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DAN SCHOCK: My name is Dan Schock.
I'm retail director at New York, and I'm going to
introduce our first speaker today.
Our first speaker is Dennis Woodside.
Dennis is our President of the Americas here at Google, and
Dennis deals with all industries, not just retail
but every type of business.
He speaks to dozens of our clients every week, and he
does that on multiple continents, too.
So Dennis has a unique perspective on what's
happening in the marketplace right now, what are Google's
big bets, and what are we doing in the next couple of
months and years to help your business grow.
So Dennis Woodside.
DENNIS WOODSIDE: Thanks, Dan.
I have no slides, so--
Thank you.
Welcome, everybody, and welcome to everybody on the
live stream as well.
Before I get started, let me just ask a question.
For how many of you here is this your
first time at Google?
Wow!
First time, lot of first-timers.
All right, so the key while you're here at Google is
you've got to eat a lot of food.
We have great, great food, great lunches, make sure we
keep you fed.
I'm going to talk a little about Google's big bets, our
strategy, and the marketplace that we operate in
to set up the day.
And if you think about where Google's come from, company's
been around now for about 12 years.
When Google was first started, there were about 100 million
people online.
Today there are 1.9 billion people in the world connected
to the internet.
And we see that number going to about 5 billion in the next
couple of years, by the end of the decade.
When Google was first starting out, you might think about
what was commonly searched over, which pretty much was
HTML static web pages.
Well, think about your search results
today and search behavior.
You're searching for video.
You're searching for Tweets.
Google has to cover all of that information, and the
amount of information on the web is really exploding.
They say that from the beginning of human history,
all the way up through 2003, if you took all the
information that has ever been recorded, if you take all of
the books that have been written, all of the film
that's been produced, that's about 40 exabytes of
information that was produced in all of human
history up till 2003.
This year, the world is producing about 800 exabytes
of information.
So that's 20 times as much information in a single year.
And all that winds up on the web.
All of our Tweets, all of our video, everything on YouTube,
all that has to be searchable.
Where the world is going is even more radical.
We see something like 50 zettabytes of information
being produced by the end of this decade.
And now a zettabyte's 1,000 exabytes.
So it's a lot of information.
And as more and more information is added to the
web, the value of the web increases.
Its usefulness to consumers increases, and people are
going to want to access it all the time to answer questions
that they never really had answers to before.
And then there's mobile.
So today, we're seeing about 500,000 Android devices
activated every day.
And that's up from virtually nothing a couple of years ago.
There's something like 300 million phones connected to
the web today.
But there's 5 billion handsets out there in the world.
So we see all of those handsets being connected by
the end of this decade.
And, really, the web is going to completely transform
retail, because people are going to walk into your
stores, be connected by a high-speed connection on their
phone, and questions that they might not have thought to ask
themselves, they will ask themselves in your store.
So that's the market that we operate in.
Now a couple predictions about where we see things going.
The first is the cost of access, and really the cost of
asking a question, we see falling to zero.
Think about how you might research a product like a
blender a couple of years ago.
I remember actually being asked by my wife, go out and
research blenders.
Where do you go?
You go to Consumer Reports or you might go to the library or
a magazine.
But that's actually pretty hard.
For a lot of products, you don't want to research and go
to all that trouble.
Now the cost of researching and learning more about a
product or service is virtually zero.
You can tap into your social network.
You can tap into your phone.
And as that cost goes to zero, consumers are just going to
ask more and more questions.
They're going to be more and more informed, and I think a
lot of you are seeing that in your stores.
Another theme that we see going on is all media
consumption really becoming completely digital,
digital-enabled.
Think about your own time yesterday.
How many of you have iPads or some sort of a pad?
Maybe about half the people?
Now think about your time between your phone, your pad,
your computer, and your TV. How many of you spent more of
your time on your phone, your pad, or your computer than the
TV yesterday?
Most of you.
So for most people, these digital devices are becoming
the primary way of learning about their world.
And as your television gets connected, which is happening,
all media consumption, essentially, will be digital.
And the targeting ability that you have with digital media
will pervade everything that happens in media.
So a lot of what we learned in marketing about broad reach,
blasting messages, trying to drive awareness, those sorts
of things have to change in a much more addressable world.
Another thing we see is that the consumer's going to expect
that marketers are going to, more and more, ask them for
permission to market to them rather than pushing
messages their way.
So this notion of opt-in media, opt-in marketing
becomes much more important.
And although that drive-brought awareness remain
really relevant, the consumer is going to demand more and
more that you participate in much more of a conversation
with them, which I think we all know by now.
The last thing is real-time information
becomes much more important.
So how many of you have on your sites today real time,
live inventory availability in the stores that
are near the consumer?
So if I'm searching on my mobile phone, you're actually
showing real-time--
two people?
A couple people.
So more and more consumers are expecting that.
They're expecting that when they go to their phone, they
can tell exactly what's in your store.
So that's where we see the world going.
Let me talk a little about Google.
We have an initiative at Google called Mobile First,
and what that means is, every product at Google is designed
first for the mobile environment.
Every product.
Google was a wire line business, and if you think
about the original Google search service, it was built
for the wired web.
So a couple years ago, when it became very clear to us that
the web was moving too much more of a wireless
environment, Eric Schmidt launched this initiative to
make every product mobile-enabled.
We're seeing already, in categories like telecom, 20%
of our searches coming from the mobile device.
Now how many of you are seeing substantial
sales on mobile today?
Like 2%, 5%, anybody?
7% 5%, right?
Up from maybe zero a year ago.
So mobile is becoming a way for certain categories that
consumers actually make purchases and certainly
informed purchase decisions.
And for Google, it's a really
important part of our strategy.
The second thing is, search and direct-response display
remains the core part of our business, and as we continue
to innovate in those formats, you're going to see more and
more of the search advertising take on, more and more, the
form of the web.
More video, more real-time information, more pricing
information, and so forth.
And then the last thing is really engagement.
If you think about Google, Google came from a
direct-response model.
But with YouTube, with the rise of social, Google+--
we'll talk a little about that--
there's many more opportunities to truly engage
with customers in an interesting way.
You're going to hear from Robert Kyncl who is
responsible for basically building out our video offer
on the content side.
The way we're thinking about YouTube today, your television
is channel 0 to 300.
YouTube is channel 301 to 3 million.
And over time, more and more viewership is going to take
place in the YouTube-like environment and in a digital
environment.
And that creates incredible opportunities for brands to
connect with consumers in a very compelling, personal way.
You're seeing things like live streaming.
We're live streaming right now Copa America, which is a
soccer tournament in South America.
Something like 6 million people are tuning in to Copa
America live stream throughout the world.
That's bigger than most broadcast audiences, certainly
bigger than any television audience for that event.
Those are the kinds of platforms and opportunities
that you're going to have to engage with consumers as this
digital world emerges and as these
engagement platforms grow.
So the last area, really, is social.
Google is trying to take what we've learned about the
people-centric web and enable us to leverage that throughout
all of our products.
So search is becoming much more social.
YouTube is inherently a social platform.
And we really see Google+ as the first step in socializing
Google, and so far that's been reasonably successful for us.
So that's a little bit of a thumbnail sketch as to where
Google is going and what we're excited about.
I think, for the day, hopefully, you're going to
walk away from today with actionable insights and you
can take away and implement tomorrow.
We know the holiday season is coming up.
We've got teams here really ready to help you take
advantage of all the things that are going on in Google.
You're going to see a lot of innovation today.
You're going to see a lot of things
that are new and different.
And I hope you enjoy the day and learn something.
So thank you for coming and enjoy the day.
DAN SCHOCK: Thank you, Dennis.
We're all interested in hearing what Wall Street has
to say about what's going on in the marketplace right now.
How do they see consumers' behavior changing, what
businesses are doing things that they think they're doing
them right, what do they think about your business and what
you might be able to do differently.
So today I'm happy to introduce Matt Nemer, who is
the senior equity analyst at Wells Fargo Securities, and
he's going to talk to us a little bit about how his
company's doing in the retail market right now.
Thanks, Matt.
MATT NEMER: Thank you very much.
Great to be here.
So I know what's going on in your head.
This guy's from Wells Fargo.
Let me just give a little caveat that I don't know your
cousin that's a teller in the Des Moines office.
I can't help with your re-fi.
Wells Fargo Securities is the investment
bank of Wells Fargo.
We have 300,000 employees, and we really don't interface that
much with the core Wells Fargo.
So the agenda today is I want to talk about our thesis on
retail in general.
I'd like to share some research that we've done on
the shift from offline to online.
And I want to share what we're telling our clients to do with
their money.
And then we'll save some time for questions.
So first, let me just explain what we do and who I am.
Essentially, sell-side analysts on Wall Street pick a
sector to cover.
They do some fundamental research.
They talk to customers.
they talk to manufacturers.
They build financial models and come up with estimates,
and then they assign a buy, hold, or
sell rating on a stock.
So I'm the annoying guy that downgraded your stock right
before you wanted to exercise some options, and
it went down 10%.
And that's me, that's what we do.
Not personal, so I'm sorry for that.
So let's jump right in.
Our thesis on retail, or at least what we're telling
clients, is at the lines between offline and online
retail are blurring.
The influence on the internet is really a lot bigger than
anybody thought it would be.
And I love quotes, so I'm going to go through these
really quickly.
"We could not have been more wrong in our expectations of
the internet." That's Alex Bolen, the CEO of Oscar de la
Renta, after they sold an $80,000 coat online.
"We had our February board of directors meeting at Facebook.
That was an eye opener for members of our
board." That's JC Penney.
"It's clear to me the customer has evolved and changed the
way they shop.
We have to change with them.
There's no going back." That's Macy's
chief executive officer.
We calculate e-comm at about 8% of retail sales.
We think that the spread between online and offline
growth is starting to widen again.
And we fully expect it to be double-digit percentage of
retail sales in the not too distant future.
We also think we're on the brink of another acceleration
in online sales.
I'm not going to go through all these, but I think that
you probably know most of these factors.
But the first one is interesting to me, that
really, what we're trying to say is that young people spend
a lot of time online, and they don't make any money.
When young people start making some money, we think there'll
be an automatic shift, a re-acceleration in e-commerce.
So what are traditional retailers
doing about all this?
We think they're sort of back to their old habits.
There are a lot of folks out looking for square footage
growth, which is essentially a way to
engineer top-line growth.
And we're worried.
We think that the retail is probably over-built from a
physical standpoint.
And you're seeing signs of people coming back to
aggressive growth, post recession.
At the same time as they're growing their physical plant--
this is probably kind of hard to read up on the slide, but--
they're not giving their multichannel strategy as much
attention as we think it deserves.
So this chart is a list of major retailers and what they
offer in terms of multichannel functionality.
There's way too much white space on this chart.
Only a handful of retailers have really adapted, I think,
to the way that consumers want to shop right now, which is
ship to store, same day pick up in store.
It might even be curbside pickup, which
we'll come back to--
I'm really bullish on that as an opportunity--
and store inventory look up, which we just talked about.
So I think there's a lot of room for improvement here.
So now that we've given you our high-level view, let me go
into some of the research that we're
sharing with our clients.
You may have seen this white paper that we put out earlier
this year, called "The Sputnik Moment for Retail." Really, it
was a primer.
It was designed for investors to figure out how to invest in
the retail sector.
And it also was initiation of coverage on Walmart, Target,
Amazon, and eBay.
I'm the only analyst on Wall Street that covers Amazon with
traditional retail, which is sort of a crazy idea.
But the reason for that is that the internet retailers
tend to fall into an internet group which includes Google,
Yahoo, and other stocks that, really, don't have that much
relevance to them.
So we broke the mold and said, let's cover Amazon with
Walmart, with Target, and that was the
genesis of this report.
So one of the things that we found in this research is that
the price advantage that Amazon has is so wide.
And there've been a couple different studies.
These are not easy studies to do.
You have to find a like product at lots
of different retailers.
But what we found is that Amazon had about a 20% to 30%
price advantage.
That's across 10 categories in retail.
That does include tax.
I'm sure we'll get some questions on that later.
It does include free super-saver shipping.
But the margin was a lot wider than we expected it to be.
Walmart's core prices, ex the tax advantage, are still
fairly competitive, but they really lose a lot of that
advantage when you factor in their shipping costs.
Target really was pretty far away from Amazon.
And then specialty retail, as a broad group-- that's really
a whole bunch of retailers in that one bar, but--
were quite a bit more expensive than
the Amazon and eBay.
One of the things that came out of this that we were not
expecting, is that we ran this study twice, and the second
time, it was amazing how many out of stocks there were at
other retailers versus Amazon.
Amazon basically had everything that was in the
initial study, and a lot of other retailers were out of
stock on a lot of items. And I think that speaks to the power
of the marketplace, the power of having somebody else step
in behind you when you're out of stock with that product.
The second thing that we did in this report is we looked at
search and where retailers rank in search, and what we
found is that Amazon has a pretty wide lead.
They showed up 193 times in our study at the top.
Target was 133, Walmart 144, eBay about 30.
They were the number one result 55 searches, even
sometimes ahead of the manufacturer page or the URL
that actually has a name of that product in it.
The last thing that we did in this report is--
this is sort of my favorite part--
we spent $5,000 on the corporate card, and just
bought a whole bunch of-- brought it all back, we did
send it all back-- but we put it on the corporate card, and
we bought product from 27 retailers, and we really tried
to study the experience, every minute aspect of the
experience.
So this is probably really hard to read on the screen,
but we looked at shopping features.
Was there free shipping?
Is there a wish list?
Check out features--
how long did it take to check out?
How many payment options are there?
We looked at upsell features.
How many times does a retailer say, thanks for looking at X.
You might also like Y.
We looked at multichannel features.
We looked at customer service.
Is there a live chat?
How long did it take to get somebody on the phone?
And then we looked at the post-purchase process.
Who shipped the box?
Was there a coupon in the box?
If there was, was it relevant to what you bought?
Or was it a random 10% off?
And I won't share all the details of this, but I will
just share some of our observations.
Only one in 27 retailers that we checked offered
unconditional free shipping.
Nine out of 27 offered free shipping
with a minimum purchase.
A number of very large, multichannel retailers--
and I apologize if you're in the room.
This isn't personal, but--
didn't try to upsell us during the process.
Only five of 27 sites offered live chat.
55% didn't list any kind of a telephone contact number.
In terms of customer service, 18 out of 27 companies
responded to our email within 24 hours.
Amazon was 15 minutes.
A couple folks never respond at all.
Post purchase, only two companies emailed us a special
offer related to the recent order, Urban
Outfitters and PetSmart.
Eight out of 27 didn't send any follow up email at all.
Only three companies included a coupon in the package, Best
Buy, Home Depot, and then PetSmart actually included a
dog chew, which I thought was kind of cute.
So this report came out in January.
Some of this may have changed since we published it, if
you're in the room thinking that's not true.
We do offer that.
This report came out earlier in the year.
But I think the good news is there's a lot of opportunity
to improve.
The next report that we do, that we publish monthly, we
call "The Web Traffic Report." This is probably a little bit
more relevant for Wall Street than it is for people in the
room, but one of the things that we've started doing is
looking at web traffic for retailers, hundreds of
retailers, and using it to try to look for
inflections in business.
And I think you can use it from a competitive standpoint
within your own business.
So the next page shows an example of this.
This is for Pier One Imports.
We noticed a big change in web traffic.
Pier One doesn't sell anything on their website.
They got a significant amount of traffic, and sure enough,
their same-store sales started to pick up.
And this is actually a chart of the stock price, which is
something that we care about.
So we think that this data is really useful and we're
surprised that more folks on Wall Street aren't using it.
The other thing we do in this report is, we track fans.
And so this chart actually shows--
we index it to a million dollars of revenue because,
obviously, Walmart has a lot of fans, and Amazon
has a lot of fans.
And we really want to know how many fans do you have versus a
million in revenue.
And so that this is something that we update quarterly, and
I'm happy to share this data with you if you're
interested in it.
Lastly, this is something that we just published yesterday.
We did an analysis of buy online, pick up in store, and
another sort of shopping spree.
We put some more money on the Wells Fargo card.
And what we found here is that the experience is really very
good, but not many people are offering it.
So about half of the 26 largest US retailers offer a
buy online, pick up in store feature.
And the experience was really very good.
Most of the orders were ready in an hour or
less than an hour.
The wait time in the store was very short.
But there aren't a lot of folks that are doing it.
This next page shows some of the metrics that we looked at,
the time between placing the order and it being ready for
pick up, the ability to change your pick-up
contact person online.
Did they send a text when it was ready?
Did they call?
Did they email?
The amount of time that we had to wait in the store.
What sort of signage was in the store?
Was the pickup in the back-- actually, it was in the back
of the store for certain retailers.
And, again, I'm happy to make this data
available to anybody.
So just some observations here on this study.
Walmart's the only retailer that lets you ship to a
third-party location, which is a FedEx test
that they're running.
Nordstrom is the only retailer that allows you to actually
search by items available for in-store pick up and then make
a purchase.
At a lot of other sites, you actually
had to search through--
it took a while to find a product that was available for
in-store pick up.
Sears and Nordstrom actually are the only stores we had to
walk through the store to get to customer service
for the pick up.
They don't have the pick up in the front of the store.
Sears is the only store that had a kiosk where you could
bring up your order and didn't have to talk to somebody live.
They also have a five-minute guarantee, which I think is
interesting.
And then Staples was the only retailer that actually shipped
the product to the store we visited via UPS.
It wasn't available in that store.
So that's some of the research that we do.
And I think what I'd like to do now is just talk about the
implications for retail and what we're telling Wall
Street, what we're telling investors and our clients to
do with their money.
So essentially, we see a continued share shift from
physical to online retail.
I think that what this chart shows is actually the Amazon
growth in dollars versus dollar growth at some of the
largest hardlines retailers.
And we're hearing a lot of excuses from companies.
These quotes are interesting.
We're hearing a lot of talk from lots of retailers about
consumers are budget conscious, or we hit a blip
because of the TV market this quarter.
We really think none of the traditional market share data
captures what's happening here.
And I think that's part of the problem is the CEO dashboard
doesn't say, here's your market share, here's Amazon's,
here's its NPD data or its IRI or its-- it doesn't have
Amazon in it.
So we think that people are either missing the tea leaves
or afraid to admit what's happening.
But there's clearly a market shift happening in our mind.
The next slide, I think, points out some fairly obvious
things that are reasons why the shift is happening.
Certainly, absolute price transparency online tends to
favor the online-only folks.
The assortment is a lot broader online.
I think quick shipping has disrupted a classic retail
strategy, which is let's get them in the store for milk and
eggs, and they're going to walk out with something from
CE, something from Home.
And we really think that customers are now shopping for
one item at a time.
So the idea that you have traffic drivers in the back of
your store to drive something else in the front has probably
been permanently disrupted.
And then the customers rate online-only retailers very
high on service.
There are two major studies that came out that rate Amazon
as number one, and the other study rates Zappo's as number
one, which is obviously now Amazon.
So I think it's amazing that the idea that the in-store
experience, the physical contact, and the knowledgeable
employees is something that customers really will
gravitate to has been sort of turned on its head.
So what are we telling clients to do?
We are telling our clients to invest in companies that have
really prioritized e-commerce.
I think there's certain sectors within retail where
there's safety so, for example, we
cover some auto retailers.
I don't see that as a sector that's going to move online.
Some of that is actually protected by state law, so
we're telling clients to invest in
certain auto retailers.
We're telling them to invest in really high quality brands.
I think the Tiffanys and the J Crews, and the
Williams-Sonomas of the world, are very safe.
They really only tend to sell in their own channel.
And I think that's kind of a protective barrier for them.
We're telling them that certain categories where the
product is very heavy or perishable or fragile, there's
probably some intermediate safety in that sector.
I think that'll change.
We fully expect Amazon to be in the grocery business in
hundreds of markets in the US, and we already know that
they're doing a lot of business in consumables with
diapers.com.
They just launched wag.com.
So we fully expect that, over time, those items that are
perceived to be protective barriers, like pet food, will
probably come down, but I think that
there's a lead time there.
A differentiated in-store experience.
This is hard to pull off, and there aren't many folks that
are doing it.
But I think Williams-Sonoma, with cooking demonstrations,
and book readings in the Pottery Barn kids stores is a
great example of that.
And I think there are probably other pieces where you can
hide, but we're sort of bearish on the
market-share shift.
I think it'll continue from the offline world to the
online world.
With that, I think we're going to take some questions.
If you want a copy of this presentation, send me an email
or give me your business card, and I will get it to you, or
any of the other research that we do.
I'm happy to put you on our mailing list. I'm going to be
here all day.
I've got my two associates are here, Kate [? Went ?] and
Tricia Dill, and talk to them.
They do a lot of the hard work.
Or visit.
I live here in the Bay Area.
I'm in New York for the summer.
If you're in one of those two places, give me a ring.
I'd love to sit down and chat.
So with that, I think we'll take some questions.
There is a mic right here, and one right over here, so--
AUDIENCE: Great presentation, and thank you.
Right now, the states are clamoring--
recently California passed a law in regards to this
Affiliate Nexus Sales Tax, so the government's trying to
figure out exactly how they're going to get a piece of these
pure-play internet retailers.
And a lot of the people that are supporting this is the
traditional brick and mortar guys who feel disenfranchised.
They have this massive brick and mortar footprint.
And then, eventually, when the sales tax issue is resolved,
then it's going to be a net negative for Amazon and a net
positive for traditional brick and mortar retailers.
Do you see that as inevitable?
And how do you think that'll impact Amazon and, to some
degree, level the playing field?
MATT NEMER: Yeah, well, that's definitely the number one
question that we're getting from Wall Street investors, is
the tax issue.
I think that it seems like it's moving forward on a state
by state basis.
There apparently is some federal legislation that's
coming, but it's been slow moving.
There has been federal legislation every year for the
last 10 years, and it hasn't passed.
They don't get to spend the money, so they're not really
that eager to get that bill passed.
I think it'll move forward on a state by state basis.
Ultimately, we have a little bit of a controversial view on
this, which is that we're sort of using the tagline, be
careful what you wish for.
I don't think that consumers in most categories, really
care that much about the tax.
In fact, we've seen some research to suggest that most
of them don't know whether they are or they aren't paying
tax on Amazon, on Best Buy, on lots of different sites.
So we're not convinced it'll matter that much.
It's very hard to prove.
I mean, New York is the ultimate test case, so what
would be great would be if Amazon would just turn over
their sales data for New York State-- if you're listening--
and let us know what happened in New York after they started
collecting.
Because that's the answer, I think, to the question.
But they do charge tax outside of the US.
It has not hampered their growth rate outside of the US.
And we think that it probably limits their business model in
certain ways.
On the other side of this, although they're fighting hard
to protect the current regime, leveling the playing field
will open up new possibilities for them.
So one example of that is, it really limits their ability on
placement of distribution centers or fulfillment
centers, and their ability to do things in certain states.
They don't have a fulfillment center in California.
They don't have one in Florida.
I think they have one in Texas that they might close.
Once they have those fulfillment centers, they can
offer same-day delivery in grocery, which is ultimately,
I believe, where they want to go.
Same-day grocery with complementary products,
hardlines products, discretionary products.
So we're using this working theory, be careful what you
wish for, but I think it'll be very,
very slow moving process.
Probably five years plus before you really have any
kind of centralized movement.
I mean there's still 20 states that are not part of the
streamlined tax board.
So there's actually 20 states that don't even want to
simplify their tax code so they can make it easier.
So that's our view.
But definitely the number one question that we're getting
from investment folks like Fidelity
and Wellington, Putnam.
Other questions?
I think there's a mic back there somewhere.
Do you want to go up to the mic?
It might be a--
or you can text it in, I guess.
AUDIENCE: [INAUDIBLE]
MATT NEMER: Sure, my email address is Matt, M-A-T-T,
.Nemer, N-E-M-E-R, @WellsFargo.com.
AUDIENCE: Hi, Matt.
Great report.
I love it.
MATT NEMER: Thank you.
AUDIENCE: "The Sputnik Moment" says it's a do or die moment
for traditional retailers.
I have a two-part question.
The die part, how dire is it?
Are we going to see a lot of problems in the next four or
five years, traditional retailers not responding.
The second part of my question is, I watch Walmart and Amazon
very closely, and I've convinced myself that Amazon
now have a better low-cost business model than Walmart
does, in terms of the one single number which I track,
which is SG&A, Selling, General and
Administrative expense.
So I feel like they actually have a better
mousetrap at $20 billion.
So I just wanted you to comment on these two things.
MATT NEMER: Yeah.
On how dire is it, I think it really
depends on the category.
Again, there's certain categories
that have been lucky.
They're protected for some reason, because of the nature
of their product or shipping or their--
We get a lot of questions on which category's next, because
clearly books was very early.
I think CE, consumer electronics, is sort of in the
throes of the battle right now.
A lot of it, in my mind, comes down to, is there something
innovative that's happened on the customer experience side
or the interface online?
So it's like the first time you bought a plane ticket on
Orbitz or KAYAK.
You were never going to do it any other way after that.
And I tend to think it, in addition to the category, it
has a lot to do with somebody coming in and innovating the
front-end experience.
So certain categories--
I think the more transparent your product is--
If it's Sony KV, 22, 7, and I can just type that in, that's
probably not a good place to be.
The more private label that you have, the more exclusive
licensed brands that you've got, can help a lot.
But those are the areas that we're focused on.
On the negative side would be very transparent product set,
very easy to do a quick price compare.
That's where the heart of the battle is right now.
And then there's certain categories that--
apparel wasn't perceived to do very well online.
And I think, with what's happening at Gilt and some
other websites, it's pretty clear that apparel is going to
definitely work online in a very big way.
Really, to be honest, you have to watch what Amazon's doing.
Whether they're testing the appliance business, or as soon
as we hear about something like that, that's something
that we would get very focused on.
Because they do-- back to your second part of the question--
Walmart talks about everyday low cost drives
everyday low price.
And Amazon is the everyday low cost provider.
They don't have the physical infrastructure to support that
a traditional retailer does.
And as a result, they're able to offer lower prices.
They also are very willing to operate at a lower gross
margin percentage rate.
I think that's one of the issues with traditional
retail, is that--
and part of this is our fault on Wall Street.
We're constantly saying, when are you going to get your
margins up?
How come your margins didn't go up this quarter?
And, really, what Amazon came along and said is, we don't
really care about our margin percentage.
We are focused on dollars.
We're very happy to operate at a 20% margin rather than a 30.
And that's a major psychological shift that has
to happen at the very top of some of these retail
organizations.
You're fighting a competitor that doesn't care about gross
margin rates.
They don't care about EBIT marginal rates.
They only care about free cash flow and
free cash flow growth.
But I think you're right.
I think that Amazon is EDLC.
We still think it's not too late for Walmart.
Let's not forget they did 11 billion in free
cash flow last year.
They have 3,500 stores in the US.
I tend to think those are 3,500 points of distribution.
I'd like to actually see them close some of those stores, or
reallocate the space in those stores, and dedicate them to
same-day home delivery, or have a cross docking set up
where you can ship packages out of those stores.
I think they've got the tools they need to fight back, and
there's some evidence that the sleeping giant is woken up, or
is waking up.
They're doing some interesting things, and I wouldn't
completely count them out, but I would say they're really the
last retailer left that has the ability to really fight
Amazon in a big way and sort of shift the tide.
Hopefully, that answers your question.
AUDIENCE: So to play crazy contrarian, is this a
sustainable path?
If we think about all of these cost savings that we're
talking about, closing the stores, getting rid of human
interaction, making everything automated and computer-driven,
are we going to run out of customers because we've fired
all of the people who buy our products?
And do you all see this as being a
challenge at some point?
MATT NEMER: One of the things I should have stated earlier
is that, in a perfect world, I'm a really firm believer in
multichannel.
We're not advocating that physical
stores should go away.
I think they serve a great purpose, and it just hasn't
been utilized yet, the ability to--
we think, quite frankly, I think curbside pick up is
going to be-- that would be a fantastic tool.
I know I would use it constantly.
The physical retailers that have this last-mile
infrastructure haven't utilized it yet.
But we like the multichannel approach.
I think to build your brand, the stores serve as a
billboard, and certainly companies like Williams-Sonoma
have proved that multichannel really works.
Internet is 40% of their sales.
So I don't want to come across as saying,
close all your stores.
We think they're important billboards.
AUDIENCE: So for brands who are playing more in the
full-price marketplace, or that's basically the brand
position for them, how do you recommend they either combat
the Amazon-type models because, obviously, they're so
huge, or play within those spaces without discounting
that full-price brand message?
MATT NEMER: Yeah, that's a good question because price
transparency is sort of the first thing that happens.
I think that offering some kind of incremental service,
really tying in--
for a multichannel retailer, I think tying in the stores, you
can return it to the store, you can pick it up curbside.
Text us when you get to the parking lot.
We'll run it out to your car.
AUDIENCE: So do you see, basically, when I say that
full-price model, does it basically just cross out
Amazon has an option altogether, or is there a
full-price portion within Amazon that you see being
built out later?
MATT NEMER: OK, like a channel on Amazon to
sell full-price product.
AUDIENCE: More like more luxury brands
[UNINTELLIGIBLE].
MATT NEMER: Well, it's up to the brands, I think.
It'll be interesting to see which brands
decide to go that route.
It's been very slow on the luxury side.
I don't cover softlines, so I don't know the the apparel
side that well.
But it seems to me given the success of Gilt and some other
sites, that maybe it's a wake-up call for brands to
sell full-price on Amazon and other sites.
The problem with selling on Amazon is, there's a
Trojan-horse strategy.
I just think there's danger in, they know a lot about you.
They know your terms. They know your customers.
So that would be sort of a cautionary, I guess, remark.
But it'll be up to the brands.
It seems to me brands are being very protective, and you
haven't seen that much of that yet.
But certainly with Gilt and some other flash-sale sites,
there's evidence that it's starting to move.
DAN SCHOCK: Well, thanks Matt.
That was a fantastic way to start the day.
MATT NEMER: Thanks everyone.
DAN SCHOCK: Really appreciate it.
MATT NEMER: Thanks.
DAN SCHOCK: Thank you.
I hope you brought along a lot of business cards, because I
get the feeling you're going to be asked for a few of them
this afternoon.
And I love the recommendations from people in the room.
One of the things I took out of there, you have a lot of
strengths right now in your brick and mortar, whether it's
your strong brand imagery, or unique in-store experience,
your loyalty programs, your
database of existing customers.
It's just a matter of figuring out how to take that brick and
mortar information and move it online and make it work in
this digital world