it takes to really think about what the consumer is looking for and leverage those insights to act now and think about how they're going to incorporate and leverage that data into what they're putting out there on their shop floor, on online, across channel. And that's what we mean by act and see.

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(05:26):

We're seeing that a lot of retailers are in triage mode dealing with a lot of the excess that they have right now, canceling orders, packing and holding orders, and also excessively marking down product. We're seeing that this from Nike. We're seeing this from many retailers and brands, and the fact is that when we start marking down product, we have the tendency to provoke the customer to shop on sale, right?

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Andrew Goodman (05:59):

Absolutely.

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Liza Amlani (06:00):

And the fact is we don't want to devalue our brand either, so the point is really to think about how we can act now, re-strategize how we're building those assortment plans, how much product we're buying into and what the right quantities should be. Technology will absolutely help with that. Things like predictive analytics and of course digital capabilities, like digital product creation, getting us faster to the market.

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Andrew Goodman (06:28):

Absolutely. Technology is an interesting topic that I wanted to dig in here. There was an article in Bloomberg this morning, really that technology failed in this case at most major retailers, Target, Kohls, Walmart, everyone is up 30, 40, 50% year over year in kind of inventory levels. Of course, exuberant optimism is one way to describe how some of these retailers were projecting sales to continue post pandemic. I'm curious if it is a technology investment at this point, where should retailers be focusing in your opinion?

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Liza Amlani (07:03):

I love this question. As a former Merchant planner, product creator, I would say absolutely in those areas. When we're thinking about assortment planning, leveraging digital tools and trusting the technology that they are smarter than you. Mirroring art and science to make those decisions on quantities on product mix. And then within product creation itself, leveraging tools like digital product creation, digital twins, digital sampling versus physical sampling. All of that is not only going to get you faster to market, but it's also going to get your teams working differently.

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(07:46):

And once they start working differently, we can think about the calendar that gets us from concept to market and those milestones that are important, where teams will come together and make decisions and formalize those moments, where we can start leveraging things like consumer insights, things like innovation, and of course closing the customer feedback loop.

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(08:10):

I think this is something that is absolutely critical, as we start thinking about what we're putting on the shop floor, what we're putting across our channels and what consumers want to engage with and how are we dealing with the gaps in the assortment, or the returns that we're getting and analyzing why folks are returning product. And how do we close that feedback loop, so that we are providing the customer with the right product at the right time and in the right place.

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Andrew Goodman (08:42):

Absolutely. Makes perfect sense. You mentioned kind of speeding up concept to market and that kind of whole process that retailers just go through year after year. What would you say are some of the biggest opportunities along that cycle, where retailers are just very slow right now and it is slowing down their kind of gross overall speed to market?

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Liza Amlani (09:02):

That is a loaded question and that I'll-

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Andrew Goodman (09:08):

Totally fair.

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Liza Amlani (09:08):

... respond to. Now, speed to market is something that I talk with market leaders and brands with quite a bit. Working with some of the larger performance retailers, we know that it is possible to get faster to market. We also know it's possible to get faster to market when we look at Shein, when we look at Zara, of course there's other challenges with those ultra fast fashion retailers, but the fact is we know that fast is possible.

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(09:39):

The thing that these ultra fast fashion retailers are able to do is react to shifts in the consumer buying behavior in trends, but they're able to predict right time, right product, right time, right place better than most. And the way they do that is by leveraging technology. Coming from that merchant space, I can tell you that we don't leverage technology the way that we should.

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(10:09):

There's a lot of manual interaction that comes with going from concept to market, and that's where I would suggest thinking about the process steps across the product creation process, and where redundancies are happening and how to bring teams together to talk about what is most important to the customer. Putting the consumer in the middle is critical, and that is what will drive speed to market and it will change the mindsets and behaviors of a lot of old school thinking and old school ways of working, where we need to stop trusting our gut and trusting the tech a little bit more.

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Andrew Goodman (10:53):

Makes perfect sense. I'm curious, in aligning to the consumer and what they want right now, how can retailers and what KPIs and metrics should retailers be thinking about that can most closely align them to kind of consumer demand right now?

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Liza Amlani (11:13):

KPIs have shifted slightly. I mean the traditional KPIs like sell through full price sales, increasing gross margin, reduction in markdown activity, and of course no excess at the end of season. These are KPIs that still stand true. What I would say is we need to start thinking about customer lifetime value and loyalty as it relates to the product assortment. These are very familiar KPIs in the marketing world, not so much in the product creation merchandising world.

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(11:51):

When we start thinking about how often customers are coming back season after season at the rate that we're closing the customer feedback loop, these are examples of KPIs that retailers should be using to keep pace with the consumers. And that will translate into, again, full price sales sell throughs, increased gross margin reduction in promotional and markdown activity, and of course that end of season excess.

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Andrew Goodman (12:20):

Yeah, absolutely. One thing you seem to focus on in that response was existing customers, of course retailers have never seen higher costs, especially digitally for new customer acquisition. With a focus on existing customers, how can retailers think about how they can become more to their customers, in terms of their assortment strategy in the next let's say 12 to 18 months?

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Liza Amlani (12:46):

Well, I would say putting the consumer in the middle of your retail end-to-end is key. From the start of concept, understanding what the consumer wants all the way through to shop floor with your brand ambassadors, your visual merchandising. Are you telling a story that's going to engage your customers, so that they interact with you across all channels? This is something that really and truly puts that customer in the middle of everything you do. And I'd love to give you an example of someone that, of a brand that I was just had-

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Andrew Goodman (13:22):

Yeah, that sounds great.

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Liza Amlani (13:24):

... commenting on them, which is Aritzia. Their numbers came out yesterday I believe. And I believe they have that secret sauce down pat. They not only have the right product assortment at the right time in the right channel, they have seamless customer journey. They also truly-

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Andrew Goodman (13:48):

Sorry, to interrupt you for one second. What goes into that seamless customer journey? What steps are they taking that no one else is?

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Liza Amlani (13:56):

There are other brands of course doing a great job, but I would say the reason that brands and retailers are successful in driving a seamless journey is when they truly understand that the consumer does not see channel. And once you understand that, you will know that even though your consumer may be digital first, or which many of us are, I am as well, or they go into the store weekly to see what's new.

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(14:29):

The fact is once you understand that the consumer doesn't see channel, you'll start thinking about the consumer journey outside of channel. So no matter where the consumer is, if they're shopping online, if they're on social, or if they're engaging with a brand ambassador that is product obsessed just like them on the shop floor, that's where you're going to really trigger that delightful product journey.

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Andrew Goodman (14:55):

Yep. Makes perfect sense. Really firing on all cylinders in every channel, because consumers aren't single channel, they're omnichannel, but you're absolutely right. They don't see channel, they don't see themselves as digital first or store first, a 100%. Great example of a retailer who is nailing it right now, curious on the opposite side without piling on too much, who's not necessarily nailing it. And I'm, I'm really want to dig in on speed here. So who's a good example of a retailer that in your purview is not nailing it, and it's because of lack of speed?

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Liza Amlani (15:34):

Well, the first retailer that actually comes to mind is Gap Inc. As much as I love what Gap used to stand for, I think that is something that is lacking in their product assortment and how fast they get to market. And the reason I say this, is because they have excessive markdowns, they have a lot of inventory on the shop floor, there's a lot of broken sizing. These are things that tell me that they are not leveraging consumer insights and they don't know what their customer wants, and you could see that across their brand umbrella. And I don't want to diss The Gap in any way, because I do think they do have some great product, but I do think that they have a lot of skews.

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(16:21):

I think that they do not speak to the customer in the way that they need to be spoken to in terms of a size inclusive perspective. I love that they went in that direction with the Old Navy, but there was such a miss, because they assorted every single size and that's not how their shopper wanted to shop. And that means they did not leverage consumer insights or close that feedback loop, and that tells me that they are slow to market.

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Andrew Goodman (16:48):

That makes perfect sense. I want to make a parallel between Gap Inc and some of the retailers you mentioned earlier, like Shein and Zara. What lessons could Gap really take from Shein and Zara in terms of consumer insights, leveraging consumer insights and really getting closer to their customer?

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Liza Amlani (17:08):

Well, the first lesson is that fast is possible, they prove that. And speaking from one design led brand to another, because that's what Zara and Shein are, is that leveraging consumer insights throughout the product creation process, throughout the assortment planning process, and to actually act on those consumer insights is where the power is. The fact that Zara can not only take what is trending on the runway and get it into the shop floor in about 30 days, that tells a lot about how Zara is listening to what their consumer wants, what they're paying attention to, and what trends are going to drive high volume sales.

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(17:55):

And you can see that because of course, how many stores Zara has and how deep they are into each category and into each style and skew. Shein also does the same thing, and I think Shein as... I don't want to put them in a box, but we know that there are a lot of challenges with Shein and with Boohoo and all of these digitally ultra fast fashion brands. The fact is that they leverage insights and consumer trends like no other.

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(18:30):

They also leverage influencers and their consumer base to drive a lot of product decisions, and that tells me that they're collaborating with their customer as well as listening to what they're looking for from a product assortment. And that is two-way engagement and two-way communication, which in turn builds that deeper relationship with their customer and the customer trusts them, to bring product into the assortment that they know that they're going to buy or need.

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Andrew Goodman (19:00):

Absolutely. They almost have a prescient ability to kind of understand and know what the customer wants next, which is truly incredible. I want to rewind the clock a little bit in your career. So in your career, earlier on you were working for Ralph Lauren and of course in the realm of speed, the bottleneck has moved over the past 5, 10 years. I'm curious, what were some of the signs that you noticed in your time at Ralph Lauren that you were slow to market? And are those signs still the bottlenecks at retailers or have they changed completely?

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Liza Amlani (19:41):

So I worked with Ralph Lauren for many years, on and off for 20 years as well as other brands. And what I will say is this includes the brands that I work with today and even market leaders that are trying to shift the way that they're working. We are buying into products so far in advance that we are so removed from the selling season, and I'll give you an example. When I was a buyer, even when I was buying for a retail, a multi-brand retailer, and I was going into Burberry and buying from Sketchers, which is unreal still to this day, that it's very hard for people to grasp that.

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(20:23):

We did not have current selling data, so we're buying into fall '23 let's say, but fall '22 hasn't hit the floor. And we're buying into similar product in depth, but we don't have a reaction from the consumer. So we can't actually make changes to what we're buying, because we're buying so far ahead of time that we can't react to what the consumer is feeling and thinking and wanting to buy from us.

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(20:52):

And that is still happening today across brands. And in fact, I would say that we're even further from market across many brands, because of the padding that's happening in the calendar, the concept to market calendar. We're padding raw material shortages and the fact that we have to chase a lot of material developments. We're also bloating the calendar and the processes within that calendar, because of supply chain challenges that we know are still coming.

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(21:25):

Supply chain chaos is not over. The disruption is still here. It's here to stay until we start shifting the way that we're planning assortments. So if we think about the customer and what they're buying from us over and over again, they're always going to come to us for season-less core basic items. These are items that can be bought way far in advance, but what you can do is look at your fashion and innovation and spend time in that product mix, versus spending all your time in the same places during the same guardrails. And I know you've read a lot of my work, and so you understand where I'm coming from, when I say we need to shift how we are going to market and not all product is created equally.

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Andrew Goodman (22:16):

Yep. Makes perfect sense. It sounds like speed is the stalwart here, that it's the time from the buy to the moment the inventory hits the shop floor or the website, if you're a digital first retailer, that is really truly the missing link here. How much would you say speed and the distance from kind of point A to point B is responsible for the current inventory buildup kind of plaguing retailers at the moment?

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Liza Amlani (22:43):

I would say it's a big part of it, because if brands and retailers were leveraging not only the right tools to assort product and predict what the customer wants, but the fact is if we are buying so far in advance, we're not able to see what's coming and we're not able to react in season, or have an open to buy open in season to buy into product that the customer wants. I think that because the last few years were a bit of an anomaly, the way that brands were forecasting and projecting sales was inflated and a lot of brands were afraid of supply chain disruption and not getting product on time for the holiday season.

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(23:35):

And as you know, and most retailers and brands on the call will know that a lot of us make our year on the back end. So if we don't have product and we have stock-outs, we're not going to make those projected sales. So I think a lot of brands are moving up product, but now they're dealing with excess inventory.

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(23:58):

Putting that consumer in the middle will drive a lot of speed within the calendar, because we're going to start shifting the way that we're focusing on having the right product at the right time and the right place. I know we talk about that a lot, but I do think that leveraging things like consumer insights early on and the ability to react to where the consumer wants to buy into product, and how much they're willing to spend is an important aspect of creating the right product assortment.

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Andrew Goodman (24:32):

Yep, completely agree. Just looking at the clock, look, so we have about five minutes left, so wanted to... Time is flying, so just wanted to make sure I got this particular question in, which is related to really our whole conversation so far. How can retailers use the excess inventory problem that is clearly plaguing the industry right now as an opportunity to improve speed? Of course, with every challenge comes in opportunity, so where is the opportunity here?

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Liza Amlani (25:03):

Well, what I would do is I would reframe the discussion and I would say first of all, that excess inventory is not the problem. Retailers should look at this as an opportunity to cleanse their stock of dead weight and rethink how they create product and go to market. This way we can get to the heart of the matter, which is merchandising strategies, enabling access that accumulates. And retailers need to better understand who their customers and what they want to see from them.

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(25:35):

If we are setting up ourselves, brands and retailers, to incorporate consumer insights and feedback into product creation and assortment planning, then they would be faster to market and they would use data to leverage and drive better decisions around product, which in turn would reduce excess. So thinking about excess as not a problem, but a means to an opportunity to cleanse the stock of product that doesn't work, that's how we need to start thinking about merchandising strategies and really get to the heart of why are we creating so much product and why are we assorting product that the customer doesn't want?

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Andrew Goodman (26:18):

Makes sense. It almost feels like the excess inventory problem is a lagging indicator of kind of more central challenges that retailers are facing today. One of those challenges, it feels like retailers aren't kind of making bets very often. They're not making smaller, more short term bets. The bets that they're making are these 12 to 18 month kind of massive inventory bets instead. I'm curious in the realm of making bets, especially online, where do you feel that things like virtual and vendor fulfilled inventory play a role versus buying inventory?

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Liza Amlani (26:54):

Well, I think that there is a big plus to things like virtual inventory or not holding stock. You have the opportunity to curate product, as long as the product is available to reflect what the consumer wants at that time. This way, the retailer or brand can quickly react to shifts and trends, then buying into a brand a year ahead of time. The downfall to this is if you're not deliberately incorporating those consumer insights and selling data into the assortment, then it won't matter how you're fulfilling orders. So really and truly getting closer to the customer is key, and closing that because customer feedback loop is an indicator.

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Andrew Goodman (27:40):

Yep, completely agree. Liza, I just looked at the clock. Unfortunately, we are out of time, so I just wanted to thank everyone for joining us today, really appreciate it. I wanted to thank you in particular, having experts like you on our show, it really provides the insights that a lot of retailers are needing today. So before we sign off, I wanted to encourage everyone to please follow Liza on LinkedIn. Subscribe to The Merchant Life Newsletter, you will not regret it. It will be the best newsletter you subscribe to this year.

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(28:10):

And please also check out retailstrategygroup.com, Liza's consulting website. This has been the second episode of Recession Retail. Next up for next week we have Neil Saunders and we're going to be talking about the need to take risks during a risk session. So thanks everyone for joining this morning. We'll see you next week.

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Liza Amlani (28:29):

Thank you.