(Real Talk Series 6) Sucharita Kodali

Guest: Sucharita Kodali
Topics: COVID-19, retail trends

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. I’d like to thank one of our sponsors, retail openings and closings.com. In today’s dynamic retail landscape, tracking openings and closings before they take place has never been more important. Having this intelligence is an undeniable competitive advantage, retail openings and closings.com also known as Rock Tracks, future openings and future closings, comprehensive, accurate and reliable the rock is your crystal ball and the key to making well informed decisions with confidence in today’s evolving retail climate.

Today’s guest is suture Rita Kodali suture Rita is the Vice President and Principal Analyst at Forrester Research before that, she was at Saks Fifth Avenue, Toys R Us and Disney. I’m excited for her to come on and bring her perspective of how the pandemic is affecting retail and what the future of retail looks like coming out of the pandemic. So a little bit of a unique episode today. But thought it was important, given everything going on. So I hope you enjoy. Welcome to the show suture Rita.

Sucharita Kodali 1:38
Thanks so much for having me, Chris,

Ressa 1:40
why don’t you tell us a little bit about who you are, what you do, where you work and what you’re doing right now?

Kodali 1:49
Yeah, yeah, well, what I’m doing right now, that’s a pretty easy answer. We’re sheltering in place at home all day, every day. I imagine you are too. So I I’m a I work with a company called Forrester. And it’s a technology research company. I’ve been here for about 15 years just working with retailers and brands and companies that are in the retail ecosystem, like landlords and real estate developers. The questions that retail really has had over the last several years and where a real estate person would be interested is in the impact of E commerce, of course, and what does all of this omni channel investment that we’ve been hearing about over the last decade, what does that mean for the physical store and of course, lots of questions around the shake out of stores and what happens to physical real estate in a world where more and more commerce actually is transacted online. So that’s that’s what I spend a lot of my days researching looking at. I spent a lot of time working with retailers to help improve their e commerce sites and thinking about how they can better connect with customers through digital channels. So that is, that’s what I do day to day. And before I came to Forrester and started doing what I’m doing now I was in the retail industry. So I worked at a variety of different companies I worked in big box, I worked at Toys R Us I’d worked at Saks Fifth Avenue, or to add some startups and brands to CIO has seen a pretty good cross section of all of the different players in the retail world.

Ressa 3:27
Awesome, you know, vantage point coming from working from a retailer and now working on the other side. And, you know, from a technology perspective in trying to help these retailers, I guess, you know, diving right in, what is the you know, 140 characters or less take on what’s happening to retail in a COVID-19 world?

Kodali 3:53
What’s the tweet? Okay, so I think I have a good one. And it’s essentially the same thing that Jessica net from Acer, you said the other day, which is that smaller and more levered. There you go. That’s retail in a nutshell these days.

Ressa 4:06
Yeah, I guess it and I guess you’re speaking to that. Everyone drew down on their credit lines to try to get liquidity to get them through this.

Kodali 4:18
Exactly. So when when you read any SEC filing you talk to any CFO, it’s a handful of things. So cash preservation is number one on the list and within credit, cash preservation, it’s cutting back on your marketing expenses. It’s furloughing employees, it is drawing down online and drawing down as much credit as you can, if you have the ability to do so. And then renegotiating with landlords and closing stores where you have to I mean, Nordstrom just announced yesterday that they’re closing more than 10% of their full line stores. So that’s a perfect example of a company that otherwise healthy is is finding that it needs to downsize. And the drawing down of credit is the levering yourself.

Ressa 5:07
Got it. Understood? And, and so coming back a little bit, you know, pre COVID What was it day to day? Like? What were the types of things you were working on before this.

Kodali 5:22
So heading heading into 2020, it was supposed to be a pretty good year for most of retail, everyone would talk about the so called retail apocalypse. But, you know, I mean, especially in retrospect, like the 2017, so called retail apocalypse, that was nothing compared to now and what we’re seeing at this moment in time. So there was a lot of, I think, trauma artificial drama that had been manufactured often by the media. But the truth is, is that it was still fairly healthy ever, there were some unhealthy PE backed merchants. But for the most part, the consumer was in good shape, you had low unemployment, you had a consumer that was feeling flush with cash, you had a consumer that was spending money, the single biggest source of drama for everyone was, oh, Amazon, and Amazon is undercutting me and getting into my territory. And the issues, then just seem so much more easy to tackle, and they’re problems that I think we would love to go back to having versus the issues that that retailers now have to face, which is just getting through the next few weeks and months. You know, I mean, retailers at this point in time would be thinking about their q4 At this point, you know, in a normal year, and very, very few retailers I hear are even thinking that far ahead, because they are just trying to get through, you know, kind of the summer time. I mean, I did a survey with retailers a few days ago. And in that survey, about a quarter of the apparel merchants weren’t even sure that they were going to be around by q4. So it’s a it’s just a completely different level of what happens next. And what do you need to worry about? And I, you know, you long for, for the pre COVID issues, because that just represented us, you know, such a, in a better time that was so much more predictable than than what we have now.

Ressa 7:40
For sure. And so now, now, what are you spending your days doing?

Kodali 7:49
All every day is a question from somebody about what net what happens next? How much of this shift to e commerce stays in E commerce? And what what do we think of the consumer behavior that’s changed? And people who are doing things for the first time digitally? What does that do for consumer expectations? And what does that ultimately do for the, you know, what changes with the retail industry? And what’s the what are the changes that stick long term? Those are the questions that we get asked the most frequently now.

Ressa 8:28
So one of the things I’ve been saying, and that I think is interesting is most of the pure play ecommerce, retailers going into this, were not profitable. And a lot of people who had omni channel, it’s it’s very challenging to be profitable from online and while more dollars flowed into online, you know, it’s more unprofitable dollars. And so how do you see that playing out in a world where, you know, maybe the consumer does want to do more to for lack of a better word shopping online, but the reality is, it’s really tough for the retailer to deliver the value that they’re looking for and profit. What do you think about that dynamic?

Kodali 9:23
Question, and I’m glad that you asked it because there is probably the sector that that is highlighted so much more clearly than anywhere else is in grocery right where delivering an online grocery order is ridiculously expensive. Even doing click and collect and having somebody do your shopping for you is is also expensive, and it’s not profitable for most retailers even to to manage a click and collect order. It costs the average grocer $7. And so how do you how do you make that money when these grocers have you know, low single digit margins on a given trade? transaction like how do you, you know, do you charge the customer who doesn’t want to pay that you absorb it as a retailer, do you ask a brand to subsidize some of it. And, you know, at this moment in time, it’s all the above. But customers absolutely don’t want to absorb the full cost of this type of transaction. And the only reason that they’re doing it is because they have to in the middle of a pandemic, and they’re terrified of going to physical stores. But you raise a really, really important question. And this is one of the reasons that when I do get asked, Well, what do you think is going to stick how much of E commerce that we’re seeing now is actually going to stay in the channel in the future, I actually don’t think a lot of it is going to stay, because the retailers won’t necessarily offer it when you look at a category, like online grocery grocers have been resistant to really leaning into it for exactly that reason that it is so expensive. And they’re reading into it now. Because they have to not because they want to. And what happens is that if we’re what will likely happen is it you know, assuming that things get back to normal, say within a year, they are really not going to be in any better of a position to delivering groceries any more profitably. Because the only way that you really get there is maybe some robotic solutions are really, really futuristic solutions, they just pull back on the offering. And you end up with a where they raised the prices. And if the prices get raised, then consumers just revert back to whatever is the most cost effective means of getting the product, which is often just go into the store and shopping yourself. So So I completely agree that at some point, you know, the madness stops, and you can’t lose nobody really become successful losing money other than Amazon, which is a separate issue altogether. And they have a very, very different business model. But for for the most part, I think that what we’ll likely see are some of these, just the consumer not choosing to transact in that way, because the grocers just don’t offer it. I always give the example of you know, like Michelin tires. So just because you offer you have something and you know, a consumer may like it, if it doesn’t make sense. And it’s not lucrative, it doesn’t mean that it’s going to be offered long term like Michelin has a tire that can drive 100,000 miles, they do not commercial, they don’t sell it because it would destroy their replacement tire industry. So it’s the symbol. It’s a similar logic here with online grocery, which is that if it doesn’t make sense to offer it, because it’s not profitable, it won’t be offered long term.

Ressa 12:52
That’s a great point. And so what do you think in the other sectors, I just, you know, I don’t know how long my wife can buy six boxes, returned five and pay no shipping, you know, at some point that I believe that comes to roost. And I think it’s going to be sooner rather than later. I think the pandemic is forcing that to come to come in a lot sooner, given cash preservation, and I don’t think you know, companies are going to be spending capital into unprofitable ventures to gain unprofitable market share D, do you not just in grocery, what about in other forms of E commerce? What do you see as it relates to that?

Kodali 13:34
That’s a really that’s also very interesting question. And the reason that retailers felt they needed to do that at all was because of companies like Amazon, not just Amazon, it was a whole bunch of online pure players that were using either investor money or you know, some, some some form of capital to do crazy things. And anybody that was competitive with those players felt that they too, needed to have a comparable offering that was often great for the customer, but terrible for their bottom line. So what happens now, and you know, kind of how do you how do you compete, and if you’re in the business of selling the same commoditized products that are available through online pure plays, you aren’t going to go out of business because you have no choice but to comp that offer. The only way that you can circumvent that is you got to have innovative different offers because then you can be whatever you want to be from a customer experience standpoint and people will still come to you for your unique product are always examples of companies like Trader Joe’s or Lululemon. Those are companies that people will go to great lengths and income reunions themselves in tremendous ways to go get that merchandise, but you have to have that kind of a, you know, a cult brand that people actually want to own. And, you know, and that’s that’s something that is not particularly easy to to accomplish, and but that’s going to be the retail successes of up tomorrow.

Ressa 15:27
What do you think? Where does price come into that equation? Because even some of those commodities, I would think it’s going to be

a challenge for E commerce to deliver at a price offering that you could get in Dollar Tree. And in a potential slump in the economy, I would think that it’s gonna put more pressure on the e Commerce who have this, you know, dollar trees example sells it for $1. I don’t know that I could get it for $1 Online, and they could be profitable, or that I wanted to spend nine bucks shipping and pay for $1 product. And obviously, that’s extreme on the low end. But do you see where do you see price in that equation for the E commerce because there’s only so many, so many Americans that are can afford convenience. And then you have people, you know, that even though they can’t afford convenience, they’d rather clip the coupon and save the money and go to the store? Where do you see the commerce from a price perspective, even in the commodity space?

Kodali 16:48
Well, even at the low end, well, especially at the low end, ecommerce has always been challenged. And that has everything to do with the digital there, you have the digital divide being a factor, you have the impossibility, just the challenge with exactly your point making any of that stuff cost effective to ship who is going to ship it, you know, I mean, cosmo.com, like years ago had that problem, right? I mean, they would try to go deliver a Snickers bar to a customer and, you know, they, they thought they could build a business on that. And that was pretty terrible. So you’re, you’re right, like, I mean, it’s, it doesn’t make sense, you know, if you are somebody who is living paycheck to paycheck, and all you can afford is, you know, X dollars on your grocery basket, and it needs to be as inexpensive as possible, it probably isn’t going to make sense to purchase it online. It is, you know, an online when you look at even these packaged goods brands, they almost have Costco like offerings, where you have to buy multiple units per transaction in order for that online merchant to make any margin off of that, off of that, that shipment. And, you know, I mean, without, you know, not surprisingly, Costco and many of these online pure plays, like Amazon and others have very, very similar demographic profiles, which is that they tend to target higher income households, not the lower income households. Now, during this pandemic, what’s interesting is that there have been government efforts to try to support some of the lower income households because they want these people to stay home and they want you know, kind of or they want as many people to stay home as possible. And if you make it difficult or expensive for lower income households to get this product of course, they’re not going to choose to purchase online and do the same thing. But if you can make it worth their while, at least for a short period of time, can you change their behavior so we may see a temporary shift but to your point I mean, things will likely revert back to to the norm won’t you know once we get past the pandemic and then you’re absolutely right I mean, it is more cost effective at you know, for when you’re you’re looking for low priced commodities to simply purchase them in a physical store.

Ressa 19:26
Yeah, I think the the media puts this broad stroke on on ecommerce and retail and I often say that the reason that ecommerce is still only 1213 14% Whatever the number is, of total retail sales is 78% of Americans are paycheck to paycheck. And so I don’t see that divide changing soon.

I think you know, this, this pandemic might make the More exacerbated. And but the the media doesn’t connect those two dots often that 78% of US workers are living paycheck to paycheck, and therefore it’s more cost effective for them to buy in a store. I think one of the things I often say if sutured and Chris won’t open up a t shirt shop, the cost of entry is cheaper on E commerce, but to scale it. And I’ve had people tell me the numbers like $10 million in revenue, as soon as you want to scale, it did gets you need stores, it gets cheaper to do it in a brick and mortar environment. So that’s what I hear out there. So anyway, what are your thoughts on that?

Kodali 20:44
I agree, I think that that’s an absolutely fair assessment. There. There’s no question that, you know, I mean, retail is, retail is a challenge, no matter how you look at it at every sector, that your your point about, you know, the the financial struggles of consumers is absolutely spot on. And, you know, just to, to kind of reinforce that one of the single most effective means of growing sales at a retailer, is any kind of a deferred deferred billing program, like a, like an affirm, or, you know, like a Bill Me Later type of solution. And it’s exactly for that reason, which is that people live often on the margin, and the more that you can help them reduce their monthly expenses, you know, the more likely you are to capture some share of their wallet.

Ressa 21:40
Yeah, that’s a great point. So what is the suture read up prediction of where retail is in 12 months? And where the consumer is, you know, when does when do people get back to shopping, and on one hand, I feel people there’s this contingent that are terrified yet I live in northern New Jersey, I live in the woods, and I went to Home Depot, and the line at Home Depot was crazy. It’s an hour wait, there’s this divide clearly of people going into the store and people panicked and in their homes? When do you see and I don’t know if it’s ever the same, but when do you see something of some normalcy?

Kodali 22:22
Oh, gosh, it I wish that I, you know, really rich, right. But it’s, so I think that, I mean, I would break it up into two scenarios. And there are, you know, there’s, there’s a part of me, that’s like, we’ll be back to normal pretty soon. And exactly the incident that you cited, the fact that you can go to a store, put on a mask, put on some gloves, don’t talk to people stay six feet away, you can go shopping, you’ll be fine. You know, as there’s that sense of, you know, you can see that you just need to be cautious. But you can resume most of your your normal life, you know, with relatively low risk for for most of us not, you know, maybe not for for those who are older or have have pre existing health issues, but, but there’s, there’s that part of me that hopes that, you know, we get past this pretty soon. And if that would suggest that in 12 months, we’ll we’ll probably be back to normal See, there might be some, just like after 911, you know, there, you know, there were some things that were lasting changes, like, you know, the level of inconvenience at an airport, but for the most part, the more lives go back to normal. And there were you know, there were some macro issues, like, you know, our foreign policy changed, and, you know, the kinds of things that that were, you know, kind of, we had to be hyper alert to feel as a government changed. And I expect that, that will, that will be reflected here as well. But, but then there’s, there’s another part of me, where, you know, if you follow any of the epidemiologists or any of the the experts, who are really, really at the epicenter of this, their claims are still very, very apocalyptic. And, you know, their, their assertion is that this is not we’re going to have this for years to come until there’s a vaccine there. Worst case, there may never be a vaccine, and we just, you know, kind of it could be years before we get to herd immunity. And this is gonna be a perpetual, this is just gonna be a cloud that hangs over, hang on wives. And in that case, there’s no way we’re going to return to no And we’ll see. And, you know, by in 12 months time now, one of the things that’s really interesting about the United States versus a lot of other countries that make these unilateral decisions is that we do have 50 states. And, you know, it seems that all 50 states have like 50 different approaches to what’s happening. But we also are getting a lot of data on what’s working and what’s not. And, you know, it is hard to overlook the fact that a state like California, which has been much stricter about lock downs, has not had a substantially better outcome than some of the states like Florida, which have barely had any lock downs. So, you know, it does beg the question of at some point, you know, the epidemiologists do need to respond to some of, you know, these variances. And, you know, because if they keep calling for shutting down, shut down everything, when the data suggests that the only thing that it’s doing is killing the economy and not saving lives, they’re gonna lose a lot of the supporters that they had a few months ago.

Ressa 26:20
That’s a great point. That’s really interesting. With that, that’s a good ending point with that is, is there anything we didn’t talk about that we should we should we should be talking about right now.

Kodali 26:37
You know, one of the points that I think hasn’t been talked a lot about is this idea of ventilation. And you just mentioned, I mean, you have a lot of outdoor centers, and there’s a lot of space in those centers, and there’s potentially, you know, the opportunity to turn maybe more of the restaurants and to outdoor patio spaces, or is there a way to, you know, kind of enable the getting back to normal, but doing it in a manner that is really, you know, kind of takes into account, the change, right? You know, just like you reconfigure space for this, and is it something as easy as, you know, just just, you know, kind of improving your ventilation, allowing more outdoor seating, bringing more of the grocery store into, like a farmer’s market type of setting where, you know, more of the merchandise is outside in the parking lot, you know, or solutions, as simple as that, you know, opportunities to help just have your cake and eat it, too. You know, and, and I think that, you know, we haven’t we haven’t discussed as much of that. I mean, it’s just really, you know, there, there are some academic studies that have shown and the reason I mentioned this is because, you know, kind of a lot of these cases of super spreaders or in these enclosed environments without ventilation. So, you know, there’s talk about the, you know, public toilets being, you know, vectors of transmission. So when you have these environments, where ventilation is a problem, you know, is a very easy solution to, you know, a public space to invest in improved ventilation.

Ressa 28:19
Interesting, we will find out that might be, that might be the case. Interesting. One more question. So, you were, once a retailer, you were at Toys, you were at Saks. And you worked for one of the more iconic companies, Disney. So let’s put you back any one of those or any retailer today. And you’re, you’re you’re in the belly of the beast, you work for a retailer, you’re not a outside research company. What’s the number one thing you’re focused on right now and doing during this? What do you you shaking down trees internally and saying, we have to do this? This is what we’re doing?

Kodali 29:05
Well, we’ve been talking about making sure that your ecommerce site is running and in good shape for years, and we continue to beat that drum, and to ask people to make sure that it their sites as good as it can be. And everybody has room for improvement on their ecommerce sites. I mean, there are always issues like whether their inventory is accurate or whether it’s easy to access on a desktop device or whether you know, their their their checkout is as good as it can be. But I mean, really just continuing to focus on your.com experience is probably the easiest thing you can do right now.

Ressa 29:46
I yeah, that’s, that’s great. For me, as a consumer, the number one thing that any retailer can do is if I can go on

your website and go on my phone Have and look and say, Okay, I want this product, you can tell me all the stores locally where it’s at, and where it is in the store. And when I go there to actually be there, that’s awesome. Walmart does a pretty good job of it, we, you know, we actually wanted, I have two younger kids and I needed diapers during the beginning of the pandemic, and went on Amazon. And it said, it was, you know, I usually go, I’ll go to Amazon, I go to target, I go to Walmart, and I went to Amazon, and it said, like, three weeks, and that doesn’t work for diapers. And so I went to Walmart, and they said, they had it in the store, and they said, where it was, and I went to the store, and it was there. You know, that’s great customer experience. And so any retailer that could can get their e commerce to do that, to me, as a person who, you know, likes going to the store, I think that that is one area for me that if all retailers get down will, you know, pay dividends.

Kodali 31:00
100% agree, I have been telling retailers and personalized like a consumer every time the information is inaccurate or it’s not there, I will go complain to a store manager. The challenge I’ve been I’m so glad that you had a positive experience at Walmart. Because every time I go to Walmart, and I look at their store locator with the information at the product detail level about where it’s in, it’s hit or miss. And same thing with target. Same thing with with like a Walgreens or a CVS, it’s always a hit or miss for me whether or not the items actually in the store where it’s supposed to be. But I’m very

Ressa 31:34
dialed in because of the pandemic. But I could be wrong. That’s my guess. Yeah,

Kodali 31:41
no, it’s great. I, you know, hopefully they get better and better at that kind of information. Because that that is something they should have nailed a long time ago, and they never wanted to invest in the thing was like RFID, and you know, whatnot. And now it’s so so it can you can go very expensive and pull a camera vision. And but I mean, Walmart started to do things like it has like these robots roaming the floors that are there to, you know, kind of take pictures and see what’s out of stock so that that information can be communicated on to the website to to somebody in the stock room to bring more of that merchandise out if it’s available.

Ressa 32:21
Yeah. Well, I appreciate the insights. Today, we’re going to take us to the last part of the show retail wisdom, normally asked three questions can ask you to. And I’m ready when you are. Telling me when you’re ready. I’m ready.

All right. extinct. retailer, you wish would come back from the dead?

Kodali 32:52
Oh, that’s easy. It’s a grocer, a regional grocer where I live called Earth fair. It is an organic grocer, very similar to whole foods that so much better because they had a lot of niche local brands, higher quality produce, I think for whatever reason, Whole Foods is at the end of the supply chain, and the produce is never as good as you think it should be. But loved Earth fair. And here’s the tragedy. They went out of business in February, if they had just hung on like another month, they would have made it because the pandemic would have helped their resurrection.

Ressa 33:29
Yeah, interesting. And they are. I think that the owners of that are trying to open up a few stores come back out of you know, out of the end. And then some of their leases got sold to Whole Foods and others and whatnot. But an interesting no one’s said that yet on the show, but obviously that just happened. And you know, I think they did have a good concept. What do you think led to them not making it?

Kodali 34:00
As far as I could tell, it had a lot of the trajectory of every other P owned firm where they just had too much debt and couldn’t service that debt. And they probably weren’t generating enough revenue at the time to be able to service that debt. The the issue in a lot of the markets where they were in in North Carolina and the Southeast, I think is that there was just increasingly a lot more competition and grocery. You started to have Publix expand its territory, Lidl all the just so much more competition than had existed before. And you also had target over the last several years getting into the grocery space. I think all of that put a crunch on just the traffic at error fair. So the probably the projections for revenue that we’re used to think about how they could pay down their debt in the past just didn’t apply. I

Ressa 35:01
got it. All right. Last question. You mentioned Trader Joe’s so we’ll stick with Trader Joe’s. One of their the fan favorite products is their organic watermelon fruit spread. It is 10 ounce jar. What does Trader Joe’s sell this 10 ounce jar for?

Kodali 35:24
Oh my goodness 399 269 Very

Ressa 35:28
close but thank you for playing

Kodali 35:31
I’ve never heard of that product now I have to go check it out. It sounds fascinating. But like a jelly what is Yeah,

Ressa 35:38
so the

Kodali 35:40
you know Trader Joe’s just fascinating company right? Because they have zero they have almost no digital presence and they you know, even through this pandemic, they haven’t really, you know, kind of leaned into digital at all.

Ressa 35:54
Totally, well listen. Surgery to it’s been awesome. Thanks for your insights. And let’s stay in touch.

Kodali 36:04
Absolutely. Thanks for having me.

Ressa 36:09
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