In this segment of Industry Focus: Consumer Goods, Sarah Priestley is sitting in as host, and she's joined by Motley Fool contributor Daniel Kline to talk about the chains that are getting it right. The two break down how some chains have figured out how to change the shopping experience to improve the customer experience and drive sales.
Sarah and Dan also talk about what they're willing to buy online and what they insist on buying in stores. And they break down some of the technology that might benefit physical and digital retailers when it comes to clothing sales specifically.
A full transcript follows the video.
This video was recorded on April 25, 2017.
Sarah Priestley: I was listening to a webinar that was done by the same guy from Deloitte, and one of the things he was mentioning was, the department-store construct actually doesn't work well for a holistic, natural kind of shopping experience. The example that he gave, which I'm going to paraphrase, is that when you go to the luggage section, you may want to buy luggage for your vacation, and what would be great to have with this is women's summer dresses and bikinis and flip-flops and all those kinds of things. But because they're territorial about the space allocation, they're incapable of being flexible to provide customers want.
Dan Kline: But you are seeing more of that. We talked about Target before. The new Target setup that they're starting to roll out, I think it's about a third of their stores this year, is going to have one entrance for Grab & Go. So you walk in, you want a snack, you want a drink, maybe they've found that toilet paper is something that people just want to buy and leave -- they need toilet paper. That's a terrible example. The second entrance is going to be clothing and seasonal items and things people take more time to buy. So as a retailer, you have to align your store to your market. It's very simple. If I walk into a liquor store, they've figured out a long time ago to put the gin next to the tonic, and that the olives should probably be somewhere close by. But when you walk into a Macy's, shoes and socks are not necessarily in the same place, or pants and belts, or to take it, as you did, to another level, where you go to these more esoteric connections. You need to see more dynamically changing stores, where they're seasonally really making moves to captivate customers. And you have to just make shopping fun.
Priestley: Yeah, absolutely. I think another thing is, a lot of these retailers sell things that are so easily commoditized online. And like you said, if they don't have that experience element to the shopping experience, they're going to lose out. If you take Home Depot, for example, their stock is up 10% this year, which is completely different from the rest of the retail environment. They offer something that you really can't replicate online. They have experts who are going to give DIY-ers advice. You can't really sell lumber or deliver lumber and paving slabs that easily. And I admit that that's very difficult to transfer to clothes and things like that, but it's a similar principle. You're getting a lot more of a value proposition.
Kline: There's also an immediacy. Obviously, if you're going to buy drywall at Home Depot, you're either going to pay them a fortune to deliver it -- it doesn't really matter if you come into the store how you get it. But if your sink is broken and you need a plumbing piece, you don't want to wait for two days. And [Amazon.com] (NASDAQ:AMZN) has some methods of dealing with that. They have a patent application on a truck that drives around that can 3D-print parts like that. But until things like that exist, a lot of the demand at a store like Home Depot is, "It's Saturday and I'm free and I'm going to build a fire pit outside." Or, "Oh my God, my toilet doesn't flush anymore, I have to get the pieces to do that." But other retailers have to figure out how to make that happen. Do you buy clothes online?
Priestley: No, I don't. I don't buy clothes online because I would like to try clothes on and feel them and everything else before. And what my husband believes is going to happen is that you almost have a showroom where you go and try the clothes on and then order them and they are delivered at home. I don't know if I buy into that, because I very much like to feel the weight of what I've bought when I've bought it. But that's another possibility.
Kline: I do a mix. I will go to a Kohl's or Macy's and I'll buy a shirt. And if I like the shirt, I will then buy 10 more of the shirt online. I agree, especially with women's sizing, a small doesn't mean things the way -- men's sizes are more exact in terms of inches and length. So it can be a challenge. But I think the tools are eventually going to make it so you can virtually try things on.
Priestley: That's true. I wonder how much they're going to catch on. I know there's a lot of tech disruption people are talking about. [Virtual reality], you can look at a screen and it will try on the clothes for you without you having to actually go into a changing room. I don't know how much they're going to catch on, and if that's really where the tech disruption is happening. I think the tech disruption is happening much more in terms of the granularity of information that you have over your consumers' social-media campaigns, all those things that probably weren't available when these big stores were established. But I really think, as you said, they could take lessons from these nimble start-up companies that have entered the market with zero barriers and are really cashing in on where the retailers are failing.
Kline: And I think one of the things you're seeing with Wal-Mart, which is another retailer that's had its struggles but is quietly growing and adding stores, is the true integration of "buy online, return in store." I buy from Amazon almost every day. And I joked earlier, but if I buy a shirt and it doesn't fit, the odds of me going through the trouble of returning it are very, very low. If all I had to do was walk to the mall and drop it off at the Amazon kiosk, that would be a lot easier. For now, Target, Wal-Mart, even Costco is playing with this a little bit, have that advantage that you can buy something digitally, and when it doesn't work out, it's a lot easier to return it than having to figure out how to get UPS to pick up at your house.
Priestley: And that's really a small example of a bigger problem with this. Omnichannel, for a lot of the traditional retailer CEOs, really means you have your store and you have your online presence, whereas those things, those two things are basically integrated, they're essentially the same thing. We are online all the time -- I can be in a Target store and checking on Amazon to do a price comparison. It's those kinds of things that I think they need to stop looking at it like, "5% of revenue is from mobile and 95% is from in-store, so all my focus needs to go on the in-store," and actually focus on the two things as an integrated experience.
Kline: Marc Lore from Wal-Mart, who runs their digital operation, talked about this. I think more chains need to bring in digital-first people and empower then.
Priestley: Absolutely. He came from Jet.com through the acquisition.
Kline: And he created Quidsi, which is Diapers.com. He's been a serial success-failure. He's had companies that weren't making any money that scared Amazon. First Amazon brought Quidsi, and then Wal-Mart bought Jet, which was a company losing money on $1 billion in sales. He's a really interesting case. When you inject him into this old-line way of thinking at Wal-Mart, he goes, "Wait a minute, we are not going to compete with Amazon by selling a Prime knockoff. It isn't going to work. So let's just give it away." You have to be willing -- this is a very tough thing for a retail CEO to deal with -- to have some bad quarters, because you're going to cut into your margins, you're going to do a lot of negatives. But if you can capture a customer and have a good experience -- I bought some things online at Kohl's, and they shower you with discounts and all sorts of other ways to get you back; it was a pleasant experience, and I would absolutely buy from them again. And I think that's what more of your Macy's and your other chains -- it might be too late for Sears. I'm not sure Shop Your Way, which they talk about being the future of the company, has any customers. But you really need to break everything and figure out, "I have this asset, these physical stores, how do I keep my customers a customer whether they're coming into that store or not?"
Sarah Priestley has no position in any stocks mentioned. Daniel Kline has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Costco Wholesale. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.