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The Store Won Deep-Dive

Chris Ressa sitting at a desk, talking into a microphone
Episode #: 178
The Store Won Deep-Dive

Guest: Rachel Beider
Topics: PRESS Modern Massage, business strategy, navigating 2020


Chris Ressa 0:00
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.

Welcome to retail retold everyone. I’m your host Chris ReSSA. And today I’m excited to share a special episode. This episode is called the store has one right before the ICSC in Las Vegas DLC. Put out a presentation, a paper that’s available for download on our website at WWW dot DLC It’s called The store has won today, I am going to go through the presentation, share with you my thoughts and insights on the presentation. And hopefully, you enjoy it and you go and download the presentation because I think it’s super compelling. So the store is one we break up the store has one into four categories, we say cancel the funeral number one, number two bricks are saving clicks, number three ship happens. And number four, where the profits at the first piece is we try to debunk the of cancel the funeral. We try to debunk this whole retail apocalypse, that narrative that was in pre pandemic for a couple of years. And then during the pandemic ship happens. I think this is the overall context around logistics shipping direct to home last mile and the impacts why the store really matters in that bricks are saving clicks. We’ll get more into that and then talk more about the profits. So there’s the four key pieces to the store has one, I’m going to take you through each one. And again, presentation is available for download on our website at WWW dot DLC And I think you’ll find this really contrarian to the market. Quite candidly, we’ve built a lot of our business around this contrarian thought process. And it’s been really fruitful for us. So it starts out with headline news, right canceled the funeral. Some of the headlines that were coming at the retail and retail real estate industry, pre pandemic. And during the pandemic were really astounding. The retail Apocalypse the retail graveyard, more than 7000 Us stores closing will ecommerce replace physical retail, Amazon killed brick and mortar, the list goes on. Fast forward to today, US retailers announced seven times as many store openings as closings in queue, one of 22 online brands, open stores in suburbs, urban environments to get closer to consumers, the physical retail experience isn’t dying, it’s becoming stronger, smarter and more modern. And brick and mortar sales grew faster than ecommerce in 2021. So I think you’ll find this slide in the deck really interesting. It’s a it’s a, you know, a take of the news of yesteryear versus the actual reality of what’s going on. Next, we go through more about how online brands are opening stores. And you know, we get into a couple of meat and potatoes of stats here. And I think this is really interesting, which is the E commerce verse brick and mortar sales year over a year. And I think ecommerce grew brick and mortar grew in q4 at 18%. Over prior year and E commerce grew at eight and a half percent. There’s a lot of reasons for this one, you could argue the pandemic was you know, people wanted to get out of their house, I would tell you q2 22 physical retail sales were 32% higher than the prior. And I think a lot of that pandemic, you know, just that need to get out of the house, you know, that was really solved then the reality is that the store is two things. One retailers want you to go to a store because at scale, it’s proven to be the most profitable venue to sell goods and to consumers want to go to store and we’ll talk about a bunch of the reasons why consumers still want to go to the store and why majority of the sales in retail are done at a store. So you keep going in this presentation. And we start to get into Preferences even after the world was shut down. And even at times during it depending on what number you look at, let’s call it in the 80s in the 80s as a percentage of total retail sales somewhere in the 80s percentage range, whether it’s 85 1% of all retail sales were done in a store 55% of Americans shopped at a store at least once a week. consumers prefer the store when it’s the right experience, convenience and price. And I think we’re going to see that price is going to play a big factor in this because retailers can’t ship it for free, and consumers aren’t gonna be able to pay for all the shipping needs. As a baseline, I don’t know where people think shipping is going but we move on to shipping. And in the presentation, we talked about how expensive shipping has gotten. And we use a baseline of January 2018, or two and a half percent q2 2019. A year later, 9%. year later, 17% and shipping cost grew 25% We can talk about supply chain. But when you throw in labor commodity prices, it’s really, really challenging to see where the overall shipping costs are going to compress to a point of pre 2019 numbers. This is going to make something come to roost soon, which is who’s going to pay for this the retailer or the consumer. And I think what we’re getting to now is neither party long term wants to pay for this. I don’t think there’s any, you know, nifty subscription model, nifty business model that just eliminates the cost. It’s got to be done somehow. And the reality is, yes, people like convenience and saving time. But there is a cost to that. And pending on store locations convenience and time could be better at the store. But let’s take that apart. Let’s let’s even just say that ecommerce is more convenient, but at what cost? Again, I never argue that ecommerce is going away, I argue that the store is not and that the store is going to grow. Because it’s a profitable place and the E commerce in store needs to work together. You know, there’s some quotes in here that you’ll find interesting. And there’s a quote in here from Michael Sullivan of Burlington, I’m not sure where it’s from, are when it’s from it’s from an earnings call. But it’s really fascinating. And Michael O’Sullivan says our average unit retails about $12. Ecommerce, when you fully account for the cost of merchandising, processing, shipping and accepting returns, it’s very difficult, impossible, really, to make at those price points in the businesses that we compete in. He’s saying he can’t be profitable at his price points in E commerce. These are the headlines that never gets spoken of. So we keep going. And then we talk about returns in this presentation that I think you should really dive into because

the 2021 total rate of retail returns is up 16 point 16%. For online purchases, the return rate is even higher at nearly 21% Get this set, retail returns increased 76 billion in 2021. And consumer returns destroy retailer bottom lines right returns typically cannot be restocked and instead are discarded or sold to third party groups at deep discounts. Here’s the stat that to me is in when it comes to returns. Returning a $50 item online is expected to cost an average of $33. For that retailer, this is a 59% from 2020. So returns are up and $50 item cost $33 The retailer returned to get takes except that return. Right you think about that, depending on how you return it. The journey of that reverse logistics. You know, I don’t think too mainstream America gets spoken about enough, right? You mail in your return it lands somewhere then what happens to that product? Right? They typically refund the customer send the customer a new one. What happens to that one? What did it cost to get the return back? And then how do you get it out of wherever that’s going this whole? That whole piece is really, really challenging for retailers. And because of the nature online, online as higher rate of returns. We talk about the last mile in this presentation because it gets talked about a headline news and it’s it’s not defined as much So what the last mile is and how you know, we defined in this presentation, it’s not our definition. But how it gets defined in this presentation is from the warehouse shelf to the back of the truck to the customer’s doorstep. The last mile is the final step of the delivery process. last mile delivery is both the most expensive and time consuming part of the shipping process, but is also key for customer satisfaction. So I think people think that like this is a mile away at times, or a couple miles, but it could be further out from the warehouse. Shelf, the warehouse could be an hour away. And as you can see, the first part of this presentation we were talking about, we’re debunking some myths canceled the funeral. Right, we talked about going, we talked about the what’s happening really in brick and mortar, we moved on to this ship happens, we talked about the cost of shipping, the cost of returns. And you know, now we’re getting to the last mile. And last mile is hugely important. You know, three out of four consumers are spend more on brands that offer the right last mile experience.

Ressa 11:19
last mile delivery accounts for 41% of entire supply chain costs, last mile delivery accounts for 53% of total shipping costs. And a lack of optimization in last mile delivery costs can lead to a 26% decrease in profits. I think,

Ressa 11:41
you know, that brings to the question. So what do you do, there’s a lot of things that retailers can do. If you’ve got a physical footprint, we go into Target fulfilling majority of their online orders from store. If you think about Target, Target has less fulfillment. But it’s even better than most concepts of like fulfillment over the years, because the closest real estate to the consumer is retail real estate. Target has very well located real estate that’s close to where people live, therefore, it’s even. And they’re usually clustered in regions. So it’s even better than if they had warehouses in their normal footprint. For logistics, if the normal logistic footprint is even better, as a last mile source, not just an answer to solve the cost of last mile, but an improved lower cost option. I think this is pretty compelling stuff. And we’re seeing other retailers do this. One of the things that is happening on the fulfillment side, that you know is another avenue, not the store fulfillment that is some might say or counter, this is the autonomous fulfillment, that you might not necessarily take out the all the transportation challenges to take the labor out of the equation, then you can reduce costs. I think that is interesting on the surface, at the moment, the cost to outfitted in an environment like that are through the roof. And it’s hard to get to the returns that you know, at least mature retailers would be looking for. So I don’t know that that’s taking off just yet. But obviously robotics and autonomous things are happening at the moment. The store as a fulfillment option has some legs, if you can get the infrastructure behind it, and the tech stack to be able to do that. You know what, there’s a quote in here from Doug McMillon. Having an inventory so close to so many customers is a competitive advantage. In some cases, we are getting items to customers in hours rather than days. Doug McMillon, President CEO, and director of Walmart, well, I think everyone gets that. Right. If you’ve got stores near people and you’re going to have merchandise near people, then the answer is how do I make delivery work? Not the entirety of the supply chain, because that’s already solve for because supply is going to that store. So that’s where we go next in this talk more about fulfillment. Then we make this point that it’s where the profits at having a physical presence does two things. It’s a key to profitability, and it’s a key in connecting with the consumer for long term success. It’s a point when making the presentation. We talk about the percentage of Sales done in a store versus e commerce as percentage of total retail sales. We have at the time here 86%. We have this interesting piece about Lowe’s in here, where they have buying products in store increases average total customer spending by 20%. buying products in store increases customer profitability by 22%. That is astonishing. We talk about bogus byline pickup in store another channel for people. This is I think, much more of a consumer convenience than it is. This discussion on ship happens or last mile. But you know, if you look at Target, they’ve got buy online, pick up a store, buy online, they’ll drop it in your trunk, they’ll ship it to your house, you can shop in the store, I think just being where the consumer wants you to be. And letting the consumer shop you how they want to shop you is critical. But having a North Star as a store is a key component that we start to get into in this presentation. A lot of the bogus a lot on omni channel, we have this cool tagline as we go through. And we get into the bricksave clicks online is so online only is so 2020 We actually made shirts, that say online only is so 2020. So if you want a t shirt that says online only. So 2020 Reach out to me on LinkedIn, I’ll see if we’ve got any more in stock, I’ll get you a t shirt, it’s pretty awesome. If you have a passion for retail and or retail real estate and that shirt would make you happy reach out to me. The big thing in this is the customer acquisition cost, we have a slide that talks about the ad spending and rent buy as a percentage of revenue. And it is quite astonishing. Not going to say anymore. But we have a customer acquisition cost slide that a lot of people have reached out to me that have downloaded the presentation and have said that this is one of the more compelling slides in the deck. And for those who don’t know, customer acquisition costs are is the cost to get new customers in the door. And you know, I like to say all the time that customer acquisition cost plus rent for mature physical retailers that have store basis is typically less than customer acquisition costs. For a digitally native brand only with online only, that’s growing. And a surge that might seem maybe intuitive, until you look at how significant the spend is, and how big the differences like say customer acquisition cost is the new rent, we go into the side about Everlane where they talk about they’ll never open a store, they would shut down the company before they open the store. And then why they went to opening stores. You know, the CEO of everlands quoted before of saying like, what online only company actually makes money. And then he says virtually none of them. That’s the dirty little secret. We go into that. We talk about all these retailers who are getting physical. And then like, why are they opening source. There’s a lot of reasons connecting with the consumer, offering more opportunities, but also profitability, not just profitability in the store though, Warby Parker, co chief executive says when our company opens a new store, that geographical market sees a revenue growth of over 250%, on average, in the first year of the store debut, boom,

Ressa 19:01
open a physical store and the online sales in that trade area typically rise. Fascinating. And we talk about a bunch of brands and then we end the presentation. So there’s a little different podcasts, we bring you I was giving you a highlight of the store has one, my the premise of this is we want to get this information out there. Not just on this podcast, but we want you to download it. So I don’t ask for a lot of downloads, ratings reviews, although if you’d love this podcast, you know, please rate and review us we’d really appreciate it but I would love and totally appreciate if you could download this if you want to connect on it. You want to talk to some of the people on the team who aggregate the data put it together. I would love to connect your you want to talk to me more about it. I would love to talk to you about this presentation. But it starts with you downloading it. So really, thank you so much for listening to this unique episode. Please If you can, please download this presentation go to www dot DLC Thank you so much.

Ressa 20:08
Thank you for listening to retail retold. If you want to share a story about a retail real estate deal that you were a part of on our show. Please reach out to us at retail retold at DLC This show highlights the stories behind the deals from all perspectives. So it doesn’t matter if you are a retailer, broker, entrepreneur, architect or an attorney. Also, don’t forget to subscribe to retail retold so you don’t miss out on next Thursday’s episode

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