Now, let's talk about not the short-term effects that have happened during COVID, which we know will have implications going forward, but let's also try to draw some conclusions kind of connect the dots, and look at what these enduring trends are post-COVID. Now, to do that, what I want to do is start with some of the pre-COVID trends that we observed and see how these were exacerbated by COVID trends. But again, in this section, I'm looking at long-term trends, so what was happening pre-COVID in the year of the retail apocalypse? Well, department stores were closing. There were a lot of Macy's that were closing stores. This was very important because Macy's and these department stores were anchors on malls and they were the things that drew people to the malls. When the anchor stores closed, when the department stores closed, it had an effect, and the stores within the mall and a lot of those stores started going out of business as well. The closing of the department stores in 2017, 2018 in the year of the retail apocalypse was a very important effect, and we really need to understand what was happening, and my question here was, why are people not shopping in these Macy's? Is it because they don't need the products that Macy's is selling or is it because they're buying those products somewhere else? Now, I was looking at the data during this time, so I know the answer and the answer was, sure they needed these products, but they were buying them somewhere else, so where were they buying them? Well, they were going to off-price retailers like Target, Walmart or TJ Maxx, or Burlington. Again, remember what we're trying to do in this section is connect the dots and see the enduring trends. The first thing was that people were buying on price. The prices that Macy's was selling or the department stores were selling was not the right price. They were doing a lot of high low pricing, discounting, and things like that, and people just preferred the everyday low prices from Walmarts and Targets and TJ Maxx, and so they were going to those retailers. First point, you got to get your pricing strategy right. This is not new, we've known this for a long time, but it was very important during the year of the retail apocalypse, and you'll see it's going to be very important during COVID, not new but still important. To me what was more interesting is watching consumers or shoppers that used to buy beauty and cosmetics in Macy's move out of Macy's and move to Sephora. Now, you got to figure beauty and cosmetics is a very important category in the department store just because of the prime real estate that's devoted to that category in most department stores. Why are they shopping in Sephora? Here's what's really interesting. The product and the price, at least initially, it changed over time, but at least initially was the same, so they are not going to Sephora for a better price or for a different product. The reason customers are leaving department stores and shopping for cosmetics in Sephora is because the customer experience is different. Remember when I showed you that slide earlier on where a third of the people were going into these stores because of the product they saw or the variety, but a third of them were going into the customer service or the customer experience. The Sephora experience in these cosmetics products or shampoos or hair products or fragrance is quite different than Macy's, and I am going to categorize this as Macy's as being what I'm going to call product-focused selling. What that means is the product is literally pushed out at the shopper. I mean, the metaphor I use is the perfume lady. You walk into that store and she literally sprays you with the product, that is pushing the product out on you. If you want to get cosmetics or beauty historically. Now, this has changed, but historically at a department store, you would have to talk to a salesperson, that salesperson would go behind the counter, get the product out for you, so you had to interface with the salesperson. That salesperson was typically on commission and even a high school student would know that she was into or he but typically she pushing product at you, up-selling, cross-selling. It was a very aggressive sales approach, that is called product focus selling. Sephora, completely different situation. First of all, salespeople are not on commission. They are there to help you to answer questions. Surprise, surprise. They're not there to sell you anything. It doesn't matter to them if you buy this product or that product. Not how they're motivated, so they are now there just to help. That makes a completely different customer experience and the other thing, and this was pre-COVID and we'll talk about how they'd have to change post-COVID, but pre COVID the product was out. It was a virtual playground. You could go into Sephora, try any product you want, and spray yourself with perfume, do all these kinds of things, nobody would say anything. You could go into a Sephora, get ready for a day, put on your perfume, and leave without making a purchase, and that was okay. What was different, was the Sephora experience was customer-focused. It was a great customer experience, and guess what happened? People would prefer to buy their cosmetics in Sephora than in Macy's, which was product focus aggressive selling, so price makes a difference, customer experience makes a difference and then, of course, what everybody was talking about is people were starting to shop even before COVID online, and they were buying these same products on Amazon and on other online retailers, so three things price, customer experience, e-commerce is changing physical retail, and that was happening before COVID. What happened during COVID? Well, one of the things we saw during COVID is when people did go into stores, they went into different stores. We saw a decrease in traffic in malls. We saw closing of what are called B and C malls, the A malls, which are more of the luxury malls, which are more experiential malls, they did better, but the B and C malls, they were very much hurt by COVID, and people were buying those products online and they were not going into the stores. But community centers were doing better, what we call strip malls. They were doing better and people were liking to go to some of these physical retailers that were thought of as more of a community center, and what we're seeing as we're reflecting on what COVID did to change shopping behavior, what an enduring trend is, we're seeing stores move out of the traditional malls into standalone stores or into these strip centers or into these community centers, so that is one enduring trend, a change in where people are shopping, and the other thing is what we saw happen in COVID is these general merchants like Walmart, Target, Amazon, these everything stores grew and grew and grew in power. People are starting to shop more and more in those stores that started in COVID, and we anticipate seeing that as an enduring trend, so that's one thing. All of those ideas I mentioned is one set of ideas for enduring trends exacerbated by COVID. The other thing that started before COVID is what happened to Gillette? Now, this is before COVID, and actually a lot of the CPG firms which were losing market share before COVID when I wrote my first book. Now, they happen to do better during COVEY because a lot of these traditional brands were what people were starting to buy for many, many reasons, but before COVID, Gillette lost market share and a significant market share. This was very surprising. Gillette is owned by P&G, it's a very big brand. I've been a marketing professor for years. I talk about these big brands as benchmark on these big brands. They know what they're doing. Gillette is a very strong brand, P&G a very strong brand. Why are they losing market share and who are they losing market share to? Remember, this is pre-COVID. Dollar Shave Club, Harry's, what? This big band, P&G brand, Gillette brand is losing market share to an upstart, a brand new product, Dollar Shave Club with that crazy commercial, Harry's, these are by millennials. These big brands are losing market share to these, what I'm going to call, digitally native vertical brands, how could that be? It just shows don't rest on tried and true methods. You've got to stay current. You've got to stay with changing times. The digitally native vertical brands change the model and it took these old legacy brands a long time to get with the program. What was different about the digitally native vertical brands? How did they redefine marketing that their old brands didn't see? First thing was, they had better brands more attuned to the needs of millennial shoppers. Dollar Shave Club and Harry's were really strong brands directly marketing to end users. They were listening to their customers and they were giving a brand message about shared values that people resonated with. First they had strong brands. Second thing that was different is, they went direct. Digitally native vertical brands at the vertical part, remember, most legacy brands go through wholesaler's, the digitally native vertical brands, had customer data. Not only were they developing brands that were in tune with customer needs, but they were collecting data every time, every day, every search pattern, every purchase, and they understood what their customers wanted. Going direct meant they had access to first party data, to customer experience, and they knew what customers wanted. Gillette did not have that because they went through these wholesalers. The 3rd thing they did was they were subscription models. They understood the importance of loyalty. What modern brands do now, is they maximize customer loyalty. That's maximizing what people call as the customer lifetime value. You think about your customer, you give customer values and then you keep that customer over that customer's lifetime. That is what you're prioritizing. Gillette and, typical, legacy brands were more into transaction model, they wanted to make the purchase. What the digitally native vertical brands are, is they want to get the subscription, which means they want to get the repurchase. That idea is a big difference, and you are seeing it now in Gillette in the CPG firms. A lot of these brands are now maximizing, we'll talk about this again later, their direct to consumer profile. You can do it because you can go online even if you sell your product in physical stores that are not direct, and you go through wholesalers, you still can have a direct to consumer experience online. You are starting to see that with the Gillette's, the Coke's, other kinds of consumer package goods, the Hershey's, Eminem's, they're doing a lot of direct marketing, even if their product is being sold at wholesale level. That's in the grocery business and the CPG business, but then you are seeing a lot of brands like Nike during COVID, Nike pulled back from their wholesalers. Nike stop selling on Amazon. Nike only limited their wholesale sales to two retailers, Foot Lockers and Dick's, and they prioritized their direct model. Nike is now selling in their own stores, and they're selling online. That change changes their marketing fundamentally, not the least of which is they get customer data and they're really trying to prioritize customer loyalty and customer lifetime value. Those are the enduring trends started before COVID and COVID accelerated. Now, we take all those trends that we're seeing, and I want to simplify it again so that you can just think about this in terms of what do I need to remember? What are the top two things that are really important that I've learned from COVID? All of these things, let's integrate everything I've said so far into two big takeaways. The first takeaway is, what we're going to see is the best retailer post COVID, and into the future, is what I'm going to call customer centered omni-channel retailing. To stitch together everything that I've said, it's not online shopping or offline shopping, it's an integrated omni-channel experience. The customer moves fluidly from online to in-store, back to online to their phone. All of that is the way the customer sees the retailer, as multichannel, integrated. They don't expect a different experience online than in a store. They expect the same experience. That's from the customer point of view. From the retailer point of view, that means you've got to integrate your supply chain. You've got to integrate your employee base. You've got to integrate your incentives. You've got to think of it as not separate worlds, but an omni-channel world. For some retailers, that's harder to do than for others, but that notion of getting an omni-channel world that moves fluidly from the phone to online to physical retail, if you don't do that going into the future you're not going to succeed. The other part of this is customer centered. Can not be product focused, you've got to focus on what the customer wants, that is key. You've got to focus on understanding the customer's desires, what the customer cares and deliver value to the customer. First big takeaway, enduring trend, customer centered omni-channel retailing, and the second one is, you've got to inspire trust. This is about building that relationship. It goes back to the idea you want those loyal customers because profitability is tied to loyalty. It's tied to customer lifetime value. In order to do that, you've got to have a relationship with that customer and that relationship has to be based on trust. What COVID has done, it's said, "Now, I've got to make sure you're not going to kill me. I need to make sure that store is safe, and I need to feel that it's safe to walk into the store." What COVID has done is put trust front and center. Historically, retailers didn't have to say, "Come to my store, it's safe to shop in my store," nobody would say that. They would say, "Come to my store, I've got good deals or I've got the product you want." Now, what they're saying is, "Come to my store because you can trust me," that's a really big change and we will see that change being important into the future as well. Then how do you win? If these are the big changes that we've observed post COVID, what's the source of competitive advantage? I'm going to show you a framework which shows that you can win by being the best at any one of these things; you're the best at brand and product, you're the best at customer experience, you make shopping as frictionless as possible, or you provide the lowest prices. Any one of these strategies is going to be a successful winning strategy and I will show you that within my framework on what it takes to succeed in post COVID world. Let me just talk about to anticipate the people who have done really well on this going forward into the future. These are the top retail brand, the winners in 2020, year over year, which were the retailers that we should study because they've done the best? We will look at all of these retailers to understand these strategies. Lululemon did fantastically. Now, Lulu was in the right place at the right time. Nobody could have predicted COVID, but once we had COVID, what are you wearing when you're staying at home? Athleisure, which is what Lulu sells. They were in the right place at the right time with product, but it was way more than that, that made them very strong retailer. They had incredibly strong loyalty, and that was important. Costco, big winner. Guess what? Costco was not very good in digital. They, during most of COVID, did not even have curbside pickup. They had people going into the store, but still people went into the store. Clearly, Amazon's going to be a big winner because they were top ecommerce retailer. They had to do a lot of pivoting to adjust to the changing demands of COVID, but they did it and they did it quickly, but Amazon, big winner. Target, also adjusted to the changing world of COVID, but they had phenomenal stores. Many people say Targets are their favorite stores. Walmart, biggest retailer in the world, adjusted to COVID, but they were in the right place at the right time. Now, JD com and Alibaba on this list, though those are both Chinese retailers, they did very well during COVID and post COVID, and we'll talk about that. Sam's Club is a Walmart retailer, so it's part of the Walmart universe. These are the winners in year over year. These are just but the numbers say they did the best. They're change in brand value. From 2020-2019, these were the top retailers, and we'll look at why they did so well and what lessons we can draw from these leaders.
