Welcome to Location is Everything, Part I

Hi everyone, and welcome to Location Is Everything, the Tango Store Lifecycle Management podcast series about the evolving role of brick and mortar stores in an ever-changing retail world. I’m Bart Waldeck, your host for this journey. The pandemic has changed almost every facet of our daily lives, including how, where, and when we shop and eat. As we emerge from this previously unthinkable scenario, it’s safe to say that the retail and restaurant game has changed forever. So what does the future hold for the industry? That’s what we’re here to discuss, with a specific focus on the brick and mortar side of the business, the location.

We can’t do this alone, so we’ll be sitting down with industry experts and other thought leaders to bring you as much information as possible so you can stay one step ahead. The pandemic has pressed the fast forward button on the evolution of the store and successful retailers are already rethinking the role of the store, which is more important than ever because location is everything.

Hi everybody, and welcome to Location Is Everything. I’m Bart Waldeck, Chief Marketing Officer and Senior Vice President of Product Strategy here at Tango. I’ll be your host for this journey. I am really excited to launch Location Is Everything, which is Tango’s podcast series about the store life cycle management. Obviously it’s an interesting time for us to launch a podcast as it is right now with the pandemic going on, everybody’s lives are impacted including the retail industry, and we’re going through some difficult times and things are changing as to how we live and how we shop. So that’s where we’re going to really start is by exploring the changing role of the store or the restaurant in an omni-channel world.

And I think the journey is going to be an interesting one, 2020 was quite a year as a pandemic kind of came upon us last March and forced retail and restaurant owners to actually close and shift to 100% delivery or pickup model. And boom, we fast forward to February of 2021 and we’re still fighting through the pandemic almost a year later with many restaurants closed for dine-in or having limited dine-in capacity and retailers still under different pandemic protocols and restrictions. The good news is we’re in the process of rolling out some vaccines and there’s some light at the end of the tunnel, but it’s clear that when we come out of this, when we emerge out of the pandemic and this kind of unthinkable scenario we’re in, the world’s not going to be the same.

It won’t be its former self by any stretch. And almost every facet of life has been impacted and retail is fundamentally no different. So what does the future hold for the retail and restaurant industry? That’s what we’re here to discuss with a specific focus on the brick and mortar side of the business, i.e. the location. So the pandemic has pressed the fast forward button on the evolution of the store and successful retailers are already rethinking the role of the store, which is more important than ever as you’ll see when we get into this in an omni-channel world.

In each episode of Location Is Everything, we’ll dive into topics relating to this transformation and bring a diverse array of guests to the table to cover different areas of the life cycle, whether it’s real estate, design, construction, facilities, maintenance, lease administration and accounting, you name it. We’re going to dive into each of those.

So joining me today as our first guest is Pranav Tyagi, Tango’s President and CEO, and I’ve asked Pranav to come here today to help set the stage for Location Is Everything. We’re going to do this in two parts, part one, we’re going to really focus on what the impact of COVID-19 has been on retail and restaurants. And from there we’ll pivot into the changing consumer and ultimately what the store of the future will be and how retailers can kind of go through a three-stage process to recovery. One is going to be reorient around a new omni-channel customer. Two is going to be recalibrate your sales forecasting models, your market optimization routines, and ultimately your location strategy, and finally reposition that portfolio over time to kind of optimize omni-channel itself.

So Pranav, without further ado, welcome to Location Is Everything. Thanks for joining me on episode one.

Thank you, Bart. I’m thrilled to be here and to help kick off Location Is Everything. As you mentioned, the world has turned upside down over the last 10, 12 months or so. Very few areas of daily life actually remain unchanged. And we’re all trying to figure out what the next normal is going to look like. I do believe Location Is Everything, this podcast series will allow us to uncover this new reality together along with other industry leaders as we go through it.

Yeah, absolutely. And I think a good place to start is just that, let’s hone in on the impact of the pandemic on the retail and restaurant business. Obviously prior to the pandemic, the death in brick and mortar, or I should say the death of brick and mortar was well advertised. If you believe the press, it was all but done, the retail apocalypse, whatever you want to call it. And that was fueled by a failure of several well-known brands, but people kind of tend to forget that when you look at pre-pandemic spending in retail, only one dollar out of every $10 was actually being spent on the online channel. The remaining nine dollars was occurring within the brick and mortar store.

So that exaggerated the demise of retail. Now, obviously things have shifted more online right now, but we’re not going to return to where we were before, but it’s not going to be where we are now. And a lot of retailers for better or worse had some foresight that they needed to invest in the digital side of their business and transform the business. There’s companies like Target or Walmart on the hard goods side. And then on the restaurant side, you have the Chipotles of the world, the Panera Breads. And a lot of these companies invested heavily in digital transformation prior to the pandemic. And that paid huge dividends and they were able to lean into it as a pandemic came across and their businesses in many cases actually improved. But that’s not the case for most retailers.

There’s a lot of pain out there. And depending on the segment you were in, you received more or less benefit from the situation. So let’s spend a few minutes kind of on teasing that and talking about the highlights over the last 10 months. There was a great article in Retail Dive. I don’t know if you saw it, Pranav, they recently published four succinct charts that really packaged well what retail is going through. So why don’t we start with that? We can kind of tag team these and maybe you can talk about this first area here.

Here’s a chart that depicts the growth of e-commerce for the last five years. As you mentioned, Bart, e-commerce sales have been growing rapidly each year, but when the pandemic hit, it seems like everything shifted online. E-commerce actually grew a lot more rapidly than the trend prior to that. According to eMarketer, this resulted in a 32.4% year over year increase in e-commerce sales, which reached almost $800 billion in 2020 at $795 billion. Also, McKinsey, I think in a recent article there, they stated that the trend towards online commerce accelerated 10 whole years in just three months this past year.

So while we know the pendulum has swung very unnaturally to almost 100% online purchasing, when the world returns to, quote unquote, ‘our new normal’, we’re not going back to the pre-pandemic mix of online and offline. Every indication seems to be that consumers have changed their buying habits to some extent. And the shift to omnichannel retail, we believe is here to stay.

Yeah, absolutely. And this next chart really highlights the corresponding and obvious drop in foot traffic at the store level that accompanied the shutdown. You see here in March, we dropped 26% over the previous year followed by a 45% reduction in April. We did begin to recover somewhat as locations began to reopen in the summer as we moved into the holiday season, but we’re still trending at about a 16% below typical traffic year over year. So the frequency to the store has decreased. The size of the purchase at any given visit has actually gone up, which makes sense. I know when I go to the grocery store now, I’m buying a lot more than I used to when I would shop a couple of times a week.

So whenever you’re going, you’re trying to kind of optimize those visits themselves. So clearly consumers are not yet comfortable returning to the store to the degree that they were before.

Yeah. And you look at this next chart and it shows that retail sales did bounce back, but obviously apparel fell really hard at the same time. So with the move to online retail in general and fewer store visits, sales naturally took a pretty big hit, especially early in the pandemic when sales fell 16% in April, as an example. Things started to improve in the summer when stores started to open and consumers felt a little bit more comfortable. You see a 11% year over year increase in June, July, and in September. I think stimulus checks as well as the lack of travel expenditures translated into higher holiday spending as retail sales rose about 6.7% during the critical holiday season.

But not all segments recovered. And if you dive deeper into this data, most notably apparel and accessories, according to the Coresight Research, these segments experienced a 30% drop in sales from January through October of 2020.

That’s pretty dramatic. That translated into a lot of store closings, some permanent. So what we’re looking at here is a chart of starting in 2016 at the bottom, moving up to 2020 at the top here. And this shows us three main metrics for each year. One, how many stores were closed, how many were open, and what were the net number of locations opened? So if you look… Or closed in some situations. If you look here in the bottom in 2016, we opened about almost 43, 4,400, excuse me, closed 43, 4,400 stores. We opened almost 5,600. So we netted about 1,200, a little more than 1200 net new stores. So when we say churn, that’s what we mean. A lot of retailers are rationalizing their portfolios, they’re repositioning. So they’re closing and relocating some of those stores into better positions.

Maybe when the lease is up for renewal, they’re not renewing that lease and they’re going to a new location in the marketplace that they think is better. So that’s a lot of the churn that you see here. And those numbers were consistent as far as the net perspective in 2017, ’18. It’s not until 2019 where we saw a huge shift from net number of locations going into the negative of about 5,100 in 2019. And then in 2020, we saw that exasperate a little bit more where up to about 5,400 locations net closed. So we closed 8,700, opened only 3,300. So there’s a negative store footprint out there of about 5,500. So there’s a lot going on and we expect this rationalization to continue specially as a lot of retailers reposition for omni-channel, which is a different equation to solve for.

And we’ll talk a lot about that coming up from a location strategy perspective as drawing in people to shop within the store itself. So clearly if we look back at what we just went through, retail has gone through an immense amount of change and we’re still changing, but where are we going is what’s important. It’s good looking in a rear view mirror, but kind of what’s transpiring? So Pranav, I think you’ve got some stats that you can take us through here that really highlight what’s happening in the transition that’s occurring.

Retail obviously is transitioning and there will be winners and losers. There’s a recent McKinsey analysis that’s published as part of the Retail Reimagined Report that highlights several trends that are helping reshape retail as we move forward. The first of these trends relates to new e-commerce expectations, which coincide with a surge in e-commerce spending that we’ve experienced during the pandemic. Customers and consumers now expect a much better digital experience and faster websites. The patience and tolerance for inefficiency and slow speeds of responses and websites is just not the same as before.

Additionally, during this pandemic, consumers have also been much more open to trying out new brands, especially in the US where 46% of consumers have switched brands or retailers. To me, this lack of loyalty further applies pressure on retailers to get it right online and in-store. To that point, getting it right in-store means safety and hygiene. 50% of consumers want stores to follow safety guidelines to keep consumers and their employees safe. This also carries over to the in-store experience where consumers want to limit their in-store time by finding what they want quickly and easily, right? And then the final trend that this article highlights relates to leveraging in-store technology to enhance and to streamline the shopping experience. Consumers want a very seamless digital to store experience across channels.

Okay, let’s pause here in this next segment, let’s talk about is omni-channel itself and redefining what omni-channel is. There’s confusion out there as far as what it really means and how it’s kind of evolving if you will. So it’s become clear that most retail and restaurant concepts must adapt quickly to these changes in consumer buying behavior. And we’re now dealing with a consumer who on a transaction by transaction basis is crossing from digital, physical and back like never before. And the concept of omni-channel has been around obviously for a number of years. It’s a buzz word we’ve heard often for many years, but not up until recently has it really been the reality.

Original commerce obviously was in one channel, you went to the store and you bought something, pretty straightforward. When digital emerged, we really moved into a concept that we call multichannel. Multichannel is the same within a channel, maybe I’m going to a store and buying something or online where I purchase something and it gets delivered to me, but I’m not crossing those channels. I’m just operating within. So there’s more channels but it’s still communicating within that channel itself. Omni-channel is something a little bit different. It’s dynamic in the sense that a single transaction can cross channels. So for example, the well-known concept now of buy online, pickup at store, or as someone told me the other day, I didn’t realize you could pronounce the acronym as BOPAS, as it was called, crosses channels.

So if you think about that, that’s a lot more complex where I order something online and pick it up at the store or I order it on my mobile phone for delivery. And each of these touch points for the customer between physical and digital are really hard to keep everything together, especially when oftentimes the last mile or the delivery in certain contexts is handled by a third party company like Uber Eats or Instacart or something like that. And we actually have some data that backs up this transition from multi-channel, where we’re operating in multiple channels but independently in those channels to omni-channel where you’re crossing channels.

So there was another Retail Dive article that cited that 75% of retailers who responded to Euromonitor’s 2019 Voice of Retail Survey indicated that they did sell both online and in stores, but the interplay between the channels was weak at best. Just 30% of those retailers indicated that they allowed shoppers to actually reserve an item online and then pick it up in the store. And fewer than 15% had any option around delivery within a short timeframe like a couple hours, same day as an example. And just 7% indicated that they offered an option for customers to get support through video chat or other digital types of channels. That was the 2019 survey.

July 2020, they repeated it. So the Euromonitor survey in July of last year, respondents indicated that they were planning on accelerating investment in omni-channel despite a very uncertain financial outlook. So in part two of Location Is Everything, we’re going to unpack kind of what that means, what investments need to occur as we go from reorient to recalibrate and reposition. So looking forward to digging into those things and Pranav, buckle in, you’re stuck here for part two as well.