Divergence: 2020 in Retrospect

Brian: [00:01:30] Hello and welcome to Future Commerce, the podcast about next generation commerce. I'm Brian.

Phillip: [00:01:34] A little pause there, Brian. I like that. {laughter} I'm Phillip, and today we have Sucharita Kodali, the Vice President and Principal Analyst at Forrester coming back to the show for, I think the fourth time, making her the most frequent guest we've ever had.

Brian: [00:01:49] Fourth show!

Phillip: [00:01:50] Welcome back to the show.

Sucharita: [00:01:51] Has it been four?

Phillip: [00:01:51] It's been four.

Sucharita: [00:01:52] It's always so fun to talk to you guys. So thanks for having me back. I'm glad I haven't been blacklisted.

Phillip: [00:01:59] No. Not yet. Not yet. I think that we're still in your good graces. You continue to come back on. We thank you for it. And who could forget your greatest hits? "Zucchini in a cucumber pile." Can't forget that one. You've been quoted a few times this year. I'll just kind of, like, get right into it. We're going to talk about 2020 in retro. And I want to get your take from your vantage point in the ecosystem, because you have such a unique perspective, because you get to see the inside of so many businesses and you get to look at the whole ecosystem. But just kind of thinking back, there was something that happened this year that brought back a conversation that we had with you a couple of years ago, early on in the beginning of the podcast, which was you had said like "In the future, brands should be thinking about how they can become marketplaces." And I think we see more of that today playing out than ever before. And if you had asked me a few years ago, I would have said that that's crazy. But, hey, you said it and it's come to pass.

Brian: [00:03:01] In 2017, I think, no less.

Phillip: [00:03:02] 2017 you said it.

Sucharita: [00:03:06] Well, thank you for remembering that. Yeah. No, well it has been amazing. It's been... I think part of it is the success I think of course of Amazon just showing the possibility. And then you also have service providers, I think of companies like Mirakl and others that have facilitated it really.

Phillip: [00:03:29] And it's so interesting, too, because if you think back to the old days, I'm an old guy in eCommerce now, but you think back to the language of eCommerce that was pioneered by not only the early dot coms, but like in DEKA back in the day, and they sort of created service and productized the language of eCommerce, which is now very commonplace everywhere. Effectively, that's what the Mirakl of today are doing, I think, for brands that are not named Amazon. So it's really interesting to see that pick up in the space. But anyway, you are the soothsayer, the prognosticator. You're telling our future, what can we learn from 2020, Sucharita, that we could take away? What was the theme of this year besides pandemic land?

Sucharita: [00:04:16] Right. Oh, my goodness. Yeah. [00:04:18] I don't know that we will ever have in our lifetimes again a year like this year. But I think that if I had to summarize the broad theme, I would say it was divergence. And not like the novel, but kind of just haves and have nots. It was the difference, divergence, in political thought. It was divergence in essential versus nonessential. Divergence and kind of people who received aid versus didn't receive aid. Employed versus unemployed. Everything, every aspect of every part I feel of 2020, whether it was in business or whether it was in politics and attitudes or financial outcomes, you were either lucky or you weren't. And that's what I would say was the big characteristic of this year. [00:05:21]

Brian: [00:05:24] I think it's really interesting. I think there's a lot of truth to what you're saying. I wonder, is that the theme a theme that you think is going to stick with us or are we going to keep that contained to 2020?

Sucharita: [00:05:40] Gosh, I hope that it's contained to 2020, because I don't know how much longer we can have just so much fractionalization. You can have so much just inequity that is prevalent. But I don't know how we get out of it though. I mean, that's the challenge. Even if we were to... Well and I guess that kind of... So there are different levels. There's what's happening in the world, issues like unemployment and growing inequality in society. I don't know if there's any easy solution, and I don't know if that is something that will change substantially in 2021. With respect to business, however, where you have some sectors that have been just doing phenomenally well, the best that they've ever done before, let's say for instance the essential retail sector, and you take other categories like hospitality. Is 2021 going to be any better for them? Probably a little bit, but not substantially better. But is that a permanent decline or is it just kind of a complete recalibration that's going to probably change their business, but they'll recover eventually? And I think that it's probably more of the latter that it'll just be a longer recovery. But there will be some form of recovery. And that's a more fixable issue, I guess. So that's that's what I would say. 2021 I think that we're all optimistic. We're all hoping for for the best. Some things will be better, but it's not going to happen overnight, and it's going to take months to get the vaccines distributed. And then it will still take a while for people to feel comfortable resuming their old lives. And that may be until next summer at the earliest probably.

Phillip: [00:07:51] Yeah.

Brian: [00:07:51] We're diving like full into COVID conversation here.

Phillip: [00:07:56] Yeah.

Brian: [00:07:56] Looking back...

Phillip: [00:07:57] How could you not?

Brian: [00:07:58] Right. That's the world that 2020 was. So I would love to just get your takeaways on how retailers and brands sort of respond to and how they fared during the pandemic. Like the initial response, where you saw investments being made, lessons learned, and things like that, so we could start to dive in on some of that.

Sucharita: [00:08:23] So retail, I think had a huge, huge kick in the pants. Right? I mean, this was something that just happened so quickly and that they'd never seen before and never anticipated that the entire country would shut down. And there was literally nothing that... You were not going to get like any kind of a bailout package or anything to support you in the process. And  [00:08:55]I think that what that did is that forced a lot of companies to quickly change and pivot and do things that had taken them probably ten years to even think about, because topics like curbside pickup or inventory visibility across channels... I mean, how many companies would talk about that? But then they would hem and haw over actually getting it done. And lo and behold, when they were forced to do what, they were able to do it in like a few weeks. So I think that it showed the possibility of how fast things can move when you set your mind to it and everyone's aligned. [00:09:38] Now that change is if they were able to bottle that energy and kind of be able to unleash it in the right strategic moments, I think that that would be fantastic for retail. But what I worry about is that that's not the lesson they take away, that it's sort of like, OK, we dodged a bullet, we're still alive. It's back to business as usual, and it's back to slow decision making and departments... And I don't know that that's...

Phillip: [00:10:15] {snicker} Yeah. It's true. Yeah.

Sucharita: [00:10:18] That's what I worry about, because that's what has inhibited a lot of innovation in retail in general. It has been kind of reticence to change and hesitation to explore new possibilities.

Brian: [00:10:36] So the lesson is going to be a "We can make it through a pandemic," not "Oh, wow, look what we can do when we're agile." Like agility is the future of our business. And that's how we go about doing things.

Sucharita: [00:10:49] Right. Right.

Phillip: [00:10:49] It's so interesting how we can for all of the talk the businesses have around consumer behavior being forever shifted, no one is talking about enterprise behavior being permanently altered.

Sucharita: [00:11:01] Yeah.

Phillip: [00:11:01] I'm curious. I mean, we just have this idea that there's this nascent, you know, that we'll all kind of regress back to the mean of things taking forever. Ted Schadler, one of your colleagues, had a report earlier this year called The Pandemic Recession Demands a Digital Response. There's a lot in there that I think talked a lot about the CIO role becoming much more prominent and the acceleration, this recurrent theme that we've heard Scott Galloway and others talk about, about COVID being an accelerant. The CIO and CDO role in an organization was prioritized above all this year because that's where the innovation was required. Is that something, I mean, not to get you to comment on another colleague's piece, but is that something that we can see is like, you know, takes 30 days to form a habit... We've all been in that state of mind on the enterprise side for 10 plus months. Is that something is here to stay? Or is the world of enterprise or eCommerce and marketplace kind of just going to regress back to their old ways?

Sucharita: [00:12:09] I hope that it is a change, and that's a really astute point, is that they could see this as, "This is the fastest we've moved before. We're doing things radically differently, and it's working for us," or not maybe in some cases, but in many cases I think it is. Is this something we move forward with? And I think we've had this discussion a little bit around things like work from home, because that's the most visible switch. And there is a thesis that, oh, my gosh, this is going to completely transform corporate real estate because everybody is going to work from home because people are finding they can be just as productive at home. And there's a part of me that's like I think that probably about 20% of it will switch, but the other 80% is going to go back to the old way. And I think that applies to consumers in some ways, too. I think that there will be about some portion of, maybe a fifth, that the change to digital or the change to contactless payments or your online grocery orders or whatever that you switch during the pandemic, that will be continuous. But the vast majority, I think, will go back to what was before. And the reason is it's just I think that people... I think that business is forever this tension between kind of doing things more efficiently versus doing things the way you've always done them. And people are used to if it's what works, it's what you know, it helps you grow a few percentage points a year, which is all that you need to do, it's a lot easier to just stick with that than to do something massively disruptive. I don't think that every business person aims for massive disruption. And I don't know that every business person should.

Phillip: [00:14:11] Right.

Sucharita: [00:14:11] The best thing I read through the whole pandemic was there's an article in The Wall Street Journal about this like little Japanese restaurant that was literally over a thousand years old. A thousand years old. It was like one of a handful of businesses in the world that's like a thousand years old. And the whole theme was they are not radical. They don't do crazy things. They never get in debt. They've never been in debt. It's always been about being, you know, just keeping the business alive for the next generation. And I think that that is something that often gets lost. This belief that kind of you need to be bigger, faster, stronger or more disruptive than everybody else when there's evidence right here that sometimes... It's like the business version of the tortoise and the hare. Right?

Brian: [00:15:08] Right. That's good.

Phillip: [00:15:12] It's very good. Which ones do you think stood out this year? Are there businesses that you will prove more durable? And are they, it's sort of a loaded... It's a double barrel question for you. Are those businesses the ones that sort of made these investments that were well positioned or had the foresight to make these investments early on? Things specific to like curbside or contactless or last mile.

Sucharita: [00:15:42] OK, so I'm going to completely... Because I don't know that there'll be any any tortoise's that kind of made it really, really well through the pandemic. I do think that companies did have to manage to evolve in at least a few ways. In terms of survival through the pandemic, I think that the companies that were able to conserve cash and do what they needed to do to try to turn inventory, and that is where you shut down your store, you reduced your headcount, you did introduce things like curbside pickup or you partnered with delivery partners because you had to. I think that those were, in so long as you were still able to at least break even if not make a little bit of profit, those are the businesses that will likely at least be around. And then many of those companies, fortunately, interest rates are low, so they drew out cash, and they were at least able to pay their rent. So most of their biggest expenses, it didn't leave them too... It wasn't completely catastrophic. Now they do have to figure out how to pay off their loans and that will, I think, be something that cuts into innovation in the future. And there isn't really a great solution to that. We may ultimately end up seeing some consolidation in retail that comes out of this, because that is seemingly just a natural outcome after distress. But but yeah, I mean, I think that if I were to say, like, who's going to make it at the end of this? I mean, there were four sectors that really did exceptionally well through the pandemic. And it was not at all due to their skill. It was just purely due to their good fortune. And that was the pure play eCommerce world. And they were all abominable from a shipping standpoint at what was available, et cetera. But that didn't hurt them because that was sort of the only game in town for a lot of people. It was the do it yourself home improvement retailers. It was the mass merchants and the grocery stores. And those guys, grocery stores especially, I mean, just even like twenty four months ago, we were having conversations, what's going to happen to grocery? Is it all going to die? And it's like they were just basically kind of given like a new heart. And I mean, it's amazing how much this terrible incident has been perhaps the luckiest thing that happened to the entire grocery industry and every supplier downstream from the grocery industry. So those are all businesses that will do well. The questions, the biggest questions that I have is what happens to malls now? Department stores and apparel stores. And what happens to the restaurant industry? And the restaurant industry is a fascinating one because again, also twenty four months ago, we were like, that is the savior of physical retail. And then who would have anticipated that you would have the craziest thing in the world happen where everything just shuts down and you have this artificial suppression of demand?

Brian: [00:22:02] Do you think there's pent-up demand for some of these categories that struggled? Like travel, like entertainment, like restaurants?

Sucharita: [00:22:09] Yeah. Yes. I mean, as some say, that the Roaring Twenties seemed like a natural kind of outcome after the 1918 pandemic. So, yeah, I think that when we look even at regions like China and how they recovered or how they have been recovering, there's that concept of revenge shopping where you have these companies that just do the best they've ever done because people are finally out of their homes. And we saw a little bit of that even in June. Right, because we saw some of the lockdowns lifted, and you had these like Porche had its highest month ever. So there is no doubt that these are... There's nothing fundamental about the pandemic that is going to, I think, cause people's interest in luxury goods, for instance, to decline. I think that they just consumers just had less options to purchase those products. And yes, you're absolutely right. It's some of that. Now, is it going to make up all everything that was lost? Possibly not. But I do think that you'll have some kind of resurgence that will definitely kind of surface in sales. Travel, I think the only thing that would hold that back is if there still are people who are just psychologically not prepared. But I imagine that over time that normalizes. There may be some percent of people who've been traumatized by the last several months and probably have no interest in traveling in the future. But I imagine that either they recover or it gradually gets back to where it was.

Phillip: [00:24:22] Do you feel like the lack of travel has actually been a bit of a boom for the US economy? So the places we could spend money, we were spending it and we were spending it domestically.

Sucharita: [00:24:39] We were spending it at home. Yeah.

Brian: [00:24:39] Yeah exactly.

Sucharita: [00:24:41] Or even spending it in your towns. You weren't necessarily in Vegas or in Florida or wherever where you go to conferences or wherever that may be. That's an interesting question. We did see... There was an analysis, The New York Times just did one on sales tax and just kind of income taxes and looked at kind of where there were recoveries and how were the financial collections in different states. How did they vary? In states like Minnesota, I think, have surpluses now. And it's happened at the expense of states like Florida and Nevada, which have no income tax. Florida doesn't. And Nevada has taxes. And they're hugely dependent, of course, on the tourism industry. And those two states continue to have some of the biggest shortfalls. So I think that your thesis makes a lot of sense. There has been definitely high savings rates. Especially among more affluent households. And some of that gets, you know, and it's not all savings. And some of that money is just not going to other places. It's staying locally.

Phillip: [00:26:07] Well, don't forget the Robin Hood bros. It's buoyed by the YOLO WallStreetBets crowd.

Sucharita: [00:26:15] {laughter} Staying home.

Brian: [00:26:16] Oh my gosh.

Phillip: [00:26:16] They're praying for that stimulus...

Brian: [00:26:16] Drunk investing. Drunk investing.

Phillip: [00:26:16] It's true. It's true.

Sucharita: [00:26:25] Was that the DoorDash success story? Is that what you're saying?

Phillip: [00:26:28] I think so. Yeah. I mean, well, you know, the DoorDash was revised down to forty dollars target, so we'll see where that one goes. But there's always Airbnb, I guess. There's an interesting article that was written early in the pandemic that really shaped my thinking around the effects or the cyclical nature of the way that the world sort of shapes to these kinds of moments and environments. It was in Slate. It was called The Post Pandemic Style. It really shaped a piece that I wrote called The New Formal, which was this idea that, hey, it's unsafe to go to the bar. You're going to bring the bar to the house. And [00:27:10] people will return to their formal living room and dining room and have much smaller pods of people in this sort of like a pendulum swing away from an infinite social circle to a very intimate social circle. People that we trust, people we allow in our homes, and that will shape an entire generation of people in the way that they socialize. [00:27:32] And I think we were kind of on that track anyway. So kind of laying the ground there, it's interesting what you said about what happens to malls, Sucharita. And this idea that malls were a kind of bastardized commons where they're not really public space, they're commercial space, but they were treated as public space for the better part of two to three decades. And when they become the commons, and we and we tie consumerist tendencies or a consumer driven mindset to be in the commons, this is the result of what we get. [00:28:10] So when a mindfulness moment happens and shifts back into the culture, we've lost the commons. And now the commons is digital. We're moving the commons online. The commons is this Twitter, which you could argue is maybe good or bad for society at whole. This could move the commons back to public parks, back to places where people feel safe to be. I feel like there's a real opportunity here that is probably not great for retail as we know it, but maybe better for the overall health and the ongoing existence of humanity. [00:28:44] Maybe the thousand year Japanese restaurant can exist and change with the times. But the way that we've sort of co-opted the commons for a consumer mentality, it was probably net/net bad for us anyway. And this is the world's way of correcting it. I wonder what your reaction is to some of that, because I think you think very deeply about these kinds of things. And maybe I'm being a little too philosophical. I don't know.

Sucharita: [00:29:12] No, no. There is a lot to think about there. And I think I agree with you. I think that I agree. I don't know that a lot of retail and in the last several decades has been all that great. Much of it has been fueled by cheap overseas manufacturing, which has relied on the use of everything from people to natural resources. So I think that what I would also say as an adjunct to I guess it's always been there that my parents, my in-laws, they would always go walking in the mall. I mean, what is that? But the mall as a common space. The lightbulb just went on for me when you said that. But I agree that I think that we are going to head back or we will embrace true common spaces. But it also raises and it brings forward all this conversation that we're having now about ESG factors, environmental, social, and governance factors. And I have heard, and I feel like it's everywhere now. And people will be like, "Oh, we've been talking about this for decades and why is it any different now?" And I will say that it's different now because more people care. I think it's different now because people will actually... I think that there are now enough investors that if they are given enough of a case about the ESG values of a company, they'll actually choose to invest there even if the return is potentially lower. And that I think is the big... And if enough people choose to go in that direction, stock actually goes up not down.

Phillip: [00:31:15] It's such a good point because... I'm sorry to cut you off. This is such a good point because we were already on that path pre pandemic.

Brian: [00:31:24] Right.

Phillip: [00:31:25] And you look at the Business Roundtable and the redefinition of stakeholder. And you look at the corporate response in light of the lack of government response early in the pandemic, companies like Starbucks implementing social distancing before any states or federal government had any action. I think that you're onto something there, that corporations can be ambassadors and capital markets will fund them if they're doing the right thing that resonates with what the general populace believes is "good for society." It's whether our definition of "good for society" is durable is my question.

Brian: [00:32:11] And I think back to your thought processes around common spaces and where money is going now. Local towns, places where you live, not the places where you work, not the places that you flew to, but to where you live. I think if you think about what that looks like, in fact in my town, we have had more streets shut down and more town events than I ever seen out of any town.

Phillip: [00:32:37] In a good way.

Brian: [00:32:38] Yeah shut down for common spaces where people can go and eat outdoors and shop outdoors and be together in a socially distanced manner outside.

Sucharita: [00:32:49] So interesting. Where? Where is this? This is in Florida, right?

Brian: [00:32:53] No, I'm actually in a suburb outside of Seattle.

Sucharita: [00:32:56] Oh, OK.

Brian: [00:32:58] Yeah.

Phillip: [00:32:59] I'm in Palm Beach. Apparently Silicon Valley is coming to South Florida.

Sucharita: [00:33:04] I heard that.

Phillip: [00:33:08] That's what I keep hearing. Zillow seems to think it has an effect on zmy zestimates.

Brian: [00:33:17] Zillow thinks everything has an effect on your zestimate. But ultimately, I think what's interesting about all of this, though, is when we talk about the environmental, governmental and social values that are changing that I think we're going to see investments that ultimately result in investment in specific physical communities.

Phillip: [00:33:43] Axios thinks so. Axios is launching ultra specific media for second and third tier markets.

Brian: [00:33:51] I think that's super smart. I think that's exactly where we're headed right now.

Phillip: [00:33:55] Who's going to say hyper local? Who's going to do it.

Brian: [00:33:58] Hyper local.

Phillip: [00:34:00] Are you going to say it, Sucharita? Getting back on track. We forgot Sucharita is here. I'm sorry. We do that sometimes. Hot takes, as we kind of come up on time. What do you think next year looks like? You said midyear where maybe things are kind of breaking off rust and creaking back to motion. Anything else that's sort of top of mind for 2021 in the retail sector?

Sucharita: [00:34:25] It's a big question. I mean, is there going to be any major recovery, any major differences? And I think that we will likely... And we've got to remember, we're still in the middle of a second wave. Most of the ICUs are at capacity. I mean, it's going to be a while that we are going to continue, I think, in the direction that we are right now to completely turn the direction of the tanker. It's going to take some time. So if one of the things that we started to see in 2020 that we will likely see in 2021 is just the growth in category in sectors like consumer packaged goods. And we started to see more of them doing things like selling direct to consumer. And I think that a lot of them are still very skeptical about the opportunities, and the ones that have embraced it the most have been in categories like maybe beverages or coffee or some of these replenishment purchases like snacks. But [00:35:30] I can imagine over time that we start to see more creativity, even with other sectors and in perishables or non perishables. And whether it's leveraging business development partnerships or thinking more creatively about how they ultimately fulfill things, now is really the time that these companies have the opportunity to experiment and there is an appetite to trying new and different things. So that I think will definitely be something that we'll see more of in 2021. [00:36:10] We started to see a ton of retailers in this past year invest in media networks and start to invest in advertising.

Phillip: [00:36:22] Yes.

Sucharita: [00:36:22] And that is something that we've been talking about for a while because retailers had really only historically ever made money by selling products in their venues. And what is different about this is that they're monetizing their eyeballs, their foot traffic, they're looking at themselves as media properties. And that makes a ton of sense, because when you look at their raw numbers they are as big as any media property, so to think about themselves as an alternative media channel becomes really, really attractive. And that's why you started to see news about everybody from Walgreens to CVS to Target and Walmart over the last several months, really rolling out and continuing to build on those initiatives. My question will be, will advertisers respond to this and what's the right model to make everybody feel good about this? That's where I'm hearing that there's still a little bit of hesitation. But I think the idea is a good one.  [00:37:35]We keep hearing about the shake out in physical stores and redevelopment of physical landscapes and physical properties, and I think that it's not something that we necessarily will see in 2021 because things like that take time. But we'll see the beginning of it in 2021. [00:37:52] And we've heard all the stats about the US being more overstored than every other country in the world, but I don't think we're as overstored as we think we are. We also buy more crap than everybody else in the world. So that's part of the reason for that. But there will probably be at 10-15% shakeout. And a lot of it is going to happen slowly because it's not going to be like all of those places are all concentrated in the same kind of shopping centers. It's dispersed. So companies need to think about how do you take advantage and how can you be more nimble with open space? Do you sublease it potentially to tenants that you wouldn't have considered in the past? So I think that we'll start to see a lot of interesting creativity in the physical space that was previously occupied by retail.

Brian: [00:39:02] Totally agree. 100 percent in agreement. I think we're going to get super creative with the retail space and outdoor spaces as well. A lot of open air stuff I think will happen this coming year.

Sucharita: [00:39:13] Right. Absolutely.

Phillip: [00:39:14] And if not, everyone's wearing a yurt.

Sucharita: [00:39:20] Wearing a yurt?

Brian: [00:39:20] Oh, yeah.

Phillip: [00:39:21] Yeah. Oh, yurts are micro. We've got nanoyurts now.

Brian: [00:39:26] Nanoyurt.

Phillip: [00:39:26] Personal yurt. Brian took a picture at a drive through of the Chick fil A people all wearing your yurts. Like this plastic.

Brian: [00:39:35] Little people tents.

Phillip: [00:39:37] Personal tent. What a way to end the show. {laughter} My gosh. It's always great to have you on the show, Sucharita. It's always a pleasure.

Brian: [00:39:49] I want more. You gotta come back again soon.

Phillip: [00:39:49] Thank you so much for sharing your thoughts.

Sucharita: [00:39:52] Any time. Any time. I could be like a guest host.

Phillip: [00:39:59] Hey! You heard it here. Our newest property. It's a Future Commerce X Forrester. This has been great. Sucharita Kodali. Thank you so much. Where can people find you? Can they follow you on Twitter or somewhere where they can get more of your musings?

Sucharita: [00:40:13] Oh, sure, sure. I do a Twitter. LinkedIn. So Twitter is actually my maiden name. So that's Mulpuru. So it's @SMulpuru. Or you can follow me on LinkedIn.

Phillip: [00:40:30] Awesome. Thank you so much.

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