Re-Evaluating Brick & Mortar

This is CPG Insiders, the podcast that helps consumer packaged goods companies survive and thrive in business. Now your hosts, Mark Young and Justin Gerard. Welcome everybody, to this edition of CPG Insiders. Welcome to 2020, a new year and a whole new decade. I'm your host, Mark Young and Justin Girard sitting right next to me. And yes, we are starting a whole new decade.

I can't believe it's 2020.

I know. It is. It's something, isn't it? It's insane. And you know, we're going to talk about today, we're going to talk about what is happening in brick and mortar. Because in the world of cpg, brick and mortar has always been, you know, been the gold standard of product success.

Yeah.

That is not the case today.

Really.

So I want to point a few things out. First thing I want to point out is what's been happening in the brick and mortar business.

Okay.

Okay. So this is just in recent times. Sears holding, gone. Kmart, gone.

Right.

HH Greg, gone. Circuit City, gone. Lowe's is closing 51 stores this year. Mattress Firm, 700 stores, gone. Victoria's Secret, closing 20 stores. Orchard Hardware, 90 stores. Brookstones, gone. Out of business. Chipotle's even closing store. Toys R Us, gone. H and r Blocks, closing 400 locations. Lord & Taylor's, closing locations. Bontons, 256 stores. GNC closing 200 locations.

I can see that.

J. Crew, 20 stores. Abercrombie & Fitch, 60 stores. Footlocker, 110 stores. Best Buy, cutting 250 stores. JCPenney, closing stores. Sam's Club, closing 63 stores. Macy's, closing stores. Gap & Banana Republic, closing 200 stores. Teavana, 379 stores. Michael Kors, 125 stores.

Yeah, I'm seeing a trend here already.

So is it because people are buying less? No, people are buying more. Retail is up.

Well, the economy's up.

Right. But brick and mortar isn't. And here's what's happened. What has happened is, and it started early with qvc. So QVC was the really originators of this. And the QVC stood for quality, value, convenience. And the QVC shopper knew that if they bought something off QVC as soon as it was show up in their home quickly and if they didn't like it, they could return and get a refund.

The original Amazon. Yep.

But that was only 4% of the population that shop there. Then Amazon came in and Amazon created a paradigm shift in consumers behavior, which doesn't happen very often. And that shift was now infinite. Selection, almost immediate delivery and the ability to return it if I don't like it regardless of what my excuse is. And I don't have to go to the store. I can put it back in an envelope or now I can even take it to a coalition and return something, or Whole Foods and return something. So they've really made the convenience issue a big deal. Now what's happened in this market is this is what has spurred, I'm going to say is direct to consumer 2.0. So 1.0 was vegematic and Shamwow and all of those, you know. But wait, there's more. But the consumer trend now toward dealing with digital brands has completely changed. So think of like Madison Reed hair color now. Who would have thought that women would be buying hair color online to use at home? Harry's Dollar Shave Club. Think about all of the club memberships that are out there now. Think about what percentage of people are now buying their mattress sight unseen and being shipped to their house in a folded up box. I mean, you literally get a mattress that comes in a cube and wait for it to suck up air and become a mattress. So when we talk about cpg, we need CPG marketers to start expanding their thinking, not just thinking of brick and mortar, but in direct to consumer. So yes, most people that are in brick and mortar have an Amazon store, but maybe you're not in brick and mortar yet or maybe you're going to roll out some new SKUs that aren't in brick and mortar yet.

I agree. The one caveat I'm going to say so far, because I'm with you, is all those stores you listed pay attention to the categories of those stores. I think that's very important. There's a clear pattern of the category of the brick and mortar locations that are suffering. So your, your mass is not suffering, your drug is not suffering as much. Correct. So I guess I'm thinking Sam's 60 stores for Sam's Club. When Walmart owns you. Walmart understands their business model. So I'm when we're looking at, especially with your club stores like a Sam's Club or a Costco, they serve a very clear market, they serve a very clear purpose. I can understand some downsizing, but those giants are always going to be those giants because a lot of the reason why people go there to purchase their items.

Let me give you a few more stores that are yet to close. This year, Payless is going to close 2,500 Gymboree's closing 805 dress bar in 650. Charlotte Russo 520. Fred's 520 family $390.

Now that's interesting.

That is.

That is interesting.

Shopco 371.

Those are interesting because your brick and mortar, traditionally, when you think about your brick and mortar, your brick and mortar serviced your tactile consumers, those people that really need to touch tea, touch, feel, smell, things like that, gadgets, clothing. Right. Your older consumers. And also it really has worked with a lot of your low income consumers as well. Brick and mortar has done very well with them, your family dollars and such. So that is interesting to think that they're starting to suffer there.

Charming. Charlie's is closing.261. The Gap is closing stores. Old Navy's closing, Victoria's Secret, Abercrombie and Fitch, Tesla's closing their stores.

So.

And Bed, Bath and Beyond is still closing.

Yeah, they've been suffering for a while.

And that is in the wheelhouse.

Yeah.

Because they've got the drug section in there.

They do, it's smaller.

So what I want to get to people is do you have a product or do you have SKUs that could become direct to consumer models?

I think there are more companies that need to take a more hybrid approach than traditional.

So when we look at like we look at Dollar Shave Club.

Yeah.

Or we look at. Which by the way, is not a dollar. And if we look at Madison Reed. Madison Reed, the average ticket is 25 bucks. So that's actually expensive hair coloring compared to going to a drugstore. So if you think about it, you know, you can buy hair color drugstore for What? I know, $899, something like that.

Yeah.

So these are people that are spending $25 for hair color. So it's premium. It's premium and sight unseen.

Yeah.

But you'll notice there is a trend in the direct to consumer models that are succeeding and they follow two paths. They follow one path in as much as it's a big ticket sale. So it's a $5,000 bed, it's a $3,400 Peloton bike. It's big ticket. And again, peloton, another great example. Or the subscription model. And peloton has a foot in both worlds because you pay for the bike, but now you pay for the monthly subscription. But when you look at Dollar Shave and Madison Reed and Harry's and Bombas.

Oh, and the clothing section has a ton of subscription models now.

Right. The reason they use these subscription models, folks, is Simply this acquisition of a new customer in a digital environment is as a rule more costly than acquisition of a customer in a digital or brick and mortar model. Yes, but here's why it works. The reason is, let's say that your first sale is $25. It's Madison Reed. Now, in reality, Madison Reed is probably spending $25 in advertising to sell $25 with a hair color, which means the real cost to produce the hair color and ship it was a loser. However, they now have an email database of an exact consumer. So they're not advertising looking for a consumer. In this list, it is my consumer. And I now have a remarketing tool that I can now focus on the lifetime value of that customer. And it cost me next to nothing to email them. So that is the business model that's behind these is it's break even or lose money on month one, but make it up over the lifetime value of the customer. So when we're talking to CPG people, my question would be if you have a product you want to launch and you think it either has this pizzazz, it has this unique IP that makes it better than what's out there, or you've come up with an alternative that makes it a better price than what's out there, something that makes it unique and something where it's a consumable that people need to replace. That would be the model. So I've got some statistics here when we look at DRTV. Now here's some of the stats. 48% of people that are buying digitally claim they're buying because it's a better price. So notice that's less than half that are price shopping.

Yeah.

26% say they buy because of positive media coverage of the company. 43% buy because they have fast free shipping and easy returns. 26% claim that online companies have superior customer service. Well, think about how bad service is in retail.

Yeah. No, no, no. Yeah.

And it's funny that they have superior customer service because really I'm the service agent, I went to the website, I put in all the data.

Yeah, absolutely.

I did all the work.

Right.

16% are buying because they think online stores have better organic and eco friendly ingredients. 22% are buying because of better product design. 16% because they think it's a better company. Now this is really interesting. Here's the categories that people are now favoring. Digital over brick and mortar, tech and gadgets. 26% retail shopping stores in general. 32. So general merchandise, clothing and apparel. 34% here's the one that's going to shock you. Personal health, wellness and beauty is 35% now.

But that doesn't shock me. And it's probably because, you know, I live and breathe this every single day and I'm seeing, we've been seeing this trend happening for the last year. This is nothing new. I'm not shocked by that. And the reason why I'm not shocked by that is a couple reasons. First off, when you're shopping for, let's just go with the health products, if you're going in a digital environment, that's where most people are doing their research anyway. So that's where they're going to get the information now. Now that Amazon has created a much better platform for research, not only with the reviews, that's always been their game, but when they started coming out with the brand stores. Now you basically have websites within Amazon that provide much better information for you. And you can one click to buy with a subscription model so that you have savings based. All of the health products you probably buy with an Amazon. Now I'm saving money as well and I can schedule my shipments so I don't even have to think about it anymore. There's the convenience, there's the products, there's the research.

I can yell at Alexa to refill it.

Why would I ever go to a store? I don't have to think about it anymore. And if I want to change that, if I want to change a product, I find that's fine. I can easily do that from my phone.

I have to admit, I do buy a lot of stuff online.

So do I. Oh, I mean I almost exclusively buy most of my nutritional products online. Almost exclusively.

Most of the ones that I, the ones I can buy through Amazon, I buy through Amazon. I buy a lot of specialty stuff that you can't. But the stuff that Amazon has, I usually buy from Amazon.

Yeah, absolutely.

It's just so easy.

It's so easy. There's no reason not to.

And why do I want to, I mean, why do I want to go to health food store and walk up and down the aisles trying to find the bottle I'm looking for, for when I could just type it in and it shows up tomorrow. I've had stuff on Amazon now show up the same day.

Right. No, I completely agree. Now the thing to understand from a business model perspective for the clients is when you're thinking about again, profitability, there's going to be a difference there as you've talked about here, because especially if you're going to rely on Amazon. It's not a very profitable platform because they take so much money. Their margins are huge.

They don't take any more than a retailer.

They take about 40%.

Now that's what a retailer gets.

It does. But the retailer is always going to have more volume. So you're going to be able to move more, essentially more with more from a media standpoint, you can move more people in retail right now more efficiently than you can on Amazon.

But see the model that I like, model that I like is using traditional advertising and media to drive traffic and sales to your own company website. Because now you're collecting the retail price.

Right, but you just said it right there, to your own website. So that's not easy. Just because they're in a digital environment doesn't mean they're going to buy from your website. We've talked about the ease of what Amazon's doing. So it's still going to be a little heavy lifting to try to get them to convert at that price, that outlet.

Right. Because your website needs to have the right user design, needs to be user friendly. It has to have, you know, quick checkout.

Absolutely.

Typically free shipping.

I mean it has to be standard now. Right.

But if you can build your own, your own customer base and build your own email marketing, you're dealing with retail prices now going directly to you.

And I thousand percent agree with that, especially with when we talk about the power of what email marketing can do and some of the platforms like we use here. So as you said, not only are you going to be able to build out your segmentation of all your consumers, so you're going to be able to see who are your engaged consumers, who are your non engaged consumers, who are your VIP spenders that buy a lot and buy a lot of them. You can build out their profile, see who they are based on their email and then you can take that data and, and as you mentioned, you can retarget from them, you can also take that data and you can build up Facebook audiences, lookalike audience based on their profiles. So now you can reach people within Facebook that look like them to expand your reach. So there's, I mean there's amazing possibilities that you can do if you do it right within that space. So you don't want to, you absolutely don't want to forget about that business because that's going to be the foundation, foundation for you to scale. You just have to remember that if you have the ACV in brick and mortar, you have those stores, you have to support them. You cannot forget about them.

You don't want to compete with your own store.

Right.

And that's why I specifically said at the beginning, if you have a product that's not in mass.

Yes.

Or you have a product or you have new SKUs that are not in mass, this is the road to go. You don't want to be building up your own store to compete with brick and mortar.

Right.

Because then you'll get delisted from the brick and mortar stores.

Right, Right.

But this is when you, when you're not in brick and mortar. And there's a common thread that runs through all of these stores with these online stores that are having the biggest success. They're all in traditional media.

Yes, yes.

Whether it's Peloton, Bombas, Madison Reed, Dollar Shave, Club, Harry's, they're all in traditional media. Not that they don't have digital ads, but they're in traditional media as if they were selling brick and mortar, driving the traffic back to digital. Now one thing that has gotten better in this business is back in direct to consumer 1.0. The majority of our business was done by telephone orders.

Yeah.

So we had a big expense of having 24 hour operators standing by today. Most of these big retailers will have a help desk, but they're not promoting any phone numbers in their ads. It's all just to the website.

Yeah.

And the beauty of that is most people don't realize what's happening when you look at what's happening with going to the website, doing your own selection, doing your own reading, filling out the forms, placing your order, going to the movie theater and putting butter on your own popcorn, picking your own drink, getting your own drink and putting a top on it and carrying it out, going to McDonald's and going to a kiosk and placing your own order. What business has been able to do without people recognizing is they're able to shift the labor to the consumer.

Yeah.

So the consumer is doing more and more of the work and being perceived as a bonus. Oh, look, they have 150 different types of soda pop at the movie theater.

Yeah.

But you're not realizing they're selling you colored water and they got out of having to serve you.

Yeah, yeah. But consumers want to be in control. They've always wanted to be in control. Their perception of control, let's put it that way.

And that's one of the big advantages because if you build a well built website, you will be perceived that's having great customer service and you're Doing no customer service. No, other than ship the thing fast and take it back. If people don't like it, give them the money back.

Right. But see that perception of customer service and again, I'll kind of bring it back around. Where you started this a little bit is leveraging a good email marketing campaign and use it wisely. That means providing your consumers with the content that they want, when they want it. That's about and you have to approach it. And we've had this conversation about organic social media. It's very similar. It's all about having the conversations they want. It's about staying in front of them as much as they would want, not too much, and really cultivating that audience. That's how you get the lifetime value and that's how you are really able to, to build your business outside of just that website out of those initial E commerce sales.

So this year, 22% over one in five Americans plan to be heavy purchasers of direct to consumer brands. And that 22% is claiming that they will make 40% of their purchases online.

Yeah.

Another number I am shocked by. Over one in three Americans, our direct to consumers purchasers are willing to buy. Over one out of three Americans are willing to buy wellness products, including toothbrushes, razors, vitamins and makeup online. Well, technology, about a third of the country is willing to buy those items we've talked about.

Technology has gotten rid of the fear of buying these types of items. The biggest one for me was again, in the fashion space. You would, I mean, I think five, 10 years ago, you would never assume that people would be comfortable buying clothes online. They've never tried it on. They don't know if it fits. Right.

Because now, you know, it's easy to send back.

Absolutely. But also you think of like the apps of like M. Taylor. Now technology is actually able to measure you sometimes better than tailors can measure you. So.

So the last thing I'll leave you with is this drive to Amazon and drive to digital is also one of the big motivators behind the brick and mortar people being in private labels. Now private label does offer them more profit in many cases, but not all. But the big drive toward these private labels is that what is happening is what's happening in retail now is reverse showrooming where people will go to a brick and mortar store and they'll look at products and then they'll pick up their phone and they'll shop it online. And literally people are standing in a store buying from Amazon. I'll be on it okay, so I'm in the store. Yep, that's the right one. I touched it, held it, it looks good. And I get on Amazon, I say, oh, Amazon's 15 bucks less and it'll be here tomorrow. So I am literally standing in someone else's store ordering from Amazon. That's the drive to the private label. Because the private labels can't be shopped.

Right? That makes sense.

So I can buy brand name X, but I can't buy Walmart X on Amazon. So therefore I don't have the apples and apples comparison to shop the price.

Yeah, I agree with that.

Well, folks, that's what we wanted you to think about today. Kind of wrapped us up with. If you're in the CPG business, do you have SKUs that are not in Food drug mass yet or do you have a brand new rollout and you haven't cracked? Food drug mass direct to consumer may be the thing for you to look at. It's really viable today. If you ever want to to explore that more and talk to us, you can always get a hold of Justin or get a hold of myself@jekyllheidlabs.com or you can always go through CPG Insiders right through the website for the podcast. And other than that, that kind of wraps it up for today. And we'll be back with the next episode of CPG Insiders. If you're looking to greatly increase sales on your CPG product, don't hesitate to contact us at Jekyll and Hyde Advertising and Marketing by, by the way, the only advertising agency with a guaranteed result. Just go to jekyllheidagency.com or feel free to give us a call at 800-542 10.