(Bloomberg)—A few taps on a screen or a handful of words heard by a smart speaker and within a couple days, maybe hours, packages arrive.
Buying things has never been easier. Selling them, however, is increasingly difficult. Blame changing tastes and the explosion of online options for killing off numerous retailers and forcing others to rewrite playbooks. Just last year about four dozen chief executives of U.S. companies making everything from Tupperware to jeans departed, according to researcher Exechange.
“The game has changed,” said John Wood, a vice chairman at recruiting firm Heidrick & Struggles. Much of the traditional marketing and merchandising that worked in the past doesn’t anymore, he said. Plus, today’s CEOs need different skills, like enough humility to know their limits and continually upgrade their management teams, said Alice Elliot, founder and CEO of the Elliot Group, an executive search firm.
In pursuit of what may breed retail success in this new decade—one that’s bound to cause even more upheaval—Bloomberg News interviewed the chief executives of three chains that are thriving. Mary Dillon of Ulta Beauty Inc., Ritch Allison of Domino’s Pizza Inc. and Eric Lindberg of Grocery Outlet Holding Corp. took different paths to success, but two themes emerged—convenience is crucial and stores still matter.
Department store killer
The woes of department stores, like Macy’s, get blamed on ecommerce, but bricks-and-mortar competitor Ulta (No. 91 in the 2019 Digital Commerce 360 Top 500) has also played a central role. Makeup is one of the biggest attractions for department stores, and Ulta’s supersized outlets, filled with major brands at often lower prices, have been poaching those customers. In the past decade, its sales jumped almost sixfold to more than $7 billion, leading to a stock gain of more than 1,000%. CEO Mary Dillon, a veteran marketer and former head of U.S. Cellular Corp., joined in 2013 and has since expanded the chain to more than 1,200 stores.
What did you find when you arrived?
The company wasn’t broken. But we needed a long-term strategic plan that really understands where guests are going.
And where are they going?
One is the ability to order sitting on my couch and get something in a couple of days. The other is to do things even more exciting, like try on makeup virtually, or look at a hair color virtually. We try to not over-rotate and be only about digital, or only about stores. We need to do both at once.
We bought a small augmented-reality company called Glam Street. We also bought a small company in the artificial intelligence space to help us supercharge the data we have with our 32.8 million customers, to really drive personalization. Both of those acquisitions are the first we’ve ever done as a company.
What about fending off all these digital brands and their loads of cash?
If you understand the category and the consumer, and you really meet their needs best, that should be your guide to whether you pivot or not. That’s why we continue to build up stores—because that’s what our guests love.
Rather than chase after every new bright shiny object, we’ve tried to be disciplined about saying: “We can’t do everything, nor do we need to do everything.”
But stores are dying, haven’t you heard?
The narrative about retail absolutely has been wrong. There is a human need—especially in this category—for shoppers to come in person. If you want to look at what a color of an eyeliner might look like on you, or a foundation or a lipstick, the best way to do it is really in person.
Who Needs the Internet?
Grocery Outlet is a throwback. It doesn’t do ecommerce. And its core business is selling surplus goods. It has franchised more than 300 stores in the U.S., but sees room for 15 times that. Eric Lindberg, who married into the founding family, became co-CEO in 2006 and was named sole CEO in January 2019, six months before the chain went public.
You’ve been called the “TJ Maxx of grocery stores” because you buy surplus items and sell them at really low prices?
It’s very complimentary.
So you say the chain’s prices are 40% lower than most competitors, but what about Walmart?
And Whole Foods?
50% or more, easily.
And you get there by what you call “opportunistic buying?”
The big picture is supply chain problems: canceled orders and inventory imbalances. For example: Costco calls a supplier and says: “We’ll take 100,000, not 200,000 products,” and leave the supplier with that balance. We can take any size.
Is ecommerce in the future, or are you still set on, “if you want us, you gotta come to us?”
Firmly the latter. I won’t lie to you and tell you we haven’t met with the different fulfillment folks. Instacart—they’d love to get Grocery Outlet on their platform.
But at some point, right?
I would argue that no one is making money doing it. The biggest confirmation for us is to just talk to the customer and ask them: “Would you trade some value for the convenience of us dropping it off on your porch?” And the resounding answer from customers is “no.”
So are your customers low income?
We have stores that are in extremely impoverished areas, and we have stores in Palo Alto and other extremely wealthy areas.
Ahh, so that’s why you think there could one day be about 5,000 U.S. locations?
We’re hard-pressed to look at any city in the U.S., small or large, and say it can’t support a Grocery Outlet. That’s how we get to that big number—decades and decades of growth. Immediately, we’re focused on saturating the West Coast and then the East Coast.
And why do you give store operators so much autonomy?
Our operators are one-to-one. One operator, one store—that’s different than a franchisee who might own a territory. They decide how they’re gonna interact with the community, what they’re going to carry in the store. Most of the operators—about 75%—are husband-wife couples.
We split the gross profit margin of the store 50-50 with the operator. The harder I work, the more I sell. That’s pretty aligning with incentives for them and for us.
Pizza and robots
Domino’s is the world’s largest pizza maker, selling 3 million pies a day from almost 16,000 locations globally. Ritch Allison joined the chain in 2011 from Bain & Co. and became CEO in 2018. The company has led the restaurant industry in adopting technology, including mobile ordering, and investors have rewarded it with the stock jumping more than 50% over the past two years.
You’re testing robot delivery?
The least efficient way to deliver five pounds of food would be to put it in a 5,000 pound machine that’s designed to protect four human beings in a collision. We got to do more deliveries on things like e-bikes, which we do all over Europe and Asia. We have to be a leader in autonomous delivery. It’s why we’ve been testing with Ford and Nuro.
If robots can deliver pizza, surely they can make it?
Machines are actually automating some of the process of making our dough balls. We’re testing our AI voice-ordering platform at about 40 stores. We’re all about automation taking the phone call out of the process.
The last thing I want to automate is making the pizza. We use fresh dough. Our ingredients are fresh. It’s handcrafted just for you when you order it. We think that’s an important competitive advantage.
What do you think of all the delivery startups, like DoorDash?
A lot of product is brought to customers at a discount that makes it unprofitable. Firms are willing to invest in those subsidies to capture market share. We don’t know how that will ultimately shake out.
The second thing: Certain types of food are delivered better than others. A lot of French fries show up pretty soggy. Both the economics and the quality aspect have yet to fully unfold.
What’s the biggest challenge to your business right now?
Our brand was built almost 60 years ago on getting pizza to you in 30 minutes or less. That is no longer good enough. If we really want to win, we got to get pizza in 25 minutes or 20 minutes, or faster. It does not mean drive faster on the roads. It does mean building more stores. We’ve talked about putting another 2,000 units on the map in the U.S. between now and 2025. We need to get our stores closer to our customers.Favorite