How Retailers Can Navigate COVID-19 [Video]

The retail industry is a tight-knit community, with many of us staying in the same circles for decades. I’m fortunate to have worked with some fantastic operators, including Kelly Thompson, who spent 10 years at Gap and 12 years at Walmart, most recently as COO for Samsclub.com and before that as Chief Merchant for Walmart.com. She’s now spreading her wealth of experience and deep understanding of retail in board and advisory roles with a few retailers and others in the space, including Narvar.

Kelly helped lead Walmart.com through the 2008 recession, and shares her perspectives on how the current crisis may be similar — and of course, also very different — when it comes to what retailers can be doing now to emerge as winners on the other side of this crisis. Some topics we cover:

• Going back to the fundamentals and being very clear about how you optimize your P&L while adapting to the new environment and customer behavior.
• The opportunity for added efficiency in returns, especially as more services move online.
• The importance of bringing back the joy in retail when thinking about the customer experience of the future, whether that’s in-store or online.
  

This is part of a new series of Narvar Insights videos. We previously shared my conversation with Sucharita Kodali, VP & Lead Retail Analyst at Forrester. Please sign up for our newsletter to be notified of new episodes.

Also available on audio platforms like Spotify, Google Podcasts, Apple Podcast and more:

FULL TRANSCRIPTION

Amit Sharma:

Hello everybody, my name is Amit Sharma. I'm founder and CEO of Narvar. We are a SaaS tech company and we work with global brands and retailers to enable the customer experience across their all digital channels. Today I am having a session with Kelly Thompson, who I really admire and love all of our work that she has done, to talk to us. And look at the data that we did a survey we did very recently, last week with Forrester, and have more meaningful conversation around what and how retailers are thinking about and how they are planning and responding to the current circumstances that we all are experiencing. So with that, let me introduce Kelly.

Kelly most recently was the CEO of Sam's Club.com and prior to that she spent a tremendous amount of time and and leadership in terms of leading all the global merchandising for Walmart.com, and now she's been advising and on the board of other companies. So Kelly, really nice to have you with me today to share your thoughts and perspectives on the issues that the brands and retailers are facing today.

Kelly Thompson:

Yeah, thank you so much. That's a lovely introduction. Very grateful for that. And before we go any further, I just want to say to anybody who's watching, you know, hey, I hope you're doing everything you can to take care of yourself to stay healthy and stay sane during these unprecedented times. Kind of feeling for everyone out there and making sure we're all trying to do what we can to stay healthy and stay sane. I'm happy to have the conversation with you today. It's a pleasure.

Amit Sharma:

Great, and now Kelly, as you're advising us at Narvar, and other companies on their boards, you're looking at two trends that we saw in our Forrester survey, with brands and retailers not only experiencing issues and challenges in terms of what they plan for the year, with some categories actually forecasting at 20 to 25% down for the back half of the year and others actually, in certain categories, are doing well, how do you synthesize these factors that we are seeing and experiencing today?

Kelly Thompson:

Yeah, I think first of all, it's unprecedented. I've been through a couple of recessions in leadership roles and and those are tough and they always they always teach you really important lessons. But I don't think any of us have really seen these two forces happening at the same time and compounding.

So you've got all of the behavioral changes that are required, so that we flatten the curve of this pandemic. And then you kind of have the economic upheaval and what are the lingering effects of both of those forces. So it's a time of incredible uncertainty and volatility and I think there's a couple of trends that we can talk about, but I believe that really the key things are, it's a time of incredible focus.

I mean, most companies...I think about strategy sessions, they'll start with 15 ideas, they'll really do the hard work to edit it down to five. And then now with what's happening [with COVID-19], maybe you can get one or two done. So you really have to make sure that you're focused and that you know a lot of people are probably taking the time to re-prioritize. You’ve got to stay flexible and agile since this is a very dynamic environment, things are unfolding quickly, but paying attention to what's happening with your customers. What's happening in your supply chain. What's happening with your employees, can really help you navigate with the North Star in the times that we're experiencing. 

But I think...[there’s] a ton of uncertainty, but I think one thing that we could probably imagine is that we're going to live in a world with fewer stores right like right now we're seeing and all the store closures and hopefully this is short term but that creates financial pressure that will lead to longer term store closures. And so I think that you can also count on a continued shift into ecommerce and some of the omni capabilities, because I think both of those are strategies to give everybody a ton more flexibility as they navigate these uncertain times.

Amit Sharma:

As you mentioned, retailers are doing a tremendous job and responding to taking care of their employees and playing a role in the community. But as they plan ahead, there will be more and more acceleration in digital channels and less footprint in physical stores. So as they switch into planning mode, especially omnichannel — and that means so many things to so many people...it's a very diverse and heavily-used term — how do you describe the key attributes or capabilities of omnichannel for a multi-channel company or D2C brand, how should we think about omnichannel?

Kelly Thompson:

Yeah, when I think about omni — it's really a term that retailers use, customers rarely use it — but it's a term that retailers use to kind of be a proxy for customer-centricity. For me it means, have you broken down all of the barriers to connecting your products with the customers, right? We know that sometimes it's hard to read inventory that's in stores from a website, or it's hard to be on a website and understand what inventory’s in stores, and so omni to me just means breaking down all those barriers and having the ultimate amount of options to connect your customers with the products that you sell and the services that you sell that they enjoy. So that's kind of how I think about omni, but I think it's important to clarify.

When I think about the capabilities and the financial pressure on having an asset-heavy business and having a lot of stores, like that's going to be a drag to a lot of players, even though they've trimmed their store fleets, this is kind of an unprecedented catalyst to doing dramatic things. But you can imagine that a lot of D2C players, maybe they want to have experiential pop-ups once we're back into being allowed to go outside. Again, how are they going to think about their inventory? How are they going to make sure that customers can access what they're offering, whether it's via a mobile app via a website or walking into a physical experience?

And then for physical stores — generally they should have a lot of capabilities that someone who's just doing direct-to-consumer online doesn't have. Namely, can they do curbside pickup. Can they do same day delivery to their local customers. So you really see that there are kind of a wealth of options to serve the customers, but a lot of times the systems and the processes that we've put in place as we've grown up kind of present the obstacles to doing that well.

Amit Sharma:

You mentioned omni, both from the customer-centric point of view and also from looking at unit economics. Right, so you know having a unit in the online-only channel versus in-store channel has very different behavior and from shipping, fulfillment, returns. So as these two trends are accelerating — faster adoption of digital channels plus a lower number of stores or smaller store footprint — what are the things that retailers and brands need to be very much focused on making sure as this new world is accelerating that they are keeping these consumer experiences in mind but building these products — or capabilities, rather — that are profitable and they can also keep the P&L aspect in mind?

Kelly Thompson:

Yeah, I think the headline there is that nothing's easy in retail and maybe it looks like it is but nothing's ever easy or simple as we might think. Retail is about connecting customers and product. If you have a lot of stores, generally you're running a very asset-heavy business. But if you do have customers that come into stores, they do a lot of work for you. They come in, they pick the item off of the shelf. They know it's the right one. They got the one they wanted. They take it through checkout, they put it in their car and they take it home and then if they have a problem with it, they'll drag it back in there and return it.

And so when you shift into ecommerce, all of these things that the customer used to do for themselves are now a service that you're providing to them. So they cost you additional money when you compare it to a stores model, but it also creates an incredible opportunity for customer touchpoints.

So you have these additional touchpoints with the customer when you're processing and shipping an order. And then if they have any problems enabling a return. So, great customer touchpoints, but they are additional cost to the retailer, and you want to make sure if you have additional customer touchpoints that you're delighting and not disappointing. So you want to make sure that you're leveraging those touchpoints to drive additional loyalty.

And generally, when you think about the shift to ecommerce, you know, shipping expense is probably the biggest expense and that's the thing that a lot of e commerce retailers focus on. So when you're looking at your product mix, you really need to make sure that you can afford to still have some margin after you pay to ship it to your customer’s home.

You know the other thing is returns, right? The reverse logistics associated with the returns. And frankly, it can be hard to get the right return recovery rate. Because it takes a while for the returns to get back to you and for you to get them back into a saleable condition.

And then finally, there can be a lot of customer anxiety about “where is my order,” so you can sustain increased contacts to your contact center if you're not careful about communicating to the customer, where their stuff is at and getting it to them, when you say you’ll get it to them.

So to recap, ecommerce gives you more flexibility. It is more expensive, but it does give you more customer touchpoints, you just need to make sure that you're using those touchpoints to drive delight and to drive loyalty instead of disappointing.

Amit Sharma:

Yeah, and I think that's a key point, making sure consumer behaviors and expectations are met, and they have a high bar to begin with.

How do you continue to keep the bar to attract new customers as they are coming to these new digital channels, while making sure from the P&L perspective to take the cost out as much as possible, especially as you mentioned, in shipping and fulfillment? Those are some of the largest P&L line items when you take the cost of items out.

And especially when you have stores and an omnichannel network...in the past, consumers can actually return in your store. Now that stores are closed all that is happening through online. So not many GMs and online company owners may have thought about the impact of returns coming back via online, but now it gets even more accentuated and how do you think about the margins.

I think your expertise — and I should tell listeners that you know when you are leading and playing the GM role in a use case-specific attention to data points and signals, not what is selling but watching them throughout the lifecycle. So what are two things that you can share with us that everybody should be paying attention to not only about sales, but the impact that happens after the scenes is done?

Kelly Thompson:

Yeah, I think that anyone who knows me knows that P&L discipline is one of my hallmarks and I've introduced it somewhat painfully to teams in the past, but they end up loving it, because it's actually really interesting and and it's really hard and it makes you better. I remember when I first got into ecommerce, I thought a lot about initial margin, basically, what am I charging for the product and then what did I pay for the product and sort of considering my margin to be there.

And it really took me a while to really learn and get familiar with an ecommerce P&L and I would tell people as they're developing their digital strategies, it's really time well spent to understand what happens kind of below the line, all of that post-purchase activity that is additional cost to the retailer. Really kind of dig in and understand that and understand which metrics you need to be tracking in order to make the right changes, make the right moves. You know, I spent years trying to improve and making a lot of improvements in profitability, but it's a never-ending optimization problem. I would say that when you consider your total assortment of what you're offering that you do need to think about how is the margin going to look after I ship it to a customer, right. Like that's the first thing I kind of focused on  — what do you think your ship-to margin is going to look like.

And then to the point that you just made with returns. I think that there's still a lot of opportunity in returns and making returns much more intelligent and much more data-driven. I'll kind of shift to sort of an apparel mindset, but we talked about this term called bracketing or how the living room is the new fitting room. That's true, and that's how customers want to shop, so we have to meet them there. But if the living room is the new fitting room... I remember from way back in the day, in the early days of retail, there was a ton of focus on getting the fitting rooms cleaned out, getting everything back on the hangers and then back in size order on the racks and I don't think that we've kind of gotten there in the digital world yet.

And so there's a ton of opportunity, in my opinion, to improve on the return process, to make it delightful for the customer — again, it's another touchpoint that you could turn into a loyalty driver that you can turn into an exchange or into a new sale — and then also being intelligent about disposition and do you have things engineered so that, “Hey, we should expect more things to come back. So what are we going to do in order to get them you know in saleable condition and back on the website or back on the store shelf, whatever it may be as fast as possible.

Amit Sharma:

That's a really good point that we have those disciplines in place in a physical network of, as you said, keeping the rooms clean and efficient as possible so you can bring [product] back to the sales rack and and so that you can keep the sales going, but in the online channel, there's so many more opportunities of creating those efficiencies, especially when people are buying two, three units. So the basket is high, but when one unit comes back, you're still paying back on the return fee that just will eat into your margin and straight to the bottom line. So even though you know consumers do expect more flexibility and more convenience, keeping that efficiency in mind and driving the profitability is also really important as business moves towards the digital channels.

Kelly Thompson:

Yeah, I almost think of it as like the left brain and right brain of retailing. I think once I got into ecommerce, I really learned a lot of the details about the P&L — a little bit painful at first and I know a lot of the D2C brands are kind of in expansion mode. But I think everybody is going to feel this pressure on profitability, no matter what format you're talking about and so to pay special attention to the metrics and the unit economics in ecommerce is incredibly, incredibly important.

Amit Sharma:

So I think that's a little bit about the department stores and multi-channel brands. But D2C brands as they experiment and they offer multiple touchpoints including pop-up stores. What are the things that they should be aware of? Keeping the consumer experience and consumer-centricity in mind and making sure that the profitability or the margins are also intact. What are one or two things that they should keep in mind in enabling these experiences?

Kelly Thompson:

Yeah, you know, it's a great point. It's kind of like you have to do both, and both are hard, and a lot of times they work in conflict with one another. So I don't mean to sit here and act like it's easy at all. It's easy to say and harder to do. But it's critical that you’re really listening to your customers. And what do they want? Not just the products that they want. What are the experiences that they're seeking — and that's going to be really key for us to all listen to as we go through this pandemic and then hopefully emerge out of it, right, like how are people going to be feeling. We don't know.

So it's going to be really important to listen to what kind of products do they need? What are the experiences they're seeking? I don't know. Maybe everybody will want to run out and go to a store because we're just so cooped up and we can't wait to get outside. Or maybe there'll be certain restrictions and there's still a little bit of fear. Nobody really knows. So listening to customers and making sure that you're collecting the data to get the right signals.

And then kind of figuring out, how are you going to do that in a more efficient way than anybody else. So I think that's where the competitive forces are going to be at play, is who can balance those two kind of opposing forces of customer-centricity and P&L discipline and find the right marriage between the two.

I will say that these times of great challenge...what's that saying? Necessity is the mother of invention. One of the reasons I still continue to love retail is because there's so much creative energy here. Not just about assortment and experience. But there's a lot of creative energy around operations and operational efficiency. And so I am being the optimist, that I am looking forward to what creative ideas and what innovation breaks through just out of sheer necessity as everybody navigates this pandemic and the economic upheaval associated with it. But just to recap, I think, listening to your customers and figuring out how to give them what they need with that P&L discipline.

And I do anticipate that people are going to think of things that we just plain haven't thought of because we haven't been forced to. And so I'm looking forward to that and just kind of seeing the creative expression from merchants and operators and marketers as we continue to navigate this time.

Amit Sharma:

Well, that's awesome. Setting that framework and saying that bringing both those forces together and being upfront and diligent about customer experience centricity listening to them and having that discipline. Once you set that framework, then it's good to figure out using that energy and creativity to really go and come out on the top in the market because it is going to be vibrant. We don't know what-all model is going to emerge. But we can bring energy, joy, and fun back as the market slowly opens up over the back half of the year.

Kelly Thompson:

I think that's well said. And I think that's one thing that probably everybody is is going to be looking for is like just kind of that infectious positive energy. And also it's gonna be tough.

Amit Sharma:

It's gonna be tough. Not only a few months or a few quarters, so that as we, as you mentioned, and that's the articulated framework, keeping customer experience and feeling disciplined mindset day in, day out. But putting that framework every day in front of us and making sure we operate that way and to be honest, not just for retail for any business and keeping those two components are crucial, including Narvar and everybody else it’s really, really important to operate within those two components.

Kelly Thompson:

Yeah, I think one other thought I just had to add to that. It's just this notion of collaboration. I think one of the things that we've seen in retail is surprising collaborations, things that we wouldn't have imagined 8 to 10 years ago. And so I get excited thinking about, okay, what are the collaborations going forward, how are the really artistic people kind of combining with the operationally excellent people. And what do those sort of collaborations result in for the customer.

So again, you're catching me being optimistic. I know we have a tough row to hoe between now and then but yeah, I'm counting on innovation already!

Amit Sharma:

Well, that's great. I mean we need that perspective, especially when we have long and tough days, every single day, and having that point of view is really important.

Kelly, thank you so much for taking the time and spending with us and sharing your perspective. Thank you so much.

Kelly Thompson:

It’s been a real pleasure, Amit. You take care. Thank you.