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Where Are Retailers Looking For Growth?

2019-07-03

In this episode, Jennifer Davis, head of retail investment banking for Goldman Sachs, explains how retailers are expanding their growth strategies against a backdrop of continued e-commerce growth and shifting demographics. While Davis acknowledges that growth strategies are “very specific to a retailer or brand,” she outlines three key areas of focus for her clients: customer demographic growth, channel growth (including the rise of digitally native brands), and geographic growth.  

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is essential, the Goldman Sachs, when we discuss developments currently shaping markets industries in the global economy objects, you would go ahead of corporate communications here at the firm in the quest, of today's episode is where our retailers looking for growth to answer that question. by Jan Davis had retail investment banking here, Goldman Sachs Jen walk into the programme. Thank you. So much for having me to be here. Ok, so, let's at the age, The largest single change and shopping is obviously the growth of online retail and decline. A little bit of shopping in stores not exactly ground, break, in, but that shift continues to dominate, transform the industry that your covering you advise ceos of a lot of big big retailers how'd. You described the sentiment amongst your client this first and most I would say that clearly eat
Mars has grown. Quite significantly, I used to be about five percent of total retail expected to be almost seventeen percent. by twenty twenty one. So it's grown enormously over the past, six or so years, but it's important Remember that pure store storytelling is still almost eighty percent of the overall market for our client specific I would say that they have definitely shifted from a more defensive posture several years ago and after waking up to them reality and a lot of painful investment both in terms of e commerce capabilities, distribution and logistics. There now can a much more offensive posture and realising that having an channel model, where you have both a bricks and mortar store base. Coupled with a strong e commerce experience, really what you need to have for the customer journey today.
so what do we see? The ladder digitally native brands grow up in the last several years? D c? I guess you might call it. Younger consumers driving the growth of these online only brands? What digitally native brands have done is around two core themes. The first is improving my experience and the sex is improving the overall value proposition, and I think what the digitally native brands have done is really disrupt that in terms of thinking through the customer expiring, in terms of very customized experience so for all personalized market places and marketing overall destination stores and value. Proposition really thinking through is their private level products. Is there a way to disrupt the middle man in terms of manufacturing, and so they digitally native brands and millennials exposure to those have really up the ante for our core retail base that they have had
valve their own business models in terms of needing to address this, to kind of core themes wonders Amongst the older retailers are more establish retail branches of the acquiring these digitally near brands or partnering with them. You just host a conference on disruptive growth in the retail industry and all about this very topic. What value You are larger, more established retailer, seeing in the smaller high growth brands and what does a partnership with it additional category offered in the start up. There is basically for areas that these retailers have been focused on in terms of partnering or acquiring with some of these disruptive start up brands. The first is acquiring, Mobility is a good example of that is altered. The beauty retailer, whose invested I read in two: are Vieira technology companies last fall to offer a better experience for their consumers in the store? I second
ample is lows which recently acquired a retail analytics platform owned by boomerang, which basically offers improved pricing have as a more dynamic pricing model in their stores, this an area where these retailers are acquiring or partnering with brands is in investing in this. be sure to kind of leap frog, their own in house technologies, so example, that our Walmart buying jet dot com a couple of years ago, target dying shipped in terms of delivering less while delivery yum, the fat retailer investing in grub hub in terms of delivery. at another area, in terms of where the retailers are investing today, the third it is accessing a new customer demographic that they don't typically serve, and so another example in the Walmart arena is Walmart. but no both are eloquent the online retailer, another
ample as Nord Stream partnering, with ever lane of all birds and reformation, and so this is attracting a new millennium customer who may be, as in a typical department, store customer today and then the fourth area, is really a portfolio strategy of investing in all of the above, and I a great example of that is felt locker foot locker has really built up a whole present in terms of investing in start ups, they started last year in making a minority investment in a women's athletic apparel retailer carbon thirty eight. They follow that up with for other, investments, including their most recent one. In goat digitally of sneaker marketplace and Rockets of awesome, and so I think it thinking through all of as for areas that tell the retailers have thought about other partners requiring with these digital start ups. What these and get what the start ups get is kind of immediate access to scale, expertise, prowess realists
Eight sourcing marketing supply chain of lot of bandwidth and half that they don't necessarily have, as a start up experience all on their own, so there's a bit of a ship back to the middle ride. So for a while large retailers were moving aggressively in e commerce because they need to, but we are also seeing some these digitally native brands, finding some value in bricks and mortar store. So how are the large established retailers in the smaller high growth brands using physical footprint differently than they have in the past? First, on that typical tradition, no retailers where they ve been really investing is in their kind of last may, delivery and the buyer mine pick up in store or Budapest, as we call the acronym, inter of those capabilities, and they do both in terms of lowering distribution costs and to getting out on sales and so a good example of that going back to lows: is they fulfil,
seventy per cent of their online orders via their stores and that's a significant chunk of their online business today and thirty four then of the time when a customer comes to pick up their order. They add on an additional product, and so retailers have really been investing a lot a kind of buy online pick up in store. Another example is Walmart Walmart on track to offer grocery pick up in almost thirty one hundred stores and they add grocery delivery from sixteen hundred stores by Europe, and in so really thinking about this I smiled delivery to customers. Today is one area that the traditional bricks and mortar players have been thinking about using their footprint the two their areas, I would say the traditional players have been focused on- is one smaller stores and so you're. Seeing big box retailers thinking about more urban centres. With smaller footprints, with a more localised assortment, we see that here next to go.
headquarters with targets store here in Tribeca, and they talk about opening you dozen of those each year going forward, more urban metro areas and the same an area is providing services to drive traffic and so whether its dining services, tailoring services, grooming services with manicurist Pettycury anything to drive traffic is another area that the traditional players are focused on in terms of leveraging their footprint further digitally native brands. They are also seeing the benefit of having x and mortar and kind of Omni Channel offering and what's interesting. Today, you ve seen dozens doors from war, be Parker and Casper and bonobos, and away the luggage company all opening stores. Today, those digitally native brands. Combined are expected to open almost eight hundred and fifty stores over the next five years, and so I think, use this convergence between the traditional players and the digitally native brands coming together in terms of their sore footprints journalists,
focusing retails on millennials and what millennials by and how they buy, but obviously a huge demographic and relatively well off one. The retirees and baby Boomers Howard, tellers. Thinking about that demographic air, changing tastes and habits. Retailers wreck, nice at that is a large and growing demographic that will continue to populate as we all age and build up that fund all and that demographic has done. Suspend and time to spend it, and so I think, not only in thinking through online investment were seeing retailers making investments into services are one example of that is best by the consumer. Electronics retailer buying a company called great call last year, which basically provide
aids in home emergency services to senior citizens and that's a focus for best buy to try to get more of their services in their home and some more connectivity with their customer overall. And so I think it's been an area of acute focus for a lot of retailers. Today, you touch a little bit investing in logistics and technology. What types of reach others, are more inclined to make that investment build the in house technology to handle logistic platforms last mile livery and, where you seeing the most eminent activity in this space. Today over. Ninety percent of e commerce orders are bought with free delivery, and so that's levelled up from a customer perspective that customers, just Spect free delivery overall, so I think the first area logistically that we just talked about us Traditional players investing in this by online pick up in store capability and making sure that they can fulfil that this second
is in terms of back and speed and where they can invest to fulfil that quicker and obviously Amazon has up the ante in terms of what we all expect in terms of days ago, example of this is Kroger. The grocer made an investment lashed you're in a UK company called Oconto that focuses on auto, did warehouse. They bought five per cent of Oconto and in turn entered an agreement where they would build. Twenty. Automated grocer fulfilment warehouses across the United States over the next three years, and so Kroger is trying to confront the Amazon threatened grocery space in terms of having Mary, automated fulfilment in terms of online grocery delivery. So it's been less on. That nor emanate side and war on the investment and were partnership, variants overall more
broadly aside from just logistics where retailers are focused today, is leveraging that kind of troves of customer data and boiled he programmes that they have, if you think about going to cost, go and using your membership card to buy your products, imports if they have an enormous amount of data on what EU by every month and what your focused on and so using that customer data, Annetta Lennox to Hyper personalized the experience both in terms of marketing and what their pushing out to you from a promotions Employment is another area that retailers are very focused on, and I think it's in sing and consumer survey work. They say that eighty percent of consumers are more likely to do business with a company if they offer a personalized experience. Certainly true I don't know why Amazon thinks we ve already consumed in our pound of almonds last week, but with four kids? Maybe who knows what types of retailers have been met? successful serve using this technology today.
The grocers are the ones who historically had the most data because they had the promotion carts and so whether it's the Kroger's, the costs goes, the public's of the world. You often wits your card at check out, and they know in your coming so often and so forth. They have. Much data, so they print out the receipt in your already getting coop four huggin does, because you just bought a pint of beneficiaries. I think the grocers have been far the way ahead of the curve. In terms of that, there is, if you Others in the broader retail sphere, so I mentioned Alta earlier- alters another great example that almost no percent of their transactions are done on a boil t programme today, and so the amount of data that they have, that, if you have bought of philosophy face swash, maybe wish also target you with an email promotion about a philosophy. Moisturising you'd, like the same brand, is very powerful, in emanate, world does not just buying there's also a realignment and a lot of companies are short of realign their portfolios and repositioning there
and simplifying the portfolios, focusing sometimes on a subset of the most forward. Leaning one so has at play here retail, and what does it say about brand value and customer loyalty, as these businesses of off there's been a bunch recent examples where here seeing companies who are focused on pruning their portfolio in focusing on their capabilities and areas of growth. So a good example that was announced last fall and recently was consummated was vs Corp, who announced that they were going to spin off their traditional Denham Brands, Lee and Wrangler into a separate company called contour brands and in. dad they would hold on to their remaining higher growth brands that are focused on the active outdoor and works spaces, those include brands like vans, timberland, the north face and so forth, and for our companies BP ass. They saw Denham in that Denham Category in the brands that they own does slower growth low,
margin and so for them from a shareholder perspective to separate behind growth. Higher margin from the lower growth. Lower margin was very helpful and additives, shareholder value. This second exam all of that is gap announcing that they were going to spin off old Navy, and so there legacy historical gap banana republic. Athletic brands would be separate from old Navy, which is a more value proposition customer serving the full facts. overall and so management teens. Our thinking holistically about why they can add the most value and how, from a shareholder perspective, they can deliver the most upside for their investors. Private equities been reactive in this space, as they have a lot of industries, but some of them have had difficulty with some big investments they made response are still finding value in legacy. Brands that haven't evolved as much with technology and hurry. Seeing that play out
We have all seen the headlines of the retail bankruptcy is that have happened over the past several years, whether its toys arise. Jim very mattress pale ass, Claire's for a lot of private equity players who put a lot of money work in this sector. It's been a very difficult investment strategy overall, where you ve, seen it involving I'd, say, is one in thinking through. Are there ass meant in Amazon, proof less Amazon risk sectors such as high growth, restaurant brands, where they're still Opening new concepts in stores? Since it's hard to order a restaurant delivered me on Amazon today, an area is making minority investments in smaller investments in smaller growth companies, where, historically, we wouldn't have seen private equity players play. That's heard is leveraging their playbook with prior investments in terms of investing in small scale brands that they can capitalize on international growth.
had a lot of expertise or channel growth in terms of helping a brand of all from a wholesale to a d d c model, and how to do that and then the Fourth, is we have seen a lot of private equity players in retail going upstream and so not saying who's gonna be winning brander running retailer, but what someone stream from them, who we can get the same benefits without taking them and market risk, and so a good example of that is Coronel capital body. But called Katy see last fall, which basically manufacturers that packaging for beauty brands and a rather and picking what is the next hot beauty brands. They work with honey of brands and basically provide the packaging back office supply chain and so forth for all of those Britain's. So as you target, retailers moving into services, allow airlines of blurring, and how do you think about the lines between retail tech logistics? What is right company today, I think, of retail
but today, in its very, very broadly defined, is anything that serves a customer with their disposable income, and so it could be your laundry detergent, conveyor apparel service. It could be your car and so it's very broad today, I think, there's a blurring the lines between companies who consider themselves hell companies and companies who consider themselves technology companies and theirs. Of overlap between the two, and so we ve seen enormous excessive companies like Stitch Vex, which went public and has done nominally well that uses very sophisticated data algorithms in terms of deciding what box to send you of apparel based on your preferences. What you specified at the outset, how you ve reacted to prior boxes, that they have sent you and so providing apparel, which is a traditional retail service, but using technology,
and data to drive those decisions, and so I think, across all facets of retailers. Examples where that technology and convergence of logistics and data fulfilment and so forth are coming together. Can you been a common since two thousand three or partner now talk a little bit about our own journey at the firm and how you prioritize your to do list in a very busy life, both in and out of the office. I have been here for sixteen There's witches staggering to me, the last ten of which have been in consumer retail. I actually started in our industrial group. It's been our really wild and fun ride over All- and I think in terms of thinking about retiring might never ending to do less, as I am sure we all feel it's just me save amount of organization and ruthless productivity in terms of thinking through. Where can I be thoughtful about downtime that all pockets of my life? So if
stuck in a cab, I'm stuck in an airport. Last night I was on a five hour flight where the wifi was broken. Just sure that I'm not sounds like Heaven was. It was wonderful, really really wonderful. Taking advantage of, of those moments I think is really important and for me really prioritizing my family and my mental health and well being is really first and foremost, and if I'm not doing that, then I can't be successful in other areas of my professional life. Have you been surprised by your careers evolved here? What's been of the bigger surprises there? and three different scenarios. During my time here and the financial crisis changing industry groups there are spent enormous shifts on one hand, but the one thing that hasn't changed kind of across groups across divisions across offices. Even is our culture, it's amazing to me to see how that culture and the principles of teamwork
and integrity and client service really get passed down and how we ve been able to preserve that over time has been pride, the biggest ice you're running retail banking, but your the consumer, while consumers so to our question? What item he'd never buy online and what could you now never imagined buying in a store? really hard to come up with a product that I would never buy online, because I by an appliance. I would buy jewelry that online today, which traditionally bigger ticket you wouldn't think you would probably the one thing I still with not is a car, because I would still want to test drive that car. But I would to a ton of elegance and research in advance of walking into that showrooms. Such that I could still be negotiating from a price perspective, with full information availability and not asymmetry, so that probably where I would not buy online and where
I probably would never, by in a store again, is any sort of commodity product that I dont need to look or touch so, whether its laundry detergent or toilet paper. Or them moisturize, or that I know that I use religiously if I dont need to see touch it. I will never need to bite and distort again, but if I'm in Nor for another reason- and I want to brand discovery our I'm there already picking up something else, I will for ashore at it to my heart- let's finish by We capping the episode central question in thirty, and for less where our retailers looking for growth, it's very specific to a specific retailer brand. But for them it's going to me where's the cost we're demographic growing and it's not just millennial and GEN. There's a lot of companies focused on senior citizens and a booming be Boomer demographic as well, so customer growth would be one. The second one and channel growth, and we ve talked today a lot about
digitally native brands and d to see, and so how can you transition from a more wholesale led model to controlling your own destiny on the direct consumer, so that distribution angle would be the second and the third would be geographic clay and where, especially in China, in the emerging markets? Where there's and high single digit gdp growth and a growing consumer does Will income that has dollars to spend? How do you most effectively target those markets in which interesting is brand tend to be much more successful in international expansion than boxes. I e a box at just provides other people's brands, and so I'd say it's across that cost more distribution, channel and geography that retailers are focused on today? Excellent! Thank you again for your today. Thank you. That concludes this episode of exchanges sex thanks for listening, you enjoy the show. We hope you subscribe, an apple pod and leave a rating or a comment in from
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Transcript generated on 2021-09-18.