Anne 0:00
Hey Everyone, you are listening to the OMNI talk Fast Five brought to you in partnership with Microsoft, the a&m consumer and retail group, takeoff and sezzle. The OMNI talk Fast Five podcast is a podcast that we hope makes you feel a little smarter. But most importantly, a little happier each week too. Today is May 19. I’m your host Anne Mezzenga..
Chris 0:31
And I’m Chris Walton,
Anne 0:32
And we are here once again to discuss all the top headlines making waves in the world of omni channel retailing. Chris I was making waves last week at my girls trip I went surfing
Chris 0:42
I know you were I know you were any big stores you want to tell us about from that weekend?
Anne 0:46
Oh man
Chris 0:47
Making waves did you get up? Do you get up on the board? Yeah,
Anne 0:50
Yeah, I did. I mean, it took me a long time, but I’m very bruised and battered. But I got up again and it’s just the Sanclemente is like I’ve decided that’s just my
Chris 1:00
Is that your happy place?
Anne 1:01
Oh my god. I love it. Yeah, yes. Yeah, you’re Hawaii. Yes.
Chris 1:05
You’re a Hawaii Hawaii for it’s your Hawaii. Whatever. You know what I mean?
Anne 1:08
I know what you mean. I know what you mean.
Chris 1:10
What’s your opening there too? Is a big it was a big like Hello, everyone. That was kind of new opening new twist. You feeling good today?
Anne 1:16
We just got to change it up everyone. Yeah, I’m wearing my bare Coast coffee t shirt. This is the coffee shop in San Clemente that I’m like I went to every day it was
Chris 1:23
Geez, you’re like is this? I feel like this podcast is sponsored by the San Clemente Chamber of Commerce.
Anne 1:28
If they could become a sponsor, I would. If they can, if they can also, if they can also subsidise some of the real estate there, that would be even better.
Chris 1:38
Right? Well, we got an awesome show. Like I can’t wait to get this I think this is there’s a hell of a lot of meat on the bones of the headlines this week is we’re going to talk about Walmart and Target earnings. And of course, we also have this is our monthly podcast, which is my favourite episode we do every month where our A & M friends are going to join us. But before we introduce them, Anne, I got an exciting review to read this week,
Anne 1:58
we do I mean, this is pretty big for us.
Chris 2:01
Yeah, I’m pretty pumped by this. And it’s not I mean, technically it’s not a review, but it’s a commendation. So I want to read it for you guys. And for those listening. Thank you so much. We were pretty much solidly in seventh position on the podcast rankings on Apple podcasts all week. And you know who’s in front of us Anne
Anne 2:17
Who?
Chris 2:17
McKinsey McKinsey’s podcast is in front of them in front of us. I am dead target centering that as my goal now. Get in front of McKinsey,
Anne 2:26
I think with our guests today on a&m with a&m being joined, like this is some sharks vs. Jets territory right now.
Chris 2:33
I think so too, but I think so too. But anyway, so normally, this is where we do our reviews, but instead, I want to read an email we received this past week from Dilip Kumar at Amazon. And for those of you who might not be familiar with Dilip’s work, he is the vice president of physical retail for Amazon. So kind of a big deal. And he was one of our recent Omni stars recipients the reward we created to recognise the top omni channel operators for 2022. Now Anne here is what
Anne 3:01
Let’s go
Chris 3:02
wrote to us. Let’s say Chris and Anne, thanks for the nomination. It’s both rewarding and humbling to be recognised. You and Anne is my favourite part, you and Anne are on my must listen list as you both do an excellent job with your podcast. Best Dilip I love the end too, best Dilip. How’s that make you feel?
Anne 3:20
I mean, this is your first like piece of fan mail. Chris, I feel like this is a big deal.
Chris 3:25
It is. It’s a huge deal. I mean, who I mean, who is impacting the world of physical retailing more than Dilip Kumar at Amazon?
Anne 3:31
Yeah
Chris 3:31
Head of physical retail for Amazon. So thank you, Dilip, we really appreciate that commendation. It means a lot to us.
Anne 3:37
If you want to join Dilip and you’re listening on Apple podcast, please leave us a review, or heart the podcast. If you’re on Spotify, Google, Amazon music. Please remember to follow us and subscribe so that we can keep making all this content possible for you and for Dilip and all of your teams out there. We may just read it aloud.
Chris 3:58
We may may just do that. So this review, good or bad, we want to read it but Anne before we get any further, we have to now introduce our guests who have been patiently waiting for us. Will you do the honours? Yes.
Anne 4:09
We have David Ritter and Mike Simoncic from the a&m consumer and retail group. For those who are tuning into the show for the first time. Let’s have you tell the audience a little bit about yourselves and your roles at a&m. Mike, why don’t you go first?
Mike 4:24
Right. Hi, Mike Simoncic with the a&m consumer and retail group. I’ve been a longer term partner here at a&m. Been with the firm for almost 15 years, my career’s 30 years plus a lot of that in industry. In short, what I do is want to help companies on the front end strategy but more importantly all around operations and execution. I work in a helping bring marketing, merchandising operations all together to deliver value. So we are just kind of knee deep in the execution of strategies and driving value and working across each function. To deliver those results,
Chris 5:01
Nice, the perfect guest for today you have a roll up your sleeves kind of guy take it. I liked that, Mike. I like that.
Anne 5:06
And we have also our resident a&m expert Dave Ritter back on the pack.
Chris 5:11
Yeah. I think he’s been on the show more than any guests we’ve ever had. Is that right, David? I think it is probably at this point. I’ve lost count.
David 5:17
I’ve definitely been on a few times. Thanks for having me again. I’m David Ritter. I’m a longtime consultant in the retail space. I was actually a partner at McKinsey for about 15 years before I came over to Alvarez and Marsal its consumer retail group to do things slightly different with a bit more of an execution, impact orientation. So
Anne 5:36
Those are fighting words, Dave. those are fighting words. I like it. Dave’s getting the team riled up. We’re gonna go for it.
Chris 5:42
Kind of our motto, too.
Anne 5:44
All right. Well, Chris,
Chris 5:46
Yes Anne,
Anne 5:46
Let’s get to the headlines.
Chris 5:47
Let’s get to the headlines. Today we’ve got news on Instacart Instacart Quietly filing for an IPO emphasis on quietly. Zara has charging for returns in the UK. Peloton plan to sell its products to third party retailers for the very first time. And Walmart trying to recruit college grads with promises of $200,000 plus store manager salaries but first Anne we take off with earnings galore this week.
Anne 6:13
Oh man, it was everybody’s time. This is another I think this is important because this is another example of just how pervasive the retail industry is and the impact it has on our global economy because everyone was talking about the target earnings today.
Chris 6:29
Everyone’s earnings target Walmart,
Anne 6:30
Walmart, Home Depot.
Chris 6:32
Right crazy.
Anne 6:33
Ross TJ X you name it.
Chris 6:35
Sorry about Ross. But yeah, okay.
Anne 6:37
Well, they’re coming out people might care about those that you don’t know. Anyway. All right. So target reported a stunning 52% Drop in profit for the first quarter sending the stock tumbling yesterday as much as 27%. Walmart also missed their earnings expectations and they got man they really got a beating on the in the news for the first fiscal quarter as According to CNBC, the retailer felt cost pressure from fuel prices, higher inventory levels and or staffing. On the other side of things Home Depot raised its full year outlook reported strong quarterly earnings and posted its strongest first quarter sales Ever.
Chris 7:16
Ever.
Anne 7:17
Ever Yes. Mike, let’s go to you first, how should we read into these results? What are you thinking about this?
David 7:25
Yeah, you know, I mean, I think
Mike 7:26
Listen, I actually think the target I think is a strong long term play. I think they got surprised, quite frankly, surprised the market surprised a lot of people with the short term results, what I like about target longer term and differentiate from Walmart here and Amazon a moment. At the end of the day, I think target has been finding the right balance of store and Omni and E commerce. They haven’t overbuilt their network, they’re finding the sweet spot. I think their pain is more short term they got in surprising to me in the sense that I think they’ve been a very disciplined operator, but the short term pain of the payroll and labour hours in their store, the short and I refer to these are short term because I believe they will correct their models, you know, they can’t correct inflation to in wages, but they definitely can correct how they staff stores, how they feel stores, I also think they can, they will make adjustments relative to pricing, merchandise mix, etc.
Look, the storm that’s hit us as the consumer, during the pandemic, had money coming in whether it was you know, government supported money or just not spending the same discretionary, they went out and bought big tickets, and they went out and spent a lot of money and target was a beneficiary, the bed baths were beneficiary. The consumer now is, is scaling back, focusing on smaller purchases, but they’re still spending and that’s the story of Home Depot that the consumer is still holding up. Yeah. So you know, the consumer, I think is holding up, but there is a shift from bigger ticket to, you know, still necessity or every day, you know, and I think that’s what Home Depot still playing in and we work with other retailers that I think are in smaller tickets that are pulling up their softness here, let’s not get ourselves butter pulling up in relative terms. I think target pivots fine.
Walmart and Amazon are a little bit different because they they built a lot of infrastructure bet big on everything’s delivered in 15 minutes, and they’ve got some more structural overhead costs that they’ll have to tackle.
Chris 9:28
That’s interesting. I might disagree with that somewhat Mike, this is good to have you on the show. So let’s see what Dave’s got to say first, though.
David 9:35
I also kind of disagree, Chris I well, I don’t think this is a short term blip for Target or Walmart. Frankly, I think if we look at the p&l of a retailer, inflation is hitting every single part of that and there’s no end in sight, right that cost of goods. Their CPG partners are passing on cost inflation to them. I think if we look at indirect costs are exploding, and Labor’s both difficult to find and wage rates are going up. So I think we might be in a new normal for call it 18 months, where they’re just a less profitable model based on the kind of not anything they specifically did, but just market conditions more broadly.
Chris 10:14
Yeah, I think so too. And I spent, I spent all morning reading these earnings reports Anne so before I go, What are your take? What’s your take?
Anne 10:21
I mean, I think more than anything, I’m listening to what Mike’s saying about what this means for the reactions from these retailers? Like what are we going to start to see Walmart and Target do as a result of, and what Dave saying what might be planning for the next 18 months of this. And so my hope is that we have retailers like Target like Walmart, who have been a little slow to the game on moving things like figuring out faster ways of of automation in house how to how to work through some of these scenarios that they’re still doing manually in store. And that my hope is that we start to see some investment in technology that’s going to help try to offset some of these things like labour, like inflation that that the team is talking about.
Chris 11:03
Yeah, interesting, interesting points. So here’s my, here’s my take. And then we’ll go back to Dave and Mike for kind of the final word here. But my big takeaway from these stories after reading the earnings reports say is it’s all about inventory. It’s actually all about the supply chain snapback that these companies are dealing with. And the reason I say that is, you look at the numbers, and targets, I think the best example of this target said traffic was up 4%, they did a 3% cop, which means their average transaction was down. And so you have to ask yourself, how in a period of inflation, is your transaction? Is your transaction site down? It makes no sense.
And so really, what you get back to is they were working through a hell of a lot of markdowns, and I queried some of my friends in the stores at Target. And they said, Yeah, we’re still clearing through, heck loads of inventory, we’re still clearing through things from Christmas. And so that puts it in a different perspective here. And Walmart said the same thing, that was the first thing they counted on, yes, inflation is a factor, but how much of those costs are being passed on to consumers, it sounds like they’re still, you know, somewhat buying this growth to some degree. And then most of the issues is in the mark down on the inventory side. The other point I would make, and this is where I agree, I disagree with Mike particularly on targets outlook. I was looking back at some numbers, I think these are interesting. So targets market cap in 2017, when we left was about $32 billion.
At the height of the pandemic, which as we’ve said, we’re talking about Instacart, too, that’s as good as it’s gonna get, right. It’s as good as it’s gonna get for, for Instacart business, it’s probably as good as it’s gonna get for target and Walmart’s business because you had so much money going towards products and versus services. And now that’s part of this equation, too, is people are snapping back and purchasing more services. their market cap got up to $130 billion, roughly give or take, you know, during this period of time, now it’s at 75 billion. So you know, I sit back and I say to myself, Okay, you know, where does this thing settle out? And then I put them in comparison with WalMart where Walmart’s got things like Flipkart go local Walmart plus Ribbit capital, Walmart health, they’ve got some dry powder in the growth keg, whereas you looking at Walmart? Where’s that growth or improvement in market cap come from
Anne 13:04
At Target?
Chris 13:04
That’s, um, yeah, Target thank you, they haven’t really added many stores. It’s all come from pandemic fueled growth or market share grabs as other retailers have gone away because of E commerce. So it leaves me wondering here, where is the growth story to come for target here in the future? That’s a big open question for me, quite honestly. And the other point I would make to that is, I think people are getting the punchline to the joke, because Target has seen a mass of Exodus, a mass exodus of good retail talent leave the company recently, as we know, from following our friends on LinkedIn, which other people might not see, but it just
Anne 13:36
Got their dividends that were more in the first quarter than they were the whole last year.
Chris 13:40
Exactly.
Anne 13:41
Like it’s things like that, like
Chris 13:42
Goes to my point of like,
Anne 13:44
Right,
Chris 13:44
It’s as good as it’s gonna get. So So yeah, so anyway, that’s long story, but I felt like it was important to cover but Michael, go back to you, because I, you know, I kind of disagree with you, but curious what you think on that tape?
Mike 13:55
Yeah, I mean, I think, you know, listen to things and not to misrepresented. I don’t think this is a blip. I think this is more towards Dave said an 18 month cycle, okay. But what I what I would emphasise here, and I build on what Anne share, I believe these companies and where I think they have profit optimization and improvement, is getting back to those basics that she shared it innovating more in the store innovating more with categories. You know, I think the the one thing I would I would remind us, you know, I’ve loved the story of target being in trouble 20 years ago,
Chris 14:28
Right.
Mike 14:29
Prior to Brian Cornell, ever since built too many stores are not going to be around anymore. They’re gonna get wiped out. I wouldn’t, you know, Target has, from my vantage point, it’s an enduring brand. It’s still delivering phenomenal value proposition. And I think it has the wherewithal, I agree with Dave, we got 12 to 18 months of headwind. It’s not going to be easy to solve, but I actually think this is a management team that can solve it. And I think that that will unlock new growth. And I think that they’re all So I think they’re still very focused on their core, which I think will be a positive to work as a as a source as they work through the next 12 to 18 months of headwinds.
Chris 15:11
yeah. And I think that makes sense to a net net, you know, what you’re saying there’s, you’d rather be a Walmart or a Target in trying to deal with this than, say, another retailer that’s not on this stirdier ground. Right. That’s the key takeaway.
Mike 15:21
Yeah
Chris 15:22
Alright Let’s keep rolling now. So I mentioned this company already, but Instacart Anne has quietly filed for an IPO again, According to CNBC Instacart said late Wednesday, Last Wednesday, actually, that it is filed a draft registration statement, the US Securities and Exchange Commission, paving the way for the firm to list its shares. Now, you’ll remember that in March of 2021, Instacart, was valued at $39 billion when it last raised 265 million.
However, as we covered on the show extensively, that valuation dropped this past March 2022, roughly one year later, when Instacart on its own volition, took its valuation down to 24 billion. So David, my question for you, and this is a fun one. How does Instacart plan to go public make you feel? Does the move make you more optimistic about Instacart’s Future? Or do you look at this move as more of a now or never
Anne 16:13
I love the feeling quest?
Chris 16:15
I know,
Anne 16:15
Like Dave How do you feel?
Chris 16:17
You get warm fuzzies with this? That’s kind of how the market reacts though, right? Like that’s how the people react?
David 16:23
No, it makes me feel sad.
Chris 16:26
Makes you feel sad, wow, depressed, okay,
David 16:29
I think Instacart just signed this IPO pretty poorly. And he’s going to end up leaving a lot of money on the table. I really believe this, unfortunately, is a now or never move. While I’m bullish on the grocery kind of delivery ecosystem, from a customer perspective, you know, Instacart struggle with profitability. And in a market where fuel costs are going up, driver costs are going up. I just think they could be in for a few tough years. And this is one of those moves where it’s, you know, in an IPO market that is starting to look more and more at profitability, as opposed to growth that this is a now or never move.
Chris 17:04
So you’re not at all optimistic about this, like technology platform player that they’ve switched to, you know, as a backdrop in terms of how they’re going to feel this growth as well.
David 17:13
I mean, this and I think some of the software’s or service stuff that they’ve got, you know, whether it’s that helping with a pic path in the stores, etc, I think it’s fine, I don’t think it’s going to justify the kind of valuation that they used to have before. It’s just you’d have to imagine a lot of adoption to get to the point where those revenues offset just the kind of the negative things that you get from the from the core business
Chris 17:37
now. I see what we’ll see for online, I’m pretty much where you are in this one. Mike, what’s your thoughts? I don’t know where Anne is on this. But Mike, what’s your thoughts?
Mike 17:44
I’m gonna say its a now or never I, I’m less bullish on the company. Overall, I feel it’s an intern business model to the right solution. And, you know, getting groceries at home will not be an Instacart model. I think it will be more more clear, direct model, leveraging technology, leveraging scale. I think Instacart plays it kind of a interim role in our models and I. So I think it’s now or never gonna try to grab what they can, but I think they have a tough road ahead.
Chris 18:15
Wow. Okay. It’s almost resolute here resolutely are in agreement here Anne what do you think?
Anne 18:20
Well, I agree. I think it’s interesting what it follows along with what we said about Target and Walmart in the last year. I mean, they saw Instacart just saw the best situation they’re ever going to get. They’re still seeing that. I think they’re Instacart is a band aid solution. We’ve talked about Publix a couple of weeks ago, they’re helping Publix do 15 minute or less delivery, like there is still a purpose for Instacart right now. So I think it’s actually the best time that they could have done this IPO because they have they still have value that they’re showing the market like we can come in and in you know, a few days we can turn on micro fulfilmemt and we can turn on 15 minute delivery.
We can give you delivery we can do picking and packing in the stores. But I think reminds me of an interview we did this week with Refait systems talking. And the founder of Refait. The CEO C. Donnie said you need to have this conversation in your organisation about build versus buy. And what when it makes sense to build something internally versus outsource it to somebody like Instacart. And I think this is an example. Like Mike, like Dave was saying a scenario where for in the long term, grocers, especially mass merchants, the giant retailers that Instacart needs to maintain viability, those retailers are going to bring this in house and then Instacart is nothing.
Chris 19:35
They were they were renting it.
Anne 19:36
Right. Exactly, exactly. Yeah.
Chris 19:38
I mean, I agree with everything you guys have said. I mean, I think it’s a move of total desperation. At this point, the prospects are going worse by the minute. And I also wonder and I don’t remember where I read this, but I thought it was interesting take was, you know, I also wonder if it’s a way to get potential acquires interest before it goes public, too, and you know, Walmart’s been throwing around I’ve thrown that around, but I gotta tell you, I’m feeling good about my prediction where I said, you know, We’re gonna look back in a few years I said this in Forbes, I think last year the year before even we’re going to be looking at this as the company formerly known as Instacart at some point you know
Anne 20:09
Imprints of retail
Chris 20:10
It really Yeah, it’s really going to be that and this is just another indication to me on that they they have no choice but to try to do this.
Chris 20:16
Yeah
Chris 20:16
And a lot of ways so it’s probably the smartest move their leadership’s made in the last year year and a half in my opinion, but Alright, Anne let’s keep rolling.
Anne 20:24
All right, headline number three. peloton also had a very disappointing or a bump, bump.
Chris 20:32
It’s keep on
Anne 20:33
I know, so peloton has losses year over a year in the fiscal third quarter grew $757 million, or $2.27 per share, versus 8.6 million or three cents a share. Just a year earlier, its revenue dropped to $964.3 million from $1.26 billion. And the new CEO Barry McCarthy, According to CNBC said that in addition to expanding subscription revenue, the company now plans to sell its products through third party retailers a step that the company has not yet taken before. Mike, let’s go to you first I gotta hear what what do you think about this move to sell through third parties? Can peloton maintain the brand cachet? If you can now get them inside of target For example?
Mike 21:21
I think they have to I? Yeah, really? Look, back to kind of a theme here. This is a company that, you know, is a great output of the pandemic people. And I think when you look at it, I think it is actually more of a service company than a hardware company. Obviously, the money’s coming through the bikes. But really, it’s the service in the community that makes it that is differentiating for the business.
I actually don’t think the bike itself is all that differentiated or some of the other heart, if you will, the physical infrastructure. I think this is a really hard pivot for that I think they have they face a really hard pivot because I think moving to you know, hey, we’re going to be a subscription based model. We’re going to go through third party retail, you talked about you share the losses. I believe the more interesting play here is consolidation in space. And I think peloton has probably done a sufficient to effective job of branding. It’s the leading potential brand in that space. I don’t I think it needs a structural solution. versus, you know, operation, you know, what I’ve described as continuous improvement.
Chris 22:33
Your take is that so your take if I summarise that is they kind of have to do this or possibly look at an acquisition here at some point down the road as well. Okay.
Mike 22:42
Merger, merger acquisition, consolidation of other players, I just, you know, I don’t see the space back to you. I don’t see the space continuing to grow massively. I think we’re gonna have slow growth.
Chris 22:53
right because it’s been Yeah, as big as it’s been
Mike 22:55
As big as it’s been
Chris 22:56
Fair point,
Mike 22:56
I think the subscription model is the recurring revenue that you would want. How do you lower your costs, your overhead and your infrastructure costs to to have a very profitable subscription business? And I think that ultimately then gets into the question of I think other providers have the similar competitors haven’t had the brand effectiveness, the consumer awareness that peloton has, so that’s where I think there could be some synergies in place.
Chris 23:20
Right. Absolutely. Okay. I’m dying to get what Anne’s take is on this. But Dave, what do you think? Do you agree or disagree with your colleague, Mike?
David 23:27
No. So I slightly disagree. I listen, I think the wholesale channel might be a desperation move, but controlling your brand and the wholesale channel is tough. I was actually at Nordstrom this weekend, and they had a tunnel setup. And it wasn’t great, right? It didn’t scream, the peloton experience right like so I just think that’s a tough from a brand proposition. I agree with Mike over though, it might be necessary, just to try to get as many points of distribution as possible, given the kind of economic hardships that they’re facing. The other thing I thought was interesting was on subscription revenue increases what he really is saying is price increase.
Chris 24:04
Yeah right a 100%.
David 24:05
There’s almost no world where they’re going to grow the pandemic kind of peak. So price increases in this kind of economic environment that we’ve talked about on this podcast the whole time. Just feels like I mean, it just doesn’t feel like a particularly effective strategy. Then maybe peloton’ss customer base is more fluid and can can handle it, but I don’t know price increases in a looming, recessionary environment feels kind of out of touch.
Chris 24:31
Yeah, I tend to agree. I tend to lean more with what you’re saying. I mean, I think I’ll be candid on this one. I kind of hate this move.
Anne 24:39
Yeah
Chris 24:39
Yeah. I mean, I really do. I feel like it’s, I feel like it’s peloton getting hung up on its own bad press of late because I think there’s some there’s some key statistics that you can pull out from these articles. Like they still gained 195,000 subscribers last quarter and their attrition rate actually went down, went down from almost, you know, point 8% to point seven 5% That’s still shows me that it’s a healthy brain because again, it was at its peak, and it’s still growing. So why would I want to then, you know, go into a third party for my distribution, because then you’re just like Nordic track, you know, you’re the same. You’re you’re basically devaluing your brand in my opinion.
And or you’re like, like, Dave, I think the total examples really great are the mirror example. I was in Lululemon this weekend, there’s no one looking at the mirror, the place is packed, no one’s looking at it, no one’s engaging with it. And then the other thing that comes with that, too, that I think is really important, you get lumpy inventory, and as we said at the outset,on the first headline, then you get markdowns, and then there goes your cache, right? Because you have to start discounting this to clear through the inventory. And so I just think with those type of subscriber statistics, and you can yes, you can find the bounce on the subscription revenue to Dave’s talking about, there’s no reason to not go direct in this example, like build out your own stores keep the network going through your own channels. I think Mike’s point about maybe if you’re really suffering or needing to find an outlet, look at a merger look at you know, potential acquirer, something like that. I don’t like the move of third party at all.
Anne 26:03
I completely disagree.
Chris 26:04
Wow, really?
Anne 26:05
Yeah, I do.
Chris 26:06
Why?
Anne 26:06
Because I think that peloton has been going after a very specific market, they’ve been going after a high earning individual, they have not been going out for mass and like,
Chris 26:19
Do you think they should go mass?
Anne 26:21
I’m not saying they should just go mass. But I think that they should take the approach that we’ve seen Lululemon that we’ve seen Apple do where you have certain retailers who you think can maintain a certain level for your brand, but also allow you like, I’m thinking of like Target, okay, so target selling, they have Apple products in their stores. It’s giving people exposure to the brand and especially when you’re talking about what Mike’s talking about about the subscription revenue, and you said too like, that’s the subscription is where they’re making their money.
It doesn’t have to be about the hardware itself. And I think that the more people that you get exposed to the brand, being able to have a taste of peloton at 3999 a month is attainable for people they still get to have the power of the brand which is in the people that are running the programming and the programming itself like this is a future for a lot of people of having a hybrid workout experience and the more access that you have to seeing the bike in your Target store or in you know, very selected maybe a Dick’s Sporting Goods or something I think makes more sense than just completely keeping it in the A malls and only allowing a certain subset of the country to be able to experience that brand.
Chris 27:32
All right, well, I want to I want to press you on this.
Anne 27:34
Yeah
Chris 27:34
So I love this show. And so I love having top notch retail consultants on actually debating the issues like is which is incredibly hard to find. And last week, we argued and I came to your side so I’m gonna press you a littlebit on this.
Anne 27:45
okay
Chris 27:45
I would argue that it’s still accessible now like based on its internet presence. If you want a peloton it’s pretty easy to find one it’s not like it’s like being kept from certain people. So like, you know, to
Anne 27:57
I think because we are in the target market for the peloton.
Chris 27:59
I agree. That’s who they’re marketing to. But if you get wind of it, you can easily get one, provided the inventories there, which granted is a problem. But that’s the separate point. My point my question to you though, is who are those retailers? Who are those retailers?
Anne 28:12
That’s a good question.
Chris 28:12
Where you get to like Target you’re gonna have the kid that’s 18 year old in khaki selling this for you. No way not to say it’s going to become like NordicTrack. Best Buy, same issue. Like it’s just going to become something in the sea of all target doesn’t carry extra equipment. But Dick’s is maybe one you know best buy’s another one maybe but then it just becomes another bike or treadmill in the lineup of bikes and treadmills and it’s gonna be hard to differentiate. So I don’t know
Anne 28:12
I but I guess
Chris 28:41
who are those people?
Anne 28:42
I guess you’re not I think I think you need to make a point of differentiation about what the the store experience is. And I don’t know that it’s going to be hardware every single time I still think that there’s a potential to create an activation with a brand partnership for example, with a target where you have targeted peloton teaming up and there’s a peloton like space in the target or you could have a bike there but it doesn’t necessarily mean it’s about the bike I think it’s about about the subscription and getting more people exposed to like, here’s a peloton class we’re gonna play it like people would sit and watch the peloton class depending on who the instructor is.
Chris 29:19
That’s an interesting idea. We’ve talked about that before. Like could you have like actually peloton classes where the bikes are set up for you but Dave, Mike, any last thoughts on this one?
David 29:28
Yeah, I’ve got I’ve got one last thought is I think the CEO of peloton should start spending a lot of time in Oregon. Because Nike is the I think Nike acquisition is the smartest move here. That actually makes sense from a market perspective.
Chris 29:42
Yeah, Nike or Apple. That’s the other thing that I was thinking of as Anne was talking to. Mike any thought
Mike 29:48
this business is bleeding cash. Yeah. Kind of that stay the course. Keep appealing to the same people
Chris 29:55
might not work right.
Mike 29:57
It’s well it’s I say might not It’s not
Chris 30:00
it’s not right
Mike 30:01
So. So you got to ask yourself, like how much more we’re gonna keep bleeding here.
Chris 30:05
Yeah.
Mike 30:06
And I think that I think they can they’ve I’m with AnneI think they have to exploit. The bottom line is I have to figure out a way to get greater scale. And I think one means is further exposure I think Dave’s on it with I come back to I think an acquisition is for some partnership as a path forward.
Chris 30:22
Yeah, that’s interesting point too like that actually makes me think like I you know, I would take my rabid fan base and ask them to help us through that issue, then, you know, through the subscription increases too as another point. All right, well, let’s keep rolling. God, this is a great podcast. I love this. All right, headline number four. Zara is now charging customers in the UK for online returns according to industry.fashion. Starting this month, UK customers who have purchased an item online will now have to pay $1 .95 Sterling, that will be deducted from their full product refund. Customers will also have 30 days to return any items and they can no longer return separate orders in the same box. purchases made in store can still be returned free of charge if they are returned to a store in the same region. So net net This means if you live in the UK, and you want to return a Zara item you purchase online, it sounds like you’re going to have to pay roughly two quid to do so. So Mike, I’m curious, do you see this as a one off implementation? Or do you see this as a sign of something more to come more broadly across retail? What’s your take here?
Mike 31:26
You know, it’s a broad retail challenge. So we did a lot of research on this. I mean, the cost of returns the amount of returns it is very expensive, it’s very difficult. The flip side is the consumer wants the easiest, simplest hassle free experience. And actually we did a fair amount of research that said a consumer makes a purchasing decision based on their perception of how easy it is to return
Chris 31:54
Rightly
Mike 31:55
So this flies against all of that obviously the only I would say caveat in Zara’s case is in this is where I see a little bit of a hybrid one off the model of Zara consumer is going to be to buy 10 things try them mall on and suit July condones so I can think they have a bit of a more unique tech tied to their customer model. I don’t see this as a go forward industry I think this will be a very difficult industry trend and I’d be curious I don’t think it will go well with Zara customers as well.
Chris 32:32
Anne do you think the same thing?
Anne 32:34
I think I agree doing this like cold turkey and just do especially as a as an avid Zara shopper like this is going to be a nightmare if you’re going to not only make me wait in line and you’re going to charge me for the returns like it’s a terrible experience to do in store
Chris 32:51
Yeah for an online item. Yeah,
Anne 32:52
Yes, I think you’re gonna start to see abandonment of baskets of people waiting in the same line to purchase our thing I mean, again, I’ve said this ad nauseam on this podcast but like waiting in line at Zara on this on a Saturday is like an hour long thing this is not it’s a terrible experience. And now you’re going to have people who I think if you know if you have people coming in returns and doing that it’s going to be a disaster but my hope is that we start to see Zara expand the pilot that they’re doing in Madrid right now with like the clover on pickup and return lockers. Where if you are going to do this, tell me like Mike saying,
Chris 33:26
What am I
Anne 33:27
Tell me in advance I can go in and if I submit this return via the return locker then I don’t get charged for that. And I do think that because of the impact of returns for other fast fashion online retailers like Zara, we are going to start to see this happen where they’re gonna get charged or you have to take an option that’s going to reduce friction both from the store associates and from the consumer.
Chris 33:49
That’s really interesting points. You’re saying like do we set the price high at the funnel so you know, buyer beware
Anne 33:55
Exactly
Chris 33:55
And then do we over time start to come up with new ways to take that cost out of the equation?
Anne 34:00
Yes
Chris 34:01
It’s very easy for them. No, that’s interesting point
Anne 34:03
I just spoke with this morning I’m going to be interviewing founder of an of a company who used to be in charge of innovation for Inditex, the Global Head of innovation. And I asked him
Chris 34:14
shop talking
Anne 34:14
yes, shop talking Europe. And I asked him about this. And he said he’s like, I think we will start to see so many more retailers start to roll this out. Like his perspective was this is something that the industry cannot avoid there. It’s the cost of returns is so significant, especially in these types of categories that they have to do something to kind of make up for that.
Chris 34:33
That’s a really interesting position. I hadn’t thought about it from that angle of like, do we reset the level and then give people options coming down that line? I never thought about that. Because I was kind of where Mike was initially and even where you were too or this seems like a hard thing for consumers to swallow, but maybe not over the long haul. If you think about it that way. Dave, what do you think?
David 34:51
I mean, we’ve just spent decades training a consumer to buy a whole bunch of products, try on different sizes and send them back I am a little worried when you when you talk about tearing a band aid off after 20 years of taught behaviour, right? I’m kind of with Mike, I think it’s risky. That said, I think it’s something to keep an eye on because I mean returns is clearly a huge problem. And in an expensive problem that that I think retailers do need to figure out whether that’s a tiered system like you guys were talking about, or this, you know, pay to return. It also feels like a lot for the order size at Zara. So, you know, it’s just I think it’s, I think it’ll be tough to drive adoption. I think it’ll actually probably hurt their ecommerce sales in the UK. But it’s, it’s certainly something to keep an eye on, because it’s a problem needs to get solved.
Chris 35:41
Yeah, it’s interesting. So you think one last question. So you think two pounds is a lot roughly you think that you know, for them? That’s a lot because my initial inclination was like, Okay, maybe that’s not that much to like, it doesn’t actually dissuade me from still doing it or still trying it to some degree. But what’s your,
David 35:56
I just feel like Zara is such a value brand that I worry that anything over one is too much, right?
Chris 36:04
Anything is detrimental.
David 36:06
any any any dollar number for the Zara customer I mean, the whole point of fast fashion is to is for people that can afford it.
Chris 36:13
All right. Makes sense? Yeah.
Mike 36:15
Iactually think Anne though is on to where I think this could evolve.
Chris 36:19
Yeah it’s really interesting.
Mike 36:20
What I am seeing is retailers today trying to incent the customer to go to the most efficient model. You know, Amazon set up a deal with Kohl’s to try to run things through Kohl’s and they actually incent you to get a discount if you go back there. So I think the retailers are at the stage of carrots, so to speak, trying to get you to find the most efficient path back. It would not surprise me to see them add some sticks. Like if you choose to go the other path, we’re going to charge you. The problem has to get solved they need to get the product going in a more efficient return process.
Anne 36:55
Absolutely. Alright, Mike, and Dave and Chris, we’re gonna move on to headline number five. Walmart went out of its way this week to attract college graduates to work in its stores. According to Bloomberg, Walmart has recently unveiled a new college two the number two career programme that will provide classroom training hands on experience and mentoring for recent and soon to be graduates.
According to a Walmart statement, top performers will be offered a newly created management role as an emerging coach, which provides the starting pay of at least $65,000 A year and a speedy path to becoming a store manager. They said “we see that emerging coach roles an additional pipeline to develop high potential talent into future store managers the latter role with an average wage of approximately $210,000 in 2021” David, we’re going to you first, do you think this will give college grads an enticing reason to look at Walmart as a career opportunity? Or is it just PR window dressing? As David Brown said famously,
Chris 38:00
Yeah, that’s right.
Anne 38:01
On a Podcast not too long ago? Well,
David 38:04
So the first thing I’d say is kudos to Walmart, I think we all know that the store manager is the most important role in retail, and is capable of really driving results in an individual box. So at least kudos to them for trying to up their top talent levels, whether it’s PR or real
Chris 38:21
Right
David 38:22
It feels like there’s going to be a good test to see if they can move the needle. But to me, it feels much more than just like a test. So in that sense, maybe a bit more PR. One thing that I do think is interesting about this, and my worry about their approach in this is that many new college graduates or Gen Z, and Walmart is going back to the level or the level of compensation. Yeah. And I think if you if you interview these people, you look at any behaviour, like they’re much more into purpose driven organisations, flexibility and scheduling. So, you know, we continue to see retailers go back to the well from 10 years ago, where wage rate is the thing that matters most and that’s not what attracts this, this demographic of talent. So I, I wish that they there are other parts of the programme that were more oriented against the college grads that they’re targeting.
Chris 39:13
Yeah, I agree with you. And I’m curious, I’m curious Mike to get your take on this. I’m gonna put a little spin on this one too. But you know, I think it’s it is more PR window dressing. I think you just look at the numbers like, you know, your odds of making the NFL have relative to being a store manager are not that different, and the NFL payouts a lot higher when you think about there’s only 4600 Walmart stores. So if you hadn’t if you had in the store, the chances of you seeing this payout are really slim, and I’m not trying to be a downer. I’m just trying to be a realist, you know, you’re one of 4600 opportunees and many of those opportunes are already taken up by long tenured good store managers.
So the chances of you getting there are low. You know, so I agree it’s like admirable at the end of the day, but but this is my question is like when you get down to it, there’s probably more headquarters employees making more than $200,000 or that salary there according then there are store manager So what it actually tells me is that our store employees are probably still underpaid when you put it in that perspective. So Mike, what do you think I see you shaking your head in the affirmative. Do you agree with that?
Mike 40:10
Yeah, you know, I mean, just have a different spin I, I feel like Walmart should put its foot says on the people that work for them today. Yeah, you know, the idea that they gotta go to college to get a future store manager when they have all these people in the stores, they should focus on, you know, maybe it’s an old principle. But there were folks who started out at stock boys who became executives
Chris 40:32
100 percent agree.
Mike 40:33
And I think they really should be promoting a motion of come in work for us at any entry level. And we have programmes in house
Anne 40:42
yeah,
Mike 40:42
To fast track you and to get to assistant store manager or to your point, because the store manager is a pretty, you know, there’s only so many, but I think creating more growth opportunity for the frontline work employee, and almost kind of saying that some of this, it’s like a kind of a class thing here. So we always need to just go find the college grant, why don’t we just work with the people we’re employing and give them greater opportunities?
Chris 41:05
Anne I will go to you on the end and close this up here. But I totally agree with you, Mike. I mean, as a former district managers from edge for target, I used to argue with target and say, Why do we need to hire college grads, I’ve got tonnes of really great people working my floors, they could easily be store manager one day, and many of them have become that
Anne 41:20
Right
Chris 41:20
And They’ve become very good at the job.
Anne 41:22
Right? Well, I think that’s the most critical part that we need to address here is that you need time in the stores in order to become I think the best HQ, employee or store managers. And that’s, I guess, where I’d be focusing as if I was Walmart is how do you just create a blanket programme where your goal your goal setting, whether you’re in a store employee, or going right into HQ How do you create the best what most well rounded employee and then goal them at these these Not $212,000 a year, but how do you really create that opportunity regardless of where you’re coming from? How do you get them to be starting in the store or starting at HQ? Or like, you know, I just feel like there’s there needs to be more well rounded Approaches to hiring and how they’re going to do that. Including, you know, people in the stores, I’d be furious.
Chris 42:18
Yeah, and I think they probably are, quite honestly, if they read this story, which maybe they did, or maybe they didn’t, but you’re right, the ladder has many wrongs. And it can go in many directions. That’s an important point, too. Alright, and let’s close this up.
Anne 42:29
Alright, let’s get to the lightning round. So first question is for David, Dave. Rick curate is a peer to peer resale platform that allows brands to bring resale onto their own sites, and they just raised $14 million to continue to do so. Dave, what was the last thing that you sold online?
David 42:50
Man, this is gonna make me sound so old. I have personally never sold anything online
Anne 42:54
ever?
Chris 42:55
I haven’t either.
David 42:56
My wife did sell a table when we moved, on Facebook.
Anne 43:02
On marketplace?
David 43:03
Marketplace. Yeah.
Anne 43:03
Okay. Well, that will give you that kind of by association.
Chris 43:06
I guess I’d have to go back to Craigslist, like 2003
Anne 43:09
Oh my God.
Chris 43:10
But anyway, all right, Michael. Taco Bell’s Mexican pizza is back.
Anne 43:15
Yeah,
Chris 43:15
What was or still is your go to Taco Bell delight.
Mike 43:20
I gotta tell you, it’s like so boring. Bean burrito with hot sauce.
Chris 43:25
Oh, that’s not right
Anne 43:25
Oh what
Chris 43:27
I totally agree with that.
Anne 43:28
What’s yours?
Chris 43:29
Well, in high school, it was the Cerrito which I don’t even think they have anymore. I think it was called the Cerrito. But anyway,
Anne 43:34
So loop all the way. Oh, okay. Dave, second question for you. Former Disney CEO Bob Iger has joined as an investor and advisor for go puff. Dave, what would you have instantly delivered to you if you knew you had a full day at Disney World ahead of you?
David 43:52
Wow, this is a no brainer, sunscreen.
Anne 43:55
Oh,
Chris 43:56
Sunscren
Anne 43:56
I was gonna say you know they deliver booze Right? Like that’s also a possibility.
David 44:01
You can take it Anne.
Anne 44:02
Yeah, it doesn’t matter if you put it in your coffee cup and no one’s gonna know.
Chris 44:05
Well six packs. Yeah, the fair skinned David Ritter answering honestly and truthfully I love that. All right, Mike. Last question. Kraft Heinz is reportedly piloting a paper based ketchup bottle channelling my inner lane Bennis. What is your go to ketchup secret or technique for getting ketchup out of the bottle?
Mike 44:24
Count oh mighty hit. Holy smokes. So cap on Bang the bottle.
Chris 44:29
Bang the bottom. Okay, cap on bang the bottle
Mike 44:33
top off, use the knife or the french fries.
Chris 44:38
If you’re watching the video, this is even better.
Anne 44:39
Yes I love the the visualisation
Chris 44:42
Roughly minute 45 And watch this. It was well worth well worth it. It’ll be well worth your effort. All right, that closes us up. Happy Birthday today to hope I’m saying this right. Anne please correct me if I’m not because I have no idea. But JoJo Siwa.
Anne 44:54
Yeah,
Chris 44:54
Is that right. All right, the I don’t know what she does, but I hear about her all the time. Kevin Garnett and one of the most underrated James Bond actresses who ever starred on the screen and played Mayday in a View to a Kill The Great Race Jones. And remember, if you could only read or listen to one retail blog in the business make it OMNI talk, our Fast Five podcast is the quickest, fastest rundown of all the week’s top news. And our twice weekly newsletter tells you the top five things you need to know each day and also features special content exclusive to us and just for you, and if it’s all within the preview pane of your inbox, you can sign up today at http://www.Omnitalk.blog. Thanks as always for listening in. Please remember, as we said at the outset to Like and leave us a review wherever you happen to listen to your podcasts or on YouTube. And Dave, if people want to get in touch with you guys chat a little retail pick your brands for advice as consultants, what’s the best way for them to do that?
David 45:44
We have several options. The first is our website which is http://www.alvarezandmarsal-crg.com. We have a LinkedIn page which is Alvarez and Marsal consumer and retail group or finally they can feel free to reach out to me or Mike directly via LinkedIn.
Chris 46:01
Awesome, awesome. And finally, apologies to Steve Dennis. We had hoped to have on this pre recorded podcast but we ran out of time and of course, as always, be careful out there.
Automated Voice 46:12
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