Good day, and thank you for joining us. I'm Jean-Pierre Lacroix, president of SLB, and I have with us today James Cook, director of retail research at Jones Lang LaSalle. Thank you very much, James, for joining us. Happy to be here. Thank you for having me. You've published and conducted a study on the future of retail. It's a very topical subject, so talk to me about the research itself. Yeah, JP, we're pretty modest. We just want to predict the entire future of retail- ... so nothing too difficult. Yeah. The way this particular research project came about is many of our clients will come to us, and these are retailers and owners of shopping centers, primarily are the clients that I work with a lot, and they say, "How do I know what kind of retail is going to be, thinking 10 or 20 years in the future, what goods are still going to be sold in stores where we've traditionally bought them, and what goods are going to be
primarily sold online?" And sort of intuitively, we've always had some thoughts around it. So you say, "Oh well, I want to try on that pair of shoes," for example, so I'm probably going to buy that in the store. Although now we've got things like, in the States, Zappos is very popular. I'm sure you have that here as well. Mm-hmm. So some apparel is starting to shift online. But the question is, what about all the other categories? How do you make that determination? So we broke it down as simply as we possibly could into three categories, which are time, touch, and money. And we think that if you answer those three questions, you'll be able to predict if that good is going to be sold in person, online, or a mixture of the two. So time, it's like how fast do you want it? So if we're talking about a carton of milk, you need that pretty quickly. Or if we're talking about something like, I don't know,
some ink cartridges for your printer, maybe you can wait a little bit, so you don't need those as quickly. So that's the time category. And then you've got touch. Do I need to touch and feel this mug, this nicely branded Shigetani Lacroix mug? Do I need to touch and feel it in order to buy it? Probably not. I could see a photo of this and say, "Hey, that's a cool mug," and just buy it online. Mm-hmm. And then the last thing is probably the most important. I don't know why we save it for last, but it's money. And it's how price sensitive am I? Do I want to get the cheapest possible... Do I want to buy this mug in the cheapest possible place? Or am I somebody who's got some money, so I'm not as price sensitive, and I'm willing to pay extra money to get it more quickly? And so if you answer all three of those questions, it'll point you in one direction or another. So do you want to take an example category, maybe a certain good?
What's something that you bought recently? Let's talk about groceries, because there's a big topic about that with- That's a great one ... our friends at Amazon right now. Aha. Yes. So let's talk about groceries. So we'll talk about time. The typical family, the working mother or father is at the office, and it gets in the afternoon, and they start thinking, "Well, what are we going to have for dinner tonight?" And so they're going to need to, in most cases, figure that out really quickly. Mm-hmm. So they're time sensitive. So if there's a grocery delivery service that they can order it and get it to their home in a couple of hours, maybe that makes sense. I actually live out in the country a little bit, so we don't have any instant delivery like the city folks have. So for me, I'm always going to be stopping whenever time is a consideration. I'm going to be stopping at the store on the way home to get groceries.
Now, touch, when you buy groceries, do you need to experience them? Do you need to be educated? Some would go to a Whole Foods to get that awesome grocery experience. But most things, like that carton of milk, you know what milk you like, you always buy the same thing, so you don't necessarily have to touch and feel your commodity grocery goods. And then money, are you price sensitive? That just depends on what your income is. So in the US, for example, the discount grocery chain Aldi has been making a big push- Mm ... into the US, and another one called Lidl, which I'm sure you've heard of both of these. Yeah. So they're small format grocers, not a lot of choices, but the prices are the best prices around, the best prices you can get. So if you're somebody who really values grocery experience, somebody with more income, maybe Aldi won't be your first stop to pick up groceries. But if you're a family on a budget, there's no better place to go get
discounted groceries for somebody that's on a budget. We're currently involved with a major specialty food retailer in the US. And the center of the store has been the big challenge for supermarkets. Obviously, if this plays itself out 10 years or 15 years from now, the reality is supermarkets will not be selling any of the commoditized items in the center of the store. It'll be all perimeter, fresh. What's your take on that? Do you see that's where it's going to lead? In many cases, yes. All of that center of the store, to a certain extent, are commoditized goods, and you don't need to necessarily touch and feel them to get them shipped home to you. However, the question is about the profit margin. So grocers have a profit margin that's thinner than any other retail category. It's, say, 1 or 2%, at least of the grocers that I've looked at in the US. So if you want to get that stuff delivered to you-
Somebody's got to eat that cost. Now, if it's something like a bottle of detergent, maybe like another consumer packaged goods, maybe that's not so much of a big deal. But if it's anything in the fresh section of the store, it gets really expensive to deliver refrigerated goods to people's homes. So somebody's got to pay for that, and it's either going to be in the form of higher prices if you get it delivered, or an additional delivery fee. So I guess my point is that folks who are in the higher income brackets, I think are going to get more and more groceries delivered, and already are. Mm-hmm. But there's a big segment of society of families on a budget, basically, that probably aren't going to continue, and are going to continue to go to the traditional grocery store where they buy all their goods. Oftentimes, do the one big shopping trip a week. When you look at high touch, and money, and time,
there are obviously categories of online retailers that are looking at physical stores. And so what's driving that? Oh, yeah. The movement right now, which we call clicks to bricks, right? These traditional pure-play online retailers that suddenly realize they kind of meet a limit of what they can do with online marketing and connecting with the consumer. Mm-hmm. And it's that category about touch more than anything else. Creating a physical embodiment of their brand. It's especially important for apparel retailers. Mm-hmm. And so Warby Parker's had been successful with that, and Bonobos, and there are others too, where you may not
make most of your income from selling goods in stores, as a traditional pure-play online retailer. But when you open up a store in a city, you're going to not only see more sales in that store, but you'll also increase the marketing for your online presence as well. So your online sales will go up when you open up a store. When you look at online, they had predicted the demise of retail as we know it now, and obviously there are categories that have had to rethink and transform. Look at Best Buy, their channel strategy and their retail strategy. Are there retail channels or platforms that you foresee disappearing from the bricks and mortar, and being predominantly an online play? I don't see anything completely disappearing, but there's already categories. Despite the fact that Best Buy has done a great job, the electronics category is definitely shifting heavily online and already has. Books is another category where
they are mostly sold online now. But your example of Best Buy, man, they've really pivoted in a smart way, and are now positioning themselves as the electronics experts, I guess. Mm-hmm. Is that how you'd think of it? To the point where whenever I have a technology question that I can't figure out, one of my first stops, if I'm trying to figure something out with my phone, Best Buy is going to be a first stop for me. Yeah. And that's really smart of them, because I'm not as price sensitive then because they've got me in their ... in their store. The categories where online will play less of a significant impact role on retail. The categories that are going gangbusters right now, yet are not being done online very much, are the value off-price categories. So, TJ Maxx, Ross Dress for Less, Primark, Marshalls. All of those stores, many of them offer a treasure hunt experience where you go from week to week,
and it's going to be a different thing for sale, and you never know what you're going to get. But it's a value proposition, that they offer closeout goods at value prices, and it's also a fun experience. Those guys, for the most part, don't even have online presences other than a simple website telling you where their store is. Mm-hmm. And I can't imagine how you would recreate that experience online anyway, and they just don't have the logistics for it. But for places where you're buying solely on price, and they can offer that low price because you're buying it in a store, that's the stuff that's not going to go online. It's interesting, when you look at your study, you talk about, I call it friction points. Mm. There are a lot of friction points that are driving customers outside of retail into online. Any thoughts on those? Is technology going to, as they've done in the banking industry, is technology
going to enable friction points to disappear or be less of an issue? Absolutely. And both in-store and online, I think friction points. Right now, a friction point online is, I was just flying here to Toronto and wanted to buy internet, so I had to pull out my credit card sitting on the plane and type it in. I have to do that every time. That's a huge friction point, and that could be so easily solved by some simple technology solutions. The same thing with digital currency in the store, and even cashier-less stores, too. So I think removing friction points using technology is going to benefit both online and in-store retail. In your whitepaper, you talk about the experiences, the brand. A lot of retailers are moving to not selling products and selling experience. If you look at Nordstrom's new concept store, they've got two. One is where you go in and shop the store and scan the barcode, and they deliver it to your house.
And the other one is their Nordstrom Local, which actually goes the opposite, and where the store is focused 100% on services, added value services, where you go in and get your fingernails done, your hair, get a custom suit made. Things that really require a service to happen that's added value. So where do you see the future of this? Yeah, there is definitely a place for an expanded role of service-oriented, smaller footprint stores. And not just the Nordstrom Local experience, but things like, Bonobos or Indochino, where you're going in and getting fitted for something, and maybe you don't even leave the store with it, but it gets sent to you- Mm ... later via mail. That kind of high-touch experience for the segment of
North America that can afford it is always going to be there. So I was walking down, talk about brands as an experience, I was walking down our main street here in Toronto and saw a sign, Restoration Hardware. Actually, I thought at first they were going out of business, that they were closing their doors, but no, they were bubble wrapping all their furniture, and there was a large sign in the window saying, "Opening soon, the new Restoration Hardware." It's a restaurant. It's a rooftop patio. It's a social gathering place. Wow. Yeah. That's very different. It'd be interesting to see how they make money at this. What drove that? That's so fantastic. Now, they're going to make money selling furniture. There's not a huge profit margin in that restaurant. But man, I travel a lot, I go to a lot of Restoration Hardware galleries, and they're all very large, very impressive. I was just at one recently in Boston that was in a
former natural history museum. Mm. So it's a real museum of retail, and I think that might be the problem is it feels like a museum, and it's a little dead inside. Mm. And I think it's brilliant to add food and beverage. I know the Restoration Hardware gallery in Chicago that has a restaurant on the top floor, has been very successful. Lots of traffic. Lots of people coming in and hanging out. It just makes it alive. So if you talk about touch, the experience of retail, man, food and beverage always adds such a cool experience to a location. Well, in Toronto, we're going to have an Eataly. Oh, no way. Yeah. Great. On Bloor Street, which is the main high street- Uh-huh ... in Toronto, and obviously they've established a benchmark. They started out as a supermarket chain in Italy. Uh-huh. Upscale supermarket chain, but they've definitely reinvented their model. Are there other retail brands that you foresee them
reinventing their business model, like Restoration Hardware? So if you talk about food and beverage, that's one of those categories that's not really going to shift online too much. Clearly, there's some food delivery there. Yeah. But, other than that, people like to go out and have that experience. So, I feel like F&B can be activating a lot of different types of retail, not just having standalone restaurants. So, Restoration Hardware having a restaurant in a popular flagship location, or
like an apparel store. Like Urban Outfitters has experimented with having food and beverage. I think there's always an opportunity to activate a space with F&B. So stickiness, creating retail stickiness. Yeah. Where people want to go back and hang out. Yeah. It's interesting. What we see in the marketplace is a divergence happening where automation and technology is replacing the transactional relationships with retail. And so, automated payment system, self-checkouts, barcode, the Amazon Go where you scan the barcode, and you walk out, and it's in your digital wallet. Another great example, I think it's
Lowe's have robots that- Yeah ... they've eliminated the number one friction point in these large warehouse retailers, which is where can I find this specific item in this huge store? And they've used robots that frees up the staff to provide expertise. And so we foresee this divergence of transactional being driven by technology and automation, and then obviously as Nordstrom have done with Local, these high touch, high service, high expertise areas. You see more of this happening, or is this just a situation that happens because of the focus on technology in retail today? So the question is, do we think technology's going to cause a further divergence? Yes. I feel like it has to. Mm. As things like AI and robotics are better and better at mimicking things that humans do, and we're not there yet, that's for sure. Call an 800 number and go through that, try to deal with the- Mm ... voice recording. But at some point...
Restaurants that have installed tablets, I'm sure that you've been to them, probably worked with some. Yeah. Yeah. They'll still have the servers, but they have the tablets where you can get another drink, order a dessert. The customer's happier, the server's got less work to do, and I've heard the tips are better when they install those. I don't know if that's true or not, but I've heard that anecdotally. The incidents of side orders go up dramatically. Oh, that's great. Because we've done it. It eliminates two friction points. Two of the biggest friction points in food service is getting the waiter's attention to order- Mm ... and then paying. Yeah. And that technology has eliminated those two friction points. And obviously we both know that when a customer has a high level of anxiety, they're not in the mood to buy more. And so as- As technology allows that anxiety to be removed, they're definitely in a different frame of mind where they're exposed
and willing to spend more. So that's a good insight. I just want to wrap it up. If we were to give three tips to our audience about what they need to take into consideration to remain relevant in retail today, what would be those three tips? Yeah. So if you're a retailer, let's just think about the three categories, time, touch, and money. Those are the three things that the consumer cares about. So you always want to pay attention to, am I delivering this in as quickly a manner as possible? Am I offering an experience that is the kind of thing that my best customer cares about? But then most importantly, do I have a customer who's price sensitive? And if I am, that's more important than the first two. Yeah. I talk to a lot of retailers and shopping center owners, and they always speak from their specific point of view and talk about their own shopping experiences. Hmm. And they're often middle class or upper middle class people, and I
think retailers could do well to remember that there's a diverse pool of people in North America, and think about all the different kinds of people, and what their shopping wants and needs might be. Well, it's interesting you bring that up, because in the bank industry, there's a category called underbanked. Mm. They represent 90 million Americans, and these are people who don't have bank accounts, or go to the bank because they don't have credit cards. And so they live paycheck to paycheck. If you think of that consumer in the mall, we did a dollar store chain. Mm. And what we found out in the research we did was that a dollar store attracts two types of customers. It attracts a customer who is very affluent, who is looking for party bag grab at a reasonable price point- Mm ... selection. But then there's a segment of, I'll call less affluent consumers, where that store is the only store that
legitimizes their visit to the mall where they can buy something. But the malls have all focused on the upscale, more affluent consumer. And we don't see a big development and a focus on the less affluent consumer. Your thoughts on that? I think in the US right now anyway, which is my primary focus, we're seeing a huge expansion of dollar stores like Dollar General- Yeah ... and Family Dollar, and then like I said, Ross Dress for Less, and the discount grocers. Right now in the physical retail world, most of the expansion of new stores is in that value category. Mm-hmm. I think people recognize that, and I think it's a great point that there are certain shoppers that only shop in those value stores, and there's other shoppers who sometimes choose to, and you have to think about both types of shoppers. The tip number two is understand that there's different segments of consumers, and that-
Right ... you need to really understand the opportunities for each segment. What would be the third tip you could give? I see a lot of retailers worrying about their day today and not thinking enough about the future, so we've talked a lot about technology. And I'm not saying that retailers should go out and invest millions in every new technology that pops up. Mm. You just can't justify that. But staying aware and on top of what's on the horizon, be it cashier-less stores, virtual reality, augmented reality. I think every retailer who sells a good that needs to be touched and felt should be thinking seriously about augmented reality right now. But staying on top of technology is so important. Having somebody in your firm who that's their job to think about. Great. Well, James, thank you very much for your time. This has been very informative. And you can download a link to the white paper James produced with his colleagues
at Jones Lang LaSalle. And thank you very much, and we'll open the lines for questions. Thank you. Yeah. Thank you, James. Thank you. One plug, we do a podcast- Ooh ... about retail and retail real estate. It's called "Where We Buy," and if anyone's interested in listening to it, perhaps on your commute to work, it's wherwebuy.show is the website. Great. Thank you very much.
