Technology, for Technology's Sake

Brian: [00:01:08] Welcome to Future Commerce, the podcast about cutting edge and next generation commerce. I'm Brian.

Phillip: [00:01:13] And I'm Phillip. And today we have Sucharita Mulpuru, a retail analyst and startup advisor, formerly of Shoptalk and Forrester Research, and some worldwide brands, some small brands you may have heard of, like Saks Fifth Avenue, Toys R US and the Walt Disney Company. Welcome to Future Commerce, Sucharita.

Sucharita: [00:01:30] Thank you for having me.

Phillip: [00:01:31] Glad to have you here. And as always, we want your feedback about today's show. So please leave us some feedback in the Disqus comment box on our site at FutureCommerce.fm. And remember, you can always subscribe to Future Commerce on Apple Podcasts and Google Play or listen right from your Amazon Echo on TuneIn Radio with the phrase, "Alexa Play Future Commerce podcast." Well, welcome to the show. Brian, I think you made the introduction here. So maybe you can give us a little background of how Sucharita has kind of become familiar with the show. And then Sucharita, I'd love to hear a little bit from you about who you are and what you do.

Brian: [00:02:07] Yeah. So I actually I'm not sure if you became acquainted with the show when I kind of reached out on Twitter, but that was sort of our first interaction. And you were talking about digital collectibles on Twitter, and you made some comments that that I thought were pretty interesting and we kind of got going. So that's how I got to know you. But, yeah. Tell us about yourself. Give us a little history. You've got quite a resume. How did you got into this crazy world of commerce? And what has your experience been over the past 10 years or so?

Sucharita: [00:02:42] Yeah. Yeah. And I remember that exchange. I think it was like some tweet about Target and then you had to come back with a little niche brand that I think was actually a guest on Future Commerce. And just how fast that they'd been growing and how much commerce was just under the radar that that we don't really even know about unless you kind of dig deeper. Right?

Phillip: [00:03:09] Right.

Brian: [00:03:10] Right.

Sucharita: [00:03:11] Yeah. So my background, I won't bore anyone with too much of the resume. But for about a decade or so, I was one of the key retail analyst at Forrester Research, which some of the listeners may or may not know. It's a technology research company based in Cambridge, Massachusetts. And one of a number of the things that I would do are related to commerce, eCommerce, the retail industry, and just the changes that are happening in the retail industry. And when I started at Forrester, a lot of the issues were really about just how do you sell better online? And so many of my questions were related to how does, if you're a branded manufacturer,  should you have an eCommerce site? So those kinds of really rudimentary questions that since have been replaced how do we survive in this crazy world of Amazon? Is our business going to even be alive in the next few years? So it's definitely changed a lot. I'm actually gonna be returning to Forrestar in the Fall.

Brian: [00:04:24] Congratulations.

Sucharita: [00:04:24] Yeah. Thank you. Back to where I had been for a number of years. There's so much that's happening in retail. And I feel like often there's a lot of just silliness that is speculated about or that there are directions that just make really no sense for a number of businesses and that was really one of the reasons for going back to Forester, was to be able to have a voice in the industry and to be able to sometimes have a contrarian voice. I think that's often what people kind of like to read my research to hear is to separate the myth from what is happening and changing that could affect your business vs. do they need to be investing in drones right now?

Brian: [00:05:23] Yeah, it's great. You and Philip we get along really well.

Phillip: [00:05:26] Yeah. {laughter} Yeah, it's interesting because when we named this show, we started off the charter the show was let's talk about, you know, the things that are coming so we can give really good advice to retailers on what we need to be focusing on right now. And a year and two months ago, you know, everybody was hot on conversational commerce and then 7-Eleven was delivering hot dogs by drones.

Sucharita: [00:05:54] {laughter} Right.

Phillip: [00:05:54] And it's interesting.

Sucharita: [00:05:56] And Slurpees.

Phillip: [00:05:56] Yeah, exactly. And it's funny because those are the things we talk about. But aside from, you know, self-driving cars and flying cars, which, you know, we're only three years out from Blade Runner, where else do you go?

Sucharita: [00:06:12] Well, there's the drone hive I'm excited to see. I can't wait for that.

Phillip: [00:06:17] Exactly.

Sucharita: [00:06:19] And Elon Musk is gonna get in our brains, too. We don't even need to, you know ever type or talk.

Phillip: [00:06:24] Yeah. And I do think that there are some incredible, transformative things on the horizon. I mean, we've talked about Magic Leap a little bit. And we do think that there are some far future interesting tech out there. But there's so much that's actionable, that is near future for retailers right now who are struggling with the future. I sort of use this as a great example is the future for some retailers is, "I just want a working site search on my eCommerce portal. Like that's the future for me as a retailer. My site search has the worst results. And I don't know how to make that better. Forget drones." Right?

Sucharita: [00:07:01] Right. Yeah, absolutely. I mean, I ordered from some like wall hangings. Jet.com the other day, and I didn't even... They sent me something, and I was glad that I did get the package. But when I opened it, it was completely the wrong item than the one that was on the web site. And, you know, that kind of stuff is ludicrous that it's still happening these days. I mean, you know, still sending like two left shoes in a box? I mean, what's up with that? So there is so much opportunity even for low hanging fruit for retailers to get their act together on.

Brian: [00:07:41] Yeah, absolutely, we totally agree. I mean, the thing is, the technology is available. There's a lot you can do right now to shore up a lot of these things. And a lot of retailers are, like we've said, looking out too far into the future and just need to be focused on taking advantage of what's available to them right now. That said, a lot of crazy stuff has been happening in retail this year. I mean, it's often been called the historic crisis. How would you categorize what we're experiencing? I mean, you've talked... It sounds like you've been talking about this quite a bit lately.

Sucharita: [00:08:17] Yeah, yeah, I mean, I think that some of it's a little overblown. I mean, when People magazine is talking about the retail apocalypse, I think then you know it's become, at least the expression, mainstream.

Phillip: [00:08:32] Yeah.

Sucharita: [00:08:33] But the truth is, retail in the United States is over a four trillion dollar industry. That's just the U.S. alone. And the vast majority of retail. Yes. Still is in physical stores. Amazon single handedly has, I think, changed the dynamics of retail for reasons that, you know, I'm sure we'll get into in a few minutes that are very unique and different from anything that we've seen before. And if you're in the business of selling commodities, which basically is all of the big box stores, yes, you're absolutely in trouble. And you need to figure out what you're going to do with the physical real estate that you have committed to. I mean, does it just kind of revert back to kind of bankruptcy court or what happens with that? But retail reinvents itself. And there were I think there have been like 40 thousand new shopping centers in the last decade. Now, they're not indoor malls like a Westfield property, but they are outdoor malls. There are often called neighborhood centers or power centers. They're these large open space buildings and construction establishments where the parking is in the exterior and it's close to each of the stores. And it's usually anchored by a grocery store, which, by the way, with the grocery sector still continues to do fine off-line. Although we can talk about that, too, post the Amazon Whole Foods merger or speculated merger. I don't know that the DOJ has completely approved it yet. But, yeah, I mean, it's 40,000 new centers and with pretty high occupancy rates. And that an occupancy rate is driven high by everything from like TJ Maxx or a HomeGoods to stores like hair salons, nail salons, restaurants. The restaurant sector has grown tenfold since the 1970s. So that's one sector that has really been a reflection of how the workforce has changed. Changes in the dynamics of women working, the changes in the availability of just so much variety of different kinds of foods that cater to different tastes. And at this point, the restaurant industry is enormous and is a huge driver of people leaving the house and spending money in some of these centers. So retail absolutely changes. And there will be stores that have not evolved that will go away. But our spending is still going to be at four and probably five trillion dollar level in a few years in shopping. And the vast majority of that still is going to be in the kinds of stores where people want to spend money at these malls. And you'll see new kinds of stores. Another sector and I know that, you know, you're going to have to cut this because my answer is so long... In health and education. So two of the sectors that are growing the fastest are things like urgent care clinics and these tutoring facilities and these like educational, like Kumon centers or Mathnasiums.

Brian: [00:12:12] Mathnasium's a big one, yeah.

Sucharita: [00:12:14] Yeah. And they're taking up some of the commercial real estate that in the past may have been a mall merchant.

Phillip: [00:12:24] Right. And it's interesting because when I think of some small brands that are uplifted by traffic that are generated into malls that wouldn't usually survive without them, they're not destination stores that fulfill a need or a service like what a tutor or a health care clinic would give you. And that said, a health care clinic and even eye care is a really good example of the kind of thing that you see Target and Walmart, the last 10 years, pushing hard into try to capture a good portion of that business. And it sounds like the kind of thing that's continuing to be consolidated by brands like Walmarts and Targets. What's your take away on that?

Sucharita: [00:13:13] Yeah, I think what you're essentially describing is stores within stores.

Phillip: [00:13:18] Right.

Sucharita: [00:13:18] And this is something that the college bookstore sector actually had discovered years ago. And I don't know how much you know about the college bookstore sector, but what we probably all know is that college textbooks are probably the most hated purchase that you ever do as a college student, right? You know, I mean, for all of the reasons that we know usually. The professor recommending their own kind of textbooks as a supplementary income straight. But separate from that, the issue was that over the last two decades, more and more, the information in textbooks started to migrate online. And there was just really less need for textbooks. So what that sector started this is at in the past, 80 to 90% of their revenue would come from textbooks. That figure has gone down dramatically. So what did college bookstores do about that and how have they maintained their income? And what they've really done is they've diversified out of textbooks. So if you go to any college bookstore, like a the Oregon Ducks store...

Brian: [00:14:33] Boooo.

Phillip: [00:14:33] {laughter}

Sucharita: [00:14:33] {laughter} Any major bookstore that is a university bookstore. Their biggest asset is they're typically in great locations with fabulous foot traffic, usually in some well healed area. But what they've done is that they replaced the text books sections, which usually have been huge part of the store, and brought in everything from licensed merchandise, which is now a significant part of most college bookstores revenue. But they also started to become official Apple resellers. So that was a big, big change that you started to see.

Phillip: [00:15:16] Wow.

Sucharita: [00:15:16] Like more of the electronics and these stores within stores for the electronics industry. They started to bring in things like Clinique counter. So they started to sell makeup and beauty products. They also started to, for the most part, all become coffee shops. So in some cases, they would actually ally with Barnes and Noble. And Barnes & Noble actually has a pretty significant college bookstore section or business now, which is actually outperforming the other bookstores. They're consumer facing their noncollege bookstores. And then they even started to do things like renting space to Bank of America and the ATM providers. In some cases the rooftops of these college bookstores were leased out to cell phone providers like Verizon, where they would put, basically, cell towers and other types of hardware investment. So that's how these college bookstores have maintained their pretty consistent revenue base because they've diversified out of what was their core business and gone into and they've leaned into places where they knew would make sense for them. And that's where I think lots of other retailers, including Walmart and Target, need to recognize is that if you're seeing more and more of your commodities, like your toilet paper or your toothbrushes going online, what can you do? And things like urgent care clinics, they're one solution for that. Starbucks and other location based services could be a solution for that. Post offices, no doubt, are going to probably sublease space in some of these big box stores in the future, particularly like Walmart or Target, where they're ubiquitous. We're gonna be able to see a world where you could relatively easily return any eCommerce merchandise to a Walmart or Target in the future. So anything to drive traffic to a physical store. A number of large merchants now, like we have more grocers, putting gas stations in their parking lots as well. So anything to drive that foot traffic and give people a need to come to the store. Dry cleaning. All of that, I think, is really is the future.

Brian: [00:17:55] Tailoring.

Sucharita: [00:17:55] Yeah.

Brian: [00:17:56] Yeah. That's good. I think one of the things I'm kind of hearing from you is that, and this is maybe a crude way to put it, but we're kind of miniaturizing retail a little bit because you talked about a bookstore that is selling everything from makeup to laptops. And to me, that sounds kind of like a mini mall almost. And because we sort of have these products that have become outdated digital products and have become digital products or have found ways of selling online or whatever it is now, we can fill our retails spaces more with them than we could before because we have more space.

Sucharita: [00:18:41] Yeah, yeah, absolutely. And it's almost an imperative for these retailers to do something with their space because they bought these, in a best case scenario, like 10 to 20 thousand square feet. Some of these guys have like hundreds and thousands of square feet. And what the heck are you gonna do with that? I mean, you know, there would likely be opportunities to create mini distribution centers or storage facilities or definitely different ways to cut up those boxes to things that are more manageable.

Phillip: [00:19:15] I feel like Chris Andersen right now is shuttering somewhere in that the long tail is potentially dying in that we, these highly curated experiences of top products and brands in smaller spaces is the way forward for retail. And I think retail is adapting. And that's certainly something that's going to happen regardless. But having stores like the Barnes Noble's of the world where you have endless variety and endless selection of just about everything that you want... Obviously Amazon's endless aisle selection is sort of testament to the power of the long tail retail strategy. It's interesting because it feels like we're coming now full circle back to a time where smaller, more curated experiences are the more highly desired experiences. I personally, in grocery, I'm starting to experience this myself. I'm overwhelmed going to... I live in South Florida, so I'm not overwhelmed going to a Publix or even a Whole Foods where there is hundreds and hundreds and hundreds of brands selling essentially similar products. And I prefer to go to a smaller grocer like Fresh Market or something smaller in my area that has exactly one kind of asparagus and has only four selections of fish. I find that it's refreshing and it's sort of counterintuitive. And I think this is kind of an interesting takeaway. It's not what the consumer says they want if you ask them directly.

Sucharita: [00:21:22] Right. Right. Right. Well, I mean, it's so interesting because there is... We try to oversimplify who we are as shoppers. People want the long tail or they don't want the long tail. Sometimes you just want one thing. You just want asparagus. And you're pretty agnostic to what color or... You just want what you want. You have your laundry list. Sometimes you do want some thing in the long tail that usually you want that very specific as well. You want like a particular type of soap from a particular manufacturer, and you're one of the only people that's buying it. So the only place you can find it is often on Amazon because your local Walmart or Target is not going to have enough demand for that product. But the truth is also that, you know, let's say Amazon has 500 million products. I think it's actually higher than that. The vast majority of those products never move. The vast majority of those products never see even somebody's screen as a product detail page gets surfaced. And I think it's important to recognize that. But Amazon is Amazon because of that depth and because it offers you that opportunity that if you do search for it, you could find it if you wanted it. What's interesting, though, is that there have been times that I have looked for really, really unique items that even Amazon doesn't surface. Products that I can only find on Etsy or products I can only find on a Libras, like it was an out of print book from like 30 years ago that I wanted. And I couldn't even find it on Amazon.

Phillip: [00:23:07] Right.

Sucharita: [00:23:07] So I think it's important to recognize that people have different needs, and it's not going to be always all Amazon all the time.

Brian: [00:23:18] I think one thing also that's pretty interesting about this whole new state of being is that it's affecting everyone from maybe the the most commodity based business up through high end retailers.

Sucharita: [00:23:32] High fashion.

Brian: [00:23:32] Yeah. Like Hudson's Bay. I don't know if you caught this, but Jonathan Litt, who is an activist investor, basically is calling on Hudson's Bay to sort of do this with their real estate as well. And he wouldn't even think of that initially. Like it is as high fashion even being touched by this? But I think even at the highest level, we're seeing a call to make more money, ultimately. And you can actually use your space to do other things that are going to make you more money, whether that's I think he even mentioned like housing.

Sucharita: [00:24:23] Yeah.

Brian: [00:24:23] So it is interesting. This is an everyone state of being not just big box, actually.

Sucharita: [00:24:34] Yeah. And I think in what you said there are two really, really great important points. One is like the real estate value. And if you look at a company like Macy's, that's actually exactly been the similar thing where if you look at just that Herald Square store alone, it's essentially a city block in Manhattan.

Phillip: [00:24:52] Yes.

Sucharita: [00:24:53] And if you look at the value of just that real estate where you could build like a high rise, if you tore down that Macy's, the value of that could be billions of dollars that eclipse probably the entire value of Macy's right now. So, yes. And Sears, they don't have a real estate as desirable as the Herald Square store, but that idea of what can you do to repurpose that physical land, I think is part of the reason that I think landlords are fine. Even though the stores may go away, the landlords will be fine. I mean, I'm seeing everything from churches in my area replacing what were previously big boxes to charter schools replacing some big box space. And then they'll put in astroturf, so that they create a playground where there was once a parking lot. So you see all kinds of repositioning of the physical real estate. And then I think that there was also a great point about how do you squeeze more from what you have? And how do you generate more for these distressed retailers? And that's I think a slightly different challenge that does require them to think about their product mix. And also, I think a huge, huge overlooked element of growth that has worked for other companies in the past is acquisitions. And I just finished doing a survey with some retailers. And no one is looking at acquisitions. In fact, everyone thinks that they're going to be fine in five to 10 years. It's really, really strange. So some of it is a little bit of I think, you know, just optimism and naiveté that they think that their customers are going to stick with them and that they have a great brand that will last them for another five to 10 years.

Phillip: [00:26:51] I wonder what city managers think of the salvation of derelict retail space being nonprofit organizations that don't pay taxes. I wonder what they think about that, because that's got to be something we haven't factored into the equation somewhat here.

Sucharita: [00:27:08] Yeah. Well, you know, I think that the challenge, though, is that would you rather have it just sit as a decrepit box, or would you rather at least have people there?

Phillip: [00:27:20] Oh sure.

Sucharita: [00:27:20] Because, you know, the good thing about a church is that if you have, like, several hundred people going there on a Sunday there's a good chance that if there are restaurants nearby or other establishments that it drives some of that ancillary business to those places as well. But I think the idea is something is better than nothing.

Phillip: [00:27:43] Yeah, I agree. And I think Detroit would agree with you in total as well. I think it takes a long time to turn around...

Brian: [00:27:56] Empty. Empty spaces.

Phillip: [00:27:56] Empty takes a long time to fix.

Sucharita: [00:29:42] You know, in Charlotte, where I live, they've actually tried to create some startup hubs in some of that distressed area where they'll create or they'll convert some of that space to like call centers and sometimes office space as well.

Brian: [00:29:59] One brand that Brian Lange that I absolutely love.... You brought up Detroit, so I had to bring it up because I was thinking about it before you said Detroit.

Phillip: [00:30:07] Shinola.

Brian: [00:30:07] One brand that I love is Shinola. Yes. I think Shinola has done a great job taking advantage of retail and manufacturing in Detroit and turning that into something where they're well beyond watches now. They're expanding out into all kinds of other products. They're talking about opening in a hotel. It's really innovative thinking. And they're looking for value and how to capitalize on that. So it's interesting. It's a great brand to look at.

Sucharita: [00:30:37] Yeah. Yeah, I think that any way to diversify the brand beyond selling commoditized products, I think is going to be so important for everyone. And that's why you have companies like West Elm trying to pilot hotels. And I think Restoration Hardware is considering something similar, although I don't know what's on their current roadmap, given that they're a little financially distressed. But yeah, absolutely. I mean, where else can you flex your business to? Urban Outfitters bought a pizza chain a couple years ago, and I think it remains to be seen what actually happens there. And I think a lot of people are scratching their heads about that. But when you look at restaurants being relatively... It's a business where consumers are spending more money. You know, is there an opportunity to use food to drive people to your store, to drive people to your destination?

Brian: [00:31:42] Yeah, that's a great example. I mean, like Eataly in NYC is a great example of that. I think it's actually become more of a destination than a lot of other shopping centers. And so I think as malls are looking for more, like we talked about, just ways to fill space, interesting food experiences are going to become a big part of that. I absolutely agree.

Sucharita: [00:32:05] Yeah. And one of the interesting things that I had come across and realized is I wonder if restaurants may have a hook as acquisition targets with their CRM capabilities. And here's my thesis there is that more and more restaurants are becoming digitized and they're able to move tables digitally or put you on like a wait list digitally. And what is required for that is a valid mobile number. Right? Because that's how they text you your updates. And most retailers struggle with a lot of valid information that's opt in because they are just overly aggressive in their marketing. And most of the time when a retailer asks me my phone number or my email address at the store, I usually give them a fake one. But this is actually a use case where you're collecting this information and the consumer kind of has to give you accurate information if they want the service. So, you know, I think that there's actually an asset there that could be interesting as well for retailers.

Phillip: [00:33:15] I think digital transformation is extending into businesses that, you know, never saw the value in it. And seeing digital transformation come to dining is very welcome, although here in South Florida, geographically, we're not there yet. We'll be the last to get it. But I do think that there are sort of net new business experiences that are built on a this new service, or new self-employed service economy. Occupying the time of the Uber and Lyft driver who doesn't mind picking up some deliveries in the meantime as well. You know, it's a brand new model allowing people to opt in to work. And just kind of coming back to salvaging retail space. We work as doing the similar kind of work in cities around the world and taking up and coming into what was once a derelict properties and overhauling them and giving them spaces for people to come and work and thrive. And I think it's interesting. This Airbnbifurcation of retail might also be the next phase in our evolution for people to set up shops in the old bazaar model that to be able to do it with all the same enabling that we see with, you know, digital capabilities that we're seeing in other areas of service industry. It's very fascinating. Brian, I know that you had some sort of one offs here, some sort of interesting questions around new technology trends.

Brian: [00:35:17] Yeah. So I think this kind of plays off of what we've been talking about, which is merchants are sort of looking for a way to get an edge. And so many of them are looking to technology to sort of be that savior or that strategy to help them thrive in this environment. I've kind of seen some scattershot stuff happening. And I think a lot of people are looking at eCommerce and they're like, how do I compete with Amazon? Maybe you shouldn't compete with Amazon, right?

Sucharita: [00:35:53] Yeah.

Brian: [00:35:54] And so we've talked about revitalizing the in-store experience and how important that is for success. What about digital first strategies and what have you seen work around this situation?

Sucharita: [00:36:15] Yeah, that's an excellent question, and so much of what I see is technology for technology sake. And for instance, I was talking to a retailer last week and they were probing me on, "Don't I need Apple pay? Isn't it really, really important that I invest in Apple Pay?" I'm like, "Nobody's using Apple Pay, yet. It's just not necessary. And it's a pain for you to integrate. So why are you obsessed with Apple Pay? Why are you not obsessed, for instance, with getting a marketplace on your web site?" And those are the things that are baffling to me. Retailers want to compete with Amazon, and they do everything and they put all these reviews on their website. They try desperately to offer free shipping. They're trying to get better at their fulfillment processes. And it's like, "You're trying to run against Usain Bolt." I mean, it just is a little bit of a fool's errand. However, as I mentioned, and there are like five hundred million or seven hundred million... Whatever the number is, it's hundreds of billions of products on Amazon.com. And the vast majority of them people never see. However, on your own website, there are a number of products that consumers are searching for that they never find. The number of null searches on any retailer's web site is usually 20 to 30% of their searches.

Phillip: [00:37:49] Yes.

Sucharita: [00:37:49] But what are retailers doing about that?

Phillip: [00:37:51] Nothing.

Sucharita: [00:37:52] It's like the easiest thing to do is put on a marketplace, which, by the way, is the exact thing that is driving Amazon's success right now. And all it is, is letting other sellers who do sell the products that people are searching for, putting them on your website and letting other people buy it on your web site and you send the order to somebody else so that they actually transact it. And it's baffling to me why retailers have not actually embraced something as basic as that. Or when they do, like in the cases of Walmart or Sears, they don't do it well. I shared the example of Jet.com earlier where they sent me the wrong item, you know? I mean, so there are lots of low hanging fruit opportunities. There are, you mentioned Airbnb, and that's basically the marketplaces of services. And you alluded to can you have Uber for your workforce... And there are products like that. There are companies like Shift Gig, which basically do allow you to, if you're running short on labor, you can use and Uber like service to call on demand workers who are trained and skilled and have worked at your store before, have worked at another branch of your store before. And it's baffling, again, to me why innovation leaders are obsessed with things like personalization technologies or payment technologies. There is no friction in payments, people. It is so important to recognize that that's part of the reason that none of these payment technologies have really taken off that much in retail. There are fraud technologies that are improving. But the consumer facing friction pieces is relatively low. But there are all these opportunities to reduce costs that I think innovation leaders really, really need to dig into rather than what's the Whiz-Bang customer facing augmented reality or virtual reality headset that's going to change the destiny of my company?

Phillip: [00:40:05] Yeah, I think it's interesting because I think if you're the type of brand who doesn't see risk everywhere you turn, and you don't mind taking a little bit of a risk, then, yeah selling other complementary products on your site via marketplace is probably the next step in the evolution of your product. And I saw this working for a health and wellness company six, seven years ago. You know, it made no sense for us to try to create a supply chain to be able to make high end dog and cat food. So selling through items or white labeling items and extending our product assortment was a massive boost to our business into vitamins and supplements, et cetera. But for vertically integraded brands, especially those, like Casper, they're seeing success without that. And it would almost... I'm curious to hear your thoughts on at what point do you have to sort of weigh in your brand strategy and brand voice in the marketplace growth strategy?

Sucharita: [00:41:29] Yeah, I think that's a great question. And so there's the bigger question of brands. And if you are a brand like The Gap or an Ann Taylor would a marketplace ever make sense for you? And I would argue that in this day and age, there are absolutely places where you can stretch your brand, and if you feel maybe it doesn't make sense to stretch it into other brands that sell the same category. But then where else could you stretch your brand? Could you stretch it into travel? Could you stretch it into home? You know, I do think that that's where there are more opportunities. And the only thing we've really seen The GAP stretch into is a little bit at the high end when they bought Intermix. And, you know, of course, the low end when they launched Old Navy, and they had on their website a point in time where they did sell things like baby strollers from another brand  pilot that they didn't really push much further, and I don't know that they ever gained any meaningful revenue in that way. Probably because he didn't really have a bona fide strategy to really own it and market it and to drive awareness around it. Now, your question about Casper, though, is interesting because I kind of put some of these pure play brands in a different bucket.

Phillip: [00:43:07] Yeah. Sure.

Sucharita: [00:43:07] They are, for the most part, venture funded startups that are private companies where their economics are completely obtuse. And the things that I have learned, and not every company falls into this bucket. But in my experience, most of these consumer facing VC funded companies are losing money, and they're often very aggressively buying market share. And that is usually with their VC money that they're spending aggressively on marketing. And usually their products are priced not at a premium, often as a value play in the ecosystem.

Phillip: [00:43:47] Right.

Sucharita: [00:43:48] And that's often the biggest drivers of growth. And they all rely very heavily on social media in the beginning, which is a very, very effective way to grow an unknown brand. And what you see with social media for these unknown brands that have a lot of polish because they do spend great money on branding and good packaging and having a very polished web site is that they grow very rapidly for about 12 to 18 months. And then there's a bit of a flat lining effect. Because everyone who would have known about them knows about them in a short period of time. And then it's really, really hard to expand beyond that. I mean, because what you saw in the past was you'd open stores to grow your brand and that could be a five to 10 year long cycle, and it would take you 10 years to reach market saturation. And what we're seeing now is like a whole bunch of really small brands reaching saturation at about one hundred million dollars and then flatlining. And that's why you start to see things like these companies also then starting to try to get penetration in physical stores and getting other partners to try to sell their products. Like Casper took an investment from Target. Bonobo's kind of in the past had taken I think an investment from Nordstrom, or at least they were in Nordstrom stores and ultimately sold itself to Walmart.

Phillip: [00:45:20] Yeah.

Sucharita: [00:45:20] You know, so that was more I think... These guys are awesome at PR, and they tell a great story. But ultimately, they're looking for an exit and often that exit is to a larger retailer. But that's another thing for these larger retailers. When I look at acquisitions, why not look at the little company, for instance, that you'd mentioned that had the bobblehead toys that nobody knows about. Like, that's a more interesting... That's that's so hot right now. Right? I mean, it's like that is more interesting to me than the VC funded guy that got a bunch of PR and is probably overvalued and not making any profit.

Brian: [00:46:09] Yeah, I totally agree.

Sucharita: [00:46:10] But I fear that... Yeah. Anyway...

Brian: [00:46:13] Yeah, I think that's what started this whole exchange is that exact point. This kind of brings me to two more things.

Phillip: [00:46:21] Brian. Brian. Brian, you've got to let me redirect because I'm sorry. I do have one thing back. One thing about one thing about Casper is that, and I fully agree with you, Sucharita, because I think you're dead on. If you were to ask one of our previous guests a few episodes ago, Saku Panditharatne, she's a formerly of Occulus and then Andreessen partners and a bunch of other things. Her idealistic world is that all new retail ventures are run the way that Silicon Valley runs things in a disruptive manner by being able to ignore the economics and building brands rapidly, or at least that's what she's expressed on the show. My response is, while we know that ,and you and I know that, and while we all understand that, it's still creating upward pressure on the traditional brands to create market segment that's competitive in this space. So the Sealeys and the Sertas of the world do have to create a competitive product. And if you look at Amazon, 60, 70% of all search results now return gel foam mattress because they're heading in a new market segment, and it's aiming at a new consumer expectation. So what Casper has done is they've created consumer expectation of a product. And it's creating mass economic benefit for everybody. I don't know if that's sustainable, but it's certainly a phenomenon that Silicon Valley is, or venture capital is, helping to create industry wide.

Sucharita: [00:48:09] Yeah, it's interesting. I mean, well, I think that an example to the contrary is like the flash sale model. And flash sale sites were like all the rage for a while and everybody thought they needed a flash sale site. Including companies like Coach, which then realized, you know what, this is so terrible for our planet. We're actually gonna stop that. So I think that Silicon Valley is funding companies that are basically letting consumers get great products for really inexpensively and not making any money along the way. And the only company that has succeeded at doing that long term is Amazon.

Phillip: [00:48:58] Correct.

Sucharita: [00:48:59] And the reason that Amazon has succeeded at that is because they cross subsidize with a few other businesses that they've stumbled upon.

Phillip: [00:49:06] Right.

Sucharita: [00:49:07] Maybe deliberately. And maybe they didn't stumble upon. Maybe I"m oversimplifying, but that they have cultivated that are incredibly lucrative. Now, I think the important thing to keep in mind is that even though Amazon does within its coffers have incredibly profitable businesses, both on its marketplace side and on its Amazon Web Services side, let's keep in mind, none of it shows up on the bottom line. Amazon is still the least profitable technology company that is out there. And because of its retail business, likely will never have the economics of a Microsoft or a Google or Facebook.

Phillip: [00:49:42] Right.

Sucharita: [00:49:42] Because they have this this really unprofitable business which is weighing them down. And that's where I just wonder, is it ever going to... Will there ever be an activist investor that takes on Amazon and tries to break out AWS from Marketplace from retail?

Brian: [00:50:00] Probably will. But I actually I would contend that Amazon could become incredibly profitable at just about any time that they want. They put a lot of money into R&D. Like a lot of money in R&D. And if they were to ever turn off that faucet, you would start to see their profits soar. And I mean, I would also argue that, you're right, there are a lot of things on their site that are never going to run at the margin of a Microsoft. But they also sell a lot of value on top of that with Prime and other services. So obviously, Costco's not running at the same rate at Microsoft is, but it's still running at...

Sucharita: [00:50:43] Is Amazon is spending more on R&D than Google or Microsoft or Facebook?

Brian: [00:50:50] Probably not.

Sucharita: [00:50:53] This is where I push back on the R&D argument, too, is there is this belief that R&D is so expensive. And I actually think that R&D is just brilliant developers being given rooms and basically a lot of flexibility to go do whatever the heck they want. And you look at a company like a Google or even Microsoft, which are incredibly profitable, like two of the most lucrative companies in the world. They're a net incomes for like 20 percent. It's crazy. And they spend billions and billions on R&D. And in the case of Google, give free breakfast, lunch, dinner to every employee. And at one point in a time were spending money on things like fiber networks, which they did decide to abandon. But even with that level of spend, they were still profitable. And that's my contention is that I don't know that it's R&D that is where the vast majority of Amazon's expense is going. I think it's going into getting you all of your package is really, really quickly in less than an hour from now. I think that that's where some of the biggest expenses are going. And that's also why some of the visible investments we're seeing are things like Amazon trucks on the road and more and more Amazon distribution centers that are closer to you, because what is hurting their profitability, I think, is the amount of money that they have to spend with FedEx, UPS and the Postal Service.

Brian: [00:52:37] Yeah, absolutely. No, you have a great point. I think what this leads us back to is, of course, Amazon.

Phillip: [00:52:50] Gosh. Every episode. Yeah.

Brian: [00:52:51] All roads leads to Amazon. Right? And I think everything that we're talking about today, pretty much Amazon has already considered and/or done. It is interesting. We're kind of looking at an entirely new type of business in Amazon. They're doing things that compete with Google and Microsoft and other services or other high tech companies. But they're also competing with Best Buy and Walmart and other retailers.

Sucharita: [00:53:28] And Disney and Time Warner, and everything. Yeah.

Phillip: [00:53:32] Yup.

Brian: [00:53:32] Yeah, yeah, everything. It's a new kind of empire.

Phillip: [00:53:36] But they're not competing, they're creating brand new paradigms. I mean, they're the sole reason that Apple has a smart speaker coming out. They're setting the new agenda. Right?

Sucharita: [00:53:47] Yeah.

Phillip: [00:53:48] We're playing in their playground now, which is incredible.

Sucharita: [00:53:51] Amazon has broken every rule of business. That you have to be profitable. That you have to be focused. It is incredible how many major rules that everybody else's adhered to that they adhere to none of it and have this enormous valuation.

Brian: [00:54:09] So we're running out of time here. And I wanted to dove in to Amazon a little bit further. But as we kind of go on our way out here, two questions. One... What are some things that the brands can do to contend with Amazon? Not necessarily compete with them. But what are some things that they can do to address Amazon or be involved in Amazon or whatever it is? And two, do you have some long term recommendations, maybe looking out five years ahead, what can retailers and other types of merchants be focused on that you feel like will really help their long term outlook?

Sucharita: [00:54:50] So I think that great brands need to invest in their intellectual property and they need to really, really spend money on product development and then developing patents and ensuring they have patent protection around some of their their best inventions. I think that is is probably going to be the best way that long term they insulate themselves and put a moat around what it is that they create. I think that that has to be an inevitability because everybody seemingly thinks that they have to sell on Amazon. And if you are a commodities product, Amazon is going to ultimately mimic what you do if they can because they can. So what protection do you have? The only protection you have is the courts, but the courts aren't going to do anything unless you have a patent or some kind of IP as proprietary to you that you're ready and willing to defend. You also need to be having a checkbook ready to go pay IP lawyers as well. So I think that's very, very important for brands. Long term, I do think that companies need to look at partnering with others. And that's a little bit of an anathema now in retail. And it has been. And I mean, because retailers would think that you could be vertically integrated or that you have your relationships with your suppliers and that's it. And I think that companies like Target need to be partnering with companies like Staples to figure out how they're going to make this happen together in the next few years, because otherwise Target and Staples are just competitive with each other in addition to fighting the war against Amazon. So they need to look at everything from partnerships to acquisitions that are not just of these VC funded pure plays, but store based companies that actually are onto interesting new concepts that could be transformative to their businesses in the future. That's really the set of options. When you go back in time and you look at where was Amazon like 20 years ago? Where is it now? Where was Microsoft 30 years ago? Where is it now? And how do we see Facebook changing? Every single one of those companies has pivoted really quickly and has gone into completely new ways of doing business. Like Facebook is entirely mobile now.

Phillip: [00:57:40] Yup.

Sucharita: [00:57:42] Amazon is web services and marketplace now. Microsoft is cloud now. I mean, it's not really as dependent on Windows as it was in the past. You know, all of these things are completely new pivots to their businesses and retailers have not pivoted. I mean, Target, if it wants to stay alive, needs to figure out what is it next after stores? Or is a real estate lessor? Is it a landlord versus a physical store? And those are the questions that these big companies need to grapple with.

Brian: [00:58:22] Good way to end it. Thank you so much for coming on this show, Sucharita. I really appreciate it.

Sucharita: [00:58:29] My pleasure.

Brian: [00:58:29] It was a great episode. Probably one of my favorite episodes we've ever done, frankly.

Phillip: [00:58:34] Yeah.

Sucharita: [00:58:34] You are so very sweet. Thank you.

Brian: [00:58:37] Thank you so much.

Sucharita: [00:58:39] My pleasure.

Phillip: [00:58:39] We hope that you continue to listen to Future Commerce. So if you'd like to lend your voice to the conversation, remember, you can do that at FutureCommerce.fm. Give us feedback about today's show, and you can help us most by giving that feedback on Apple Podcast or Google Play. And we want you to go ahead and give us a five star on those services, and make sure you subscribe so you never miss another episode. But anyway, thank you so much for joining us. And until next time, keep looking toward the future.

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