Guest: Dana Telsey
Topics: Telsey Advisory Group, COVID-19

Transcript:

Chris Ressa 0:02
This is retail retold the story of how that store ended up in your neighborhood. I’m your host, Chris Ressa. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC management.

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Hey everyone, welcome to retail retold say we have a special episode for you. Today. I do a fireside chat with Dana Telsey. Dana is one of the retail industry’s biggest influencers. She’s the CEO and Chief Research Officer at the Telsey advisory group. The Telsey advisory group’s research team covers US and international companies across all market caps in many different sectors of the retail industry. I think you’re gonna find it really educational. We discuss a lot of things retail as it relates to what’s going on with COVID-19 and the Coronavirus. But before we get there, I wanted to talk about something that you’re reading a lot about on social media. And that’s just working remotely. You know, one of the things that’s hit home for me is that the human connection is really, really important. I’ve been in my basement where my office is really, you know, stuck down here working long hours, you know, working through all the challenges that the pandemic has caused. And it’s, you know, you’re by yourself. Yes, you get to do Zoom video calls, which are hugely helpful, but it’s not the same. The human connection is so powerful. And I think, you know, there’s a lot of talk about what will happen post Coronavirus, and I think whether it’s retail or office, I think one of the things no matter what has happened, you know, I think the the world will figure out a way to make everybody safe. At some point in the future, we will hopefully have a vaccine. But I think one of the things that we’ll overcome is the human connection. We are not meant to just be inside isolated alone. And I think never more than now that people started to realize this. I think one of the big boosts to the economy coming out of this will be the need for human connection. And so, as we’re stuck inside, I hope you get to spend some time with your family. And really, you know, that’s been my biggest human connection. And I’m so grateful for my family.

And I hope everyone’s healthy, safe. And hopefully we can get through this and get back to having regular in person, human connections. And with that, I hope you really enjoy this episode. I learned a lot. I’m sure you will, too. And tune in next week for a new episode of retail result. Thanks, everyone. Enjoy the show.

Hey, Dana. Hi,

Dana Telsey 4:08
Chris. How are you?

Ressa 4:10
Oh, it’s lollipops and rainbows over here. How about you?

Telsey 4:13
lollipops and rainbows? I can’t wait till we can go outside again. It’s pretty crazy, isn’t it? It is crazy. I mean, never never thought that. I mean, when will we think we’d ever see a day when the world is closed?

Ressa 4:27
I don’t know. Really.

Telsey 4:30
Exactly. And now I don’t know about you. But the leases are coming out hot and heavy. That now everyone’s saying they’ll reopen until for this further notice until like the coast is all clear to anyone who put out a release that they were going to reopen on April first or March 29. That’s out the window now. And I’m hearing could it be mid May. Could it be end of April? That’s kind of the dates I’m hearing what are you hearing?

Ressa 4:57
No one’s committing to me to any dates. Right. Yep.

Telsey 5:01
I mean, all the furloughs that everyone’s being put on, and business isn’t just going to come back, the minute everyone comes back to work, it’s going to take a little while. And plus this feelgood factor of getting the consumers back in wanting to spend when they feel safe and getting out of the essentials. Getting back the feelgood factor is gonna take a while. I call it 2020. The last year,

Ressa 5:21
it’s absolutely no one’s hitting numbers, maybe Walmart or hit their numbers this year and target and maybe Amazon I don’t even know. You know, I heard I heard a rumor. I don’t know if you’ve heard that. Because of the economy. A lot of people have canceled their Subscribe and Save items.

Telsey 5:37
Right? Yes, I’ve heard that. So, yes. And I’ve heard that overall, Walmart, they’re doing great in the essentials. But but in the some of the apparel and some of the footwear, I’m hearing, they’re down double digits, because no one’s buying that stuff. Unbelievable. Yep. So tell me about these calls. How often do you do them?

Ressa 5:59
So how often do I do them? I have had a so I’ve been working for, you know, I worked almost I’m worked 21 hours on Monday. We’re doing these calls are having them all the time all day talking to the retailers. We’re trying to keep lines of communication open? Well, let me ask you a question. If a national public company announces they are not announced just withholds rent, do you think their stock goes down? No, no,

Telsey 6:33
no, it depends who it is. And some of them, basically the way that investors today are looking at it. What are you doing to save cash? How are you negotiating those? Can you get your occupancy down? What’s it going to mean for us? GNA? Because what’s the what’s the cash burn? They’re all looking at? How do you manage your income statement, zero revenue and what your cash burn is? So I think what investors are looking at, they expect all the retailers to negotiate hard, and in this period, what’s the least occupancy they can get away with? And then come back when the stores are open? Interesting. That’s how investors look at it.

Ressa 7:11
Now, you got a bunch of analysts and whatnot, let me ask you this. They default some that someone you know, someone doesn’t pay their rent that I default them, your your public company, and you get 500 default notices that you haven’t paid your rent, suspect your credit rating, your cost of capital, and

Telsey 7:30
you would think at some point it would Yes. But one of the things this, this is such an unusual situation. You may be hearing this stat for 90% of the companies. Right. Right, because I don’t think it’s I don’t think it’s a one off.

Ressa 7:46
Yeah. It’s interesting. So are they paying their bondholders?

Telsey 7:52
I haven’t heard that they’re not so far. But don’t forget a lot of the retailers are a lot of them are cash rich companies. Yeah. I mean, especially in your neck of the woods, where it’s open air centers.

Ressa 8:05
Yeah. And are the retailers making deals with lenders?

Telsey 8:10
I think those are negotiations and discussions that are going on, for those that need to, and I think a lot of the factors, I think a lot of them get advances. And I think they’re taking advantage of those advances in order to shore up their cash positions.

Ressa 8:24
Interesting. Yeah. I saw I saw Ross pulled down 800 million off their line,

Telsey 8:30
right? Yes, they’re all they’re all doing that. And part of is because look what we started at the beginning. It’s so uncertain, no one knows the timing.

Ressa 8:39
Yeah, no one knows the timing. Are you hearing anything? On the supply chain?

Telsey 8:45
Yes. I mean, the supply chain, everyone is looking to push back any orders, cancel any orders. And basically, there is some flexibility there. But what I’m hearing for go forward is that like right now, last week, you had Macy’s and Nordstrom having 25 or 30% off the entire website, it almost seems a little bit like it’s the Wild West, in the sense that the goal is just to clean out inventories there as fast as you can, because they’re not going to increase in price, the longer that they stay on the distribution center shelf. And so everyone is managing and working with their manufacturers and suppliers to delay goods. And this is going to take you to me it feels like this will take you through the third quarter.

Ressa 9:30
How much do we have any context of how much dollars or merchandise is sitting that is either going to be saved for next spring? Or is it you know, because while people are canceling orders, there’s still stuff that’s here that they can’t give back? That’s essentially toast, isn’t it?

Telsey 9:48
Yeah, well, when you think about it Easter’s coming April 12. The events is people gathering and families gathering for Easter. All of a sudden what I’m hearing about is it’s zoom cocktail parties, Zoom Easter, it zoom Passover. And so everyone may be buying a few tops. But they’re not buying the bottoms and they’re not buying buying the whole outfit.

Ressa 10:10
can zoom I hope they’re stocking zoom.

Telsey 10:13
Exactly. So everyone is focused on what are they doing virtually rather than in person these days, when you think about the overall retail industry, it supports one in four US jobs. It accounts for 2.6 trillion of annual GDP with a 3.7% gain in retail sales in 2019. And the forecast for 2020 had been three and a half to 4.1%. certainly seems like that’s going to be adjusted lower.

Ressa 10:41
I would think so on the digitally native brands. Are you concerned about some of these guys who weren’t profitable to begin with?

Telsey 10:49
Yes. I think the digitally native brands there is concerns about someone who not profitably being with digital marketing and awareness that Now certainly with the consumer focus on essentials, makes it harder to break through those barriers. When we get through to the other side. There’ll be demand for for new brands. But now it’s about hunkering down.

Ressa 11:09
Yeah, I’m sure it’s challenging in the lifestyle brands, brand world did Amazon see the spike that, like the grocery stores in Walmart saw?

Telsey 11:21
I believe so. Everything I’m hearing about grocery, I mean, there’s been double digit gains of 40%. Plus, what’s going to be interesting going forward is it seems like everyone definitely bought goods, they were hoarding as much as they could. Now over the next few weeks, given everyone’s fully pantry loaded, or is everyone gonna go back again for that? Or do they have enough? It’ll be interesting to see if that momentum of buying essentials continues in the next few weeks. unless it happens, given the waves that you have throughout the country where quarantines are put in place,

Ressa 11:54
I think, I think I spoke to the one of the grocery store chains yesterday. And I think that’s peaked. I also actually talked to an essential retailer last week, who said, Yeah, we’re up 50% This week, but now they’ve bought 90 days worth of goods, am I going to sell anything over the next 90 days? So that’s a great point you bring up? Have you gone out and gone and drove around and saw any stores or you hunker down?

Telsey 12:24
No, I’ve gone out and seen stores also. I mean, you look at what companies are doing differently. Look at BestBuy. I have a picture of Best Buy on Fifth Avenue in Manhattan where people are standing six feet apart. It’s curbside pickup, or when you take a look at a whole foods will only lead in a select number of people for a specific set for a specified period of time. I’m getting out there every day and walking around but doing it at least six feet apart. What about you?

Ressa 12:53
Yeah, I am. So I’m in the suburbs. So I driving around and seeing the wholesale clubs are still crazy busy. I guess. It feels like they still have some of the boarding going on. And you know, maybe they just you know, they announced that toilet paper and so people are coming. Um, but I’ve seen the Starbucks drive throughs are crazy. You know, other than that, it’s pretty, pretty quiet. The grocers obviously that the wholesale clubs. Oh, and then last weekend, there was a line onto the major highway out of Lowe’s because everyone was outside doing gardening, I guess. Right. So the Lowe’s, it looks like the home improvement. Retailers are really crushing it. I’ll give you a funny one I had heard and I haven’t checked, I had heard Ali’s bargain outlet brand opened a store last Thursday,

Telsey 13:48
he may be the only one that grand opening

Ressa 13:49
the store. That was I couldn’t believe it. I think this is going to be interesting. You know, because on my end, right, you’re going to have what are people doing? Are Pete Do you have the the group who says okay, this is our time to be opportunistic. And say, You know what, maybe it’s on sale today in tries to really steal real estate? Or do you have you know what, I can’t even think like that. I just have to hunker down, preserve cash, I can tell you I’ve seen both already. Right. So

Telsey 14:25
I think the other thing that’s gonna happen is that the focus given the connectivity that people have, which I think is one of the most important things, whether it’s connectivity for work, whether it’s connectivity, for personal connectivity is basically certainly going to become key. And I would think that certainly the retailers the loyalty programs will be more enhanced. So the efforts on personalization become that much more meaningful. So coming out of this, the ability to to capture people because they’re gonna get cabin fever, and they’re going to want to come out of this. Humans are social beings to begin with how we do it, it may be gradual, but I think that the more you know about your customer and their loyalty to you, the quicker you’re going to get them back in your stores.

Ressa 15:08
When we come out of this, I guess the first question is, is the retail landscape changed forever?

Telsey 15:13
I think retail always goes through cycles. And it always is cyclical. We had this piece, we’re basically looking at the 70s 80s 90s 2000s. And it’s interesting to see that a lot of times the same retailers aren’t there. But what what the big categories are have changed? Could it be that coming out of this, the focus on athleisure will be even greater? How many people do you hear, given that they’re working remotely? are spending more time in activewear? That that could continue? Could it be that we when we come out of this is, are they only going to allow us to get up and running half the office to be in one day and then half the office the other day? Well, that certainly changes the configurations that you may need. Could it be that when we when we get out of this, all of a sudden virtual is going to be more meaningful? And does the travel industry go on change pretty significantly compared to what it was, I do believe that physical eye to eye contact helps, helps build trust helps you know the person better, and you know how to negotiate better, I don’t think that ever goes away. But I certainly think that curbside pickup, faster delivery, connectivity, online marketing, the way to engage is going to change from what it had been in the past.

Ressa 16:24
Interesting. And do you see a you know, obviously this year is is totally, you know, changed? Do you see q2 20 123 21? When did when is this the distant past?

Telsey 16:41
This is the distant past basically, a year from now, I think that we’re gonna have a holiday season that people are going to crave and focus on how do you make being together even more important, it’s going to make time, time key. And so I think if when people can be together and feel comfortable being together those events and activities and frankly, what shopping centers can do to promote that I think is going to make it even more important, I think could be families or groups of friends. Because everyone is going to stay distant in a way would that six feet in between everyone

Ressa 17:13
interesting. Anything else that you want to talk about? I know you are a busy person and you’re probably talking to a lot of CEOs and everyone out there. Yep,

Telsey 17:23
don’t give up on the physical don’t give up on physical space, the togetherness of E commerce and physical matters. I think the big key now is staying safe and staying healthy. I think consumers getting a comfort and peace of mind that that we’re gonna get to the other side of this I think we all have to have that belief to get there because we’re gonna get there it’s a matter of time. And so stay busy stay active during this and it’s up to all of us to help each other get through it. And when we when we do get to that other side. I think the brands and the centers that engage the consumer will be the will generate the biggest gains

Ressa 18:00
so far you go do you think we have a dip in E commerce sales

Telsey 18:03
right now what I’m hearing about e commerce sales overall I mean your focus everyone’s focused on essentials the E commerce sales are are doing well but it doesn’t make up for the physical sales and with the distribution centers of some of the online businesses not activated look at net a porter not activated LOOK AT T J Maxx their distribution center not working. So it’s impacting online sales. Also, I think the key is digital marketing to keep your brand front and center of a consumers mind.

Ressa 18:33
Yeah, that’s a good point digital marketing and keep your brand front center. Everyone is looking at their phone these days. Are you are you getting in any Netflix time?

Telsey 18:42
No. I mean, I’m so busy in front of my computer. I’ve been speaking to everyone. I think everyone is speaking more and they’re more connected, given they’re not in the office. It’s a little strange, but I think people are talking more.

Ressa 18:53
It really is my wife’s like it’s very I see less now and you work from home. I know. I do miss go into the office though. I do miss it.

Telsey 19:06
I like I like having the office. I can’t wait till it gets back up and running.

Ressa 19:09
This is yeah, I couldn’t do this. I mean, do you guys have Are you indefinitely working from home? We just told our staff another four weeks today? We didn’t

Telsey 19:19
we didn’t give them a timeframe. We you know, we said well let you know when it gets back up and running our office building. If I needed to get there in there. I could get something. But I mean, then you’re gonna get fined if you if you bring your people to work.

Ressa 19:31
Yeah. Oh, totally. Yeah. Yeah. So, okay. Okay. Listen, Dana, this was great. Thanks so much for the time. Thank you. I look forward talking Tuesday.

Telsey 19:41
Tuesday. Bye.

Ressa 19:44
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