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Death of Retail: Part II: The current state of play

Updated: Jun 23, 2020

Part Two: The Current State of Play and the Brick & Mortar Value Proposition: Coronavirus

This is Part Two of a Three Part Series Discussing The Death of Retail. It is a transcript of a conversation between Neeraj Kulkarni, James Li, Mike Lichter and Dave Donars. The conversation was recorded on June 2nd, 2020. This second segment focuses on the massive shift retailers have made to adjust to the pandemic, the merging of digital and in-store experiences and grocers. We look at examples from Bass Pro Shop, Apple and the local grocery store.


Neeraj Kulkarni is a brilliant problem solver and has worked with some of the largest companies in the world. He is President and Chief Data Scientist of CIEK Solutions, an analytics consulting firm. Ciek uses a collaborative analytics practice to help brands solve their most complex issues.

James Li is a media analyst and data-driven story teller with a strong background in omni-channel growth marketing, Mar-Tech product development and campaign performance analysis. He is also the Co-host of Peak Money, a new weekly podcast he created with Dave Donars.

Mike Lichter is an incredible strategist who embraces both his analytical and creative gifts. Mike is driven to help make the world a wee bit better. Mike is also the Co-Founder of the consultancy Freehand Circle with Dave Donars.

Dave Donars background is in product development, marketing strategy and data science. Along with James Li he is the co-host of the new podcast Peak Money. Dave is also Co-Founder of the consultancy Freehand Circle with Mike Lichter.


James Li: A few weeks ago on the Peak Money podcast we discussed patterns and new habits. What is retail going to look like in the future now that we've all just taken a three month break from going to stores? You know, people are now more okay with two week Amazon shipping dates and many people aren't necessarily clamoring to go to a store and buy something.

Over the years consumers discovered that the online shopping experience has gotten better. E-commerce is more convenient and tolerable than brick and mortar. And people can do it without getting sick too. Well, look at that. That is a very appealing future so part of me starts to wonder--who even actually wants to go to the department store or a mall? To me that seems like a very unbalanced proposition. One that honestly my family and I are now reconsidering if we need the actual in-store shopping experiences anymore. It just doesn't seem worth it.

Mike Lichter: If I could just jump in here. I don't dispute any of that James. However I think the mall, and that experience, will survive for a certain subset of people. Moving forward I see retail separating in a couple different ways and becoming more stratified.

One of the main ways brick and mortar retail will survive and eventually potentially thrive is as a Destination. There are people who really enjoy shopping--for them shopping is fun. I hate it, so I don't quite understand that. Destination sites would be experiential and have a full range of services with, for example, onsite daycare (which I think IKEA already does). Destination could also include onsite personal shoppers that customers could reserve--you know kind of taking the Queer Eye experience and bringing that into into real life.

Obviously a ‘no-phones’ policy is a must for all employees so everybody is very attentive at these high end stores. Start to incorporate spas, cuisine, and entertainment into the experience so Destination Shopping becomes this kind of day trip. That's one way we see things start to take shape more in the future--a re-imagining of the traditional quote unquote ‘mall.’

James Li: But I think the value proposition in its current state--right now--isn't exactly a great deal for consumers. To your point it has to become a destination but it’s just not there yet.

A few weeks ago Dave told me why he's blown away by Bass Pro Shops and I was shocked. Their flagship store in Memphis is incredible. It's basically an amusement park that just happens to sell fishing poles. Eventually Destination shopping experiences need to become more like Bass Pro Shop. Retail simply won’t survive in the Neiman Marcus model where shopping feels like work. No enjoyment whatsoever. Brick and Mortar needs to be closer to Apple where customers get to go in, touch everything and play with all the products yet no one bugs you to buy.

That is what the future retail needs to be; it can't just be, “look at our wares.” Right? Retail has to evolve, and like Neeraj said, ecommerce has been doing that for a while. I'm always just a little shocked that traditional retail chains never really evolved in that direction. By definition--you have physical space, do something better with it. It could also be technology hasn't caught up yet.

Dave Donars: My take is a little different. I really do think retail is suffering, and not necessarily because of the internet. The retail experience is so horrifically bad in terms of training and compensation for employees that simply do not care, as well as limited inventory in their stores.

Today is not a great environment for many traditional brick and mortars. Yet the cause of that pain isn’t just the internet. If it wasn’t Amazon, it would have been Target or Walmart or somebody else eating them. Brick and mortar feels very much in trouble.

For example, I mentioned nine stores which are going bankrupt because of Coronavirus. Well, that's kind of a misnomer because eight of those nine chains had already declared bankruptcy or began a bankruptcy process in 2019. During the best of days! Some of that is exceptionally high rent prices because of an extended economic expansion. Nevertheless, when retailers continue to go out business, that highlights something fundamentally wrong with the model. As it's presented right now, Brick and Mortar is simply not a good experience.

James Li: Yeah, but back in the day, like we didn't know it was a bad experience. People just didn’t know enough--there was less competition and we didn’t have the comparably convenient experience of ecommerce.

Dave Donars: I think retail genuinely used to be a better experience. People were better trained and they couldn't rely on the internet for information.The failure of brick and mortar is not because of some externality--this is essentially their fault. For example,the worst experience I can have is spending all the time and effort to actually go to a physical store. Let’s say there’s a mix-up or I have a question. Being told by the employee in the brick and mortar location to go online to solve my problem. I am here, why push me into another channel? Before the internet that wasn't an option, so that shitty outcome was just not a possibility.

Retail stores used to be a little bit more flexible. And this does reflect in skews from 1990--when more skew based research really started--to 2020. The average of those 300,000 General stores in the United States, there's the total amount of skews (or diversification of items in a specific store) has been going down. So there is less variety and less options in stores. Employees are making less money, have less training and therefore have less incentive to care. Also storefronts used to own their own brands--chains like Toys ‘r Us before they were bought by a venture capitalist firm and overleveraged for debt equity. Retailers were not just competing on price--they were trying to build relationships and create more of a unique moment. The mall is a separate discussion because they've been on a decline for like 40 years, but I don't know. Neeraj, what do you think?

Neeraj Kulkarni: At Ciek as a data Science consultancy, we tend to work with large amounts of retail clients.

And it's interesting, you know, Retail clients have actually taken a very data driven approach to the entire process of how they are going to open the stores after Quarantine, to what extent are they going to adjust their inventory and planning cycles and so forth.

As you rightly pointed out Dave, across retailers one of the exercises they ask us to do is to create some kind of index or benchmark between their storefronts. Stores which have been performing well with higher margins and higher profitability, obviously, those stores are near and dear to both the customers and retailers themselves. Obviously those stores are going to remain open. But the last part of this exercise, retailers want to also highlight the stores which have been underperforming either because of poor store management or because of customer demographics. Across retailers, at least for our clients, I would say almost 70% of those retailers are not going to open 30 to 40% of their stores. So that's a pretty large number. It remains to be seen whether they follow through on that exercise, but our analysis revealed serious inefficiencies in 30 to 40% of their existing stores.

COVID Shopper

Now the second thing of concern as retailers reopen are health and safety guidelines. Going forward brick and mortar locations are trying to look at stores where they can follow certain norms for social distancing, whether for its warehousing or inventory management, they can follow certain safety guidelines. And again retailers are using data science and analytics to reconfigure those stores as well as optimize their inventory, sales and planning cycles.

Going forward the third area of key concern is now staffing levels. It's kind of unknown, how many consumers are going to shop online versus how many consumers are going to come back to the stores. Brick and mortar needs to figure out the optimum staffing levels to manage the stores. We estimate about a 15% to 20% reduction for in-store employees. So it's kind of fascinating…

Dave Donars: Regardless B&M retailers are thinking of these adjustments solely in terms of Coronavirus. This is an opportunity for retailers to redefine retail in a serious manner. Many storefronts have been in some form of a death spiral for almost 20 years. I hope chains can start adjusting their entire system because future consumer demands will require flexible inventory systems and warehousing to simply survive. Rethinking retail supply chains is going to be a really exciting and necessary exercise. Over the last 20 years--with such large improvements in robotics, AI and tracking--it has surprised me that brick and mortar hasn’t tried to push more skews into store locations. No one stands out to try and figure out a way to make the supply chain more effective. Like a vending machine style approach to sorting and ordering products.

The back rooms of most stores are the least scientifically advanced parts of the United States. I mean, they're just rooms. Yet an Amazon fulfillment center has robots and efficiency algorithms. Teams of engineers are focused on solving inefficiencies within complex sorting mechanisms. Amazon does not see each day as simply fulfilling orders. For them testing and training is built into the process.There's just no proper analogy between the supply chains of traditional retail and eCommerce. They are too far apart. But if you introduce a more flexible supply chain with a higher amount of skews, brick and mortar retail could work far better.

Neeraj Kulkarni: Absolutely, you hit the nail on the head. Many storefronts rely on manual processes. Retailers have been using older legacy technologies that have not kept up to date with advances in technology--machine learning and so forth, which has come to haunt them. I do want to point out examples beyond Amazon because it's the obvious choice.

Companies like Patagonia, which has excellent consumer focused ethos. Brands which are truly focused on customer centricity like Westin, Patagonia have already taken measures to start harnessing vast amounts of their consumer data. Whether it's data through their transactions or looking at social media data from Facebook and Pinterest. They harness and mine all the different customer insights coming in through different channels to optimize their shopping behaviors. Whether it's offline on online, they have product recommendation engines that actually understand the preferences and needs of their most high value customers.

Storefront Analytics need to improve

I know we are talking about the death of retail. But it's not as generic in nature as you're laying out. There are extremely strong retail brands, especially after COVID. The quarantine has been a good learning experience for them. Retail brands which are already on this path of customer centricity will come out of this era stronger.

They will obviously have large competition from Amazon, but I do believe there are flourishing and unique brands. One of the examples I always talk about is Allbirds. Such a small brand, but if you see how it has grown in the last two to three years, it's kind of phenomenon. The market needs more of these smaller nimble brands which can tackle the large behemoths like Walmart at Amazon in specific places. They have a specific product offering, a niche customer, and a highly targeted way to talk about their brand both offline and online. And I do believe those brands will come out better and stronger.

James Li: That's an interesting take… I think it's interesting but I sort of disagree. We already spoke about this. Basically I think regular store shopping is going to hurt until they discover a way to make it more interactive which I think Mike agrees with me on.

I don't necessarily see what the value of going to a store to buy most things anymore. Especially considering we’ve all been conditioned to some degree for the last three months to buy everything online and not leave the house. It is no longer appealing for most families to, say, grab the kids and go into the city just to walk around a mall. Looking ahead I do not see traditional retailers--who only make margin selling products manufactured by someone else--presenting a reason to go into a physical store.

Dave Donars: Best Buy is one of those companies that seems to have figured it out in an effective way.

James Li: Best Buy is not bad.

Dave Donars: You have to stay outside of the store. Somebody comes out to the car and gives you your purchase. There's a validation process involved. It's all fairly seamless. However, I did find myself sitting outside those stores--especially early on before I was like, habituated to quarantine behavior --wanting to go into the store to physically sort through the inventory rather than just on my phone.

James Li: That's literally the ONLY value prop of going to a store: I get to see and touch before I buy. I recognize that is still a powerful driver. However 90% of what consumers buy don't require a trial because we already know the product is. Consumers are already so familiar with it.

Mike Lichter:

I happen to agree with James. Anything that isn't high end couture or a huge once-every-four years kind of purchase simply is not required to be in store for anymore. Except for the few folks who cannot receive delivery either because of location or credit…

Dave Donars: Well, I do think one habit has changed. And there's one very positive thing as we move into the future of retail. Neeraj did a great job pointing out specific companies doing a great job, but there's an entire sector that has a newfound emotional connection to their audience. And that's Grocers.

We talk about all the different positioning and connections to consumers but without food and sustenance, none of this matters. People fundamentally realized this over the last few months and now your local grocer, who was an afterthought, now has a much higher emotional connection to consumers. Simply based on priorities people understand how important they are. We're at the end of our first phase of quarantine. Remember those early frightening days when people were hoarding? Society recognized how absolutely critical (and fragile) our food supply chain is. Americans grasped how essential all those grocery workers are. Aldi’s has become crucial for so many families.

Now there's an opportunity for grocers to flex and become even more essential. Become more of a general store with a bit more services provided. I think this is their moment. Trader Joe's has always done a really good job. Now every grocer is having their moment.


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