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Episode 31
April 25, 2017


Whether it's real or not, retail crisis is in the news and is the topic of conversation among retail merchants. Saku Panditharatne joins us to talk #retailcrisis.

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this episode sponsored by


Saku Panditharatne, Retail Analyst - @sknthla

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Phillip: [00:00:51:18900] Hello and welcome to Future Commerce, the podcast about cutting edge and next generation commerce. I'm Phillip.Brian: [00:00:56:33300] I'm Brian.

Phillip: [00:00:57:56700] And today we are joined by our first repeat guest. Very excited to have her back with us is Saku Panditharatne from... Whereabouts are you these days, Saku?

Saku: [00:01:09:35100] I'm based in London.

Phillip: [00:01:10:80100] Based in London. And we're just delighted to have her along for the ride. She's going to give us some hot takes, and Saku's hot takes are one of my personal favorite things from Twitter.

Brian: [00:01:22:80100] Yeah.

Phillip: [00:01:22:80100] But anyway, we also want your hot take. So we want you to give us feedback about today's show. So make sure you leave that. You can place that on the Disqus comment box on And you can subscribe right there as well. Link off to iTunes and Google Play. You can also listen right from your Amazon Echo on TuneIn radio with the phrase, "Alexa, play Future Commerce podcast." All right. Well, it's been a little while since we did a show like this. And in the time between our Magento MageTalk live event and some of the interviews we've done with, like Body Labs and Acquia and some of the other interesting guests that we've had on, a lot of things have happened. So we're gonna try to pack a lot of content and news today in. But in the midst of this, the thing that I can't seem to get away from on social media these days is how many...

Brian: [00:02:21:75600] Not just social media, man. It's kind of everywhere.

Phillip: [00:02:24:37800] It's everywhere. I hear everybody... I'm starting to even hear it on NPR. That's like when things from Reddit pop up on Facebook a few weeks later. When you're hearing it on NPR about retail crisis, you know it's kind of a thing that is going to happen, it's really happening or whether it's not really happening. People are now talking about it happening. And that, I think, makes it a thing. So because we are a very retail and commerce focused podcast. I'd love to kind of open today with sort of that. So hashtag retail crisis. Where are we? Brian?

Brian: [00:03:00:25200] Man, it's a lot going on, like you mentioned. Is it actually happening or is it just sort of a thing that everyone's talking about? There's been you know, obviously there's been a few retailers that have been declaring bankruptcy.

Phillip: [00:03:14:80100] Just a couple.

Brian: [00:03:14:80100] So there's something going on. What we can attribute that to is a good question. Is it eCommerce? Is it Amazon? Is it Walmart on a crazy acquisition spree? I think there's a little bit of a let's see what happens, because I think I can make a case that that, yeah, eCommerce is making a big play. Amazon's stealing a lot of market share. People are purchasing there. But one of the things that really caught my eye was that Neiman Marcus came out and said that even their customers are looking for discounts on prices. And so that's a good indication that something is up with how people think about what they're purchasing. And if anything, I mean, that mindset shift is telling that something's going on in our economy or in retail or technology. Something's happening.

Phillip: [00:04:22:72000] Global economy and global economic... Saku, what's your take from London town?

Saku: [00:04:31:6300] So my take is, why is this happening now?

Phillip: [00:04:34:00] Yeah.

Brian: [00:04:34:00] Good question.

Saku: [00:04:34:00] Kind of in the back of my mind, I'd kind of assume that, you know, physical retail was kind of doomed, and it was only a matter of time before they go the way of Blockbuster. But it just made me wonder, like, why this year was the tipping point for all these start shutting down? I mean, part of it is, okay, Amazon is expanding market share. But the other thing that made me kind of wonder about this is I wonder if it's that what's happened since the financial crisis is that loads of unprofitable stores have kind of being propped up by low interest rates. And now that they're starting to rise... I mean, obviously, like you can't tinker these correlations like this, you can't correlate some random, abstract thing in the economy with why all these stores are shutting. But it just does make you wonder if there's some kind of relation there. So I actually read a really interesting paper this week called Zombie Firms, and it's basically saying that about 9 or 10 percent of all capitol in our economy, in both the UK and US, goes into basically firms which haven't made profit in 10 years. So they're basically just like living off credit. So you have all of these kind of effects on diffusion. So if you were an entrepreneur and then there is this sector you want to go into you, but it's full of zombie firms, the paper shows that it's like really tough for you to enter that because they'll be able to compete with you and it has all these other effects. So I just wonder if that's related to what's happening in retail and why did that happen now.

Phillip: [00:06:22:13500] Yeah, I actually I read something similar, but it was a few months ago. I think my take there is that it's really a drag on more on productivity. National or global productivity. In that we don't really have people productive in a workforce. We don't have people productive creating jobs and sort of benefiting the economy in general. And so it's sort of this like a very slow, slow death to sort of existing there on the fringe of actual... I don't know. I have so many things I can't say all at one time. I'm trying to. It's tough to really understand how these retailers are feeling the brunt in traditional bricks and mortar. I think the obvious cause we all want to point to is Amazon or digital commerce. But most of these, or many of these, have had very successful digital commerce businesses and were also retailers through marketplaces themselves. And I think that, while that can drain off the bottom line, some of them were experiencing year over year increases in top line revenues. So there must be other increases in costs of doing business in cost of goods sold that I don't think we've realized just yet.

Saku: [00:08:09:60300] Yeah, that's actually really interesting. I hadn't thought of that before. Actually, one thing that's interesting, one of the stores that shut down was BCBG.

Phillip: [00:08:18:84600] Yeah.

Saku: [00:08:19:32400] And something about them is like they're really inefficiently structured as an online business because... I don't know if you guys knew much about it or were customers, but I am. So basically they have like a mainstream fashion line, and then they have all these evening dresses. And what they're known for is evening dresses. Let's say if you're a girl, and you need a prom dress. That's where you go. And so if you go into a store, that's okay, because, you know, you go in there for your prom dress and end up picking up a bunch of stuff along the way. But if you go on their online store, the browsing factor is reduced. So you end up just buying the thing that you went there to get. So you just the prom dress. So what BCBG has ended up in is they're in a situation where they have like this kind of like appendage business with their regular clothes. And that just makes it a very inefficient offering. And so that's kind of why they're closing. That's kind of why the shift of retail might cause you to have to shut down and just restructure, because sometimes your entire brand is just like not suitable for online.

Phillip: [00:09:22:81900] But I also wonder if it's not a sort of a failure of just a heightened or increased demand from customers for diversity and product offering across a variety of price points. Even, I think Brian mentioned a minute ago, which is Neiman Marcus shoppers becoming more price conscious. I think it's more about instead of having a flagship retail store like BCBG on Fifth Avenue where they carry everything, and then your satellite stores having, 50, 60 of the main line or a particular season in stock, I think we've come to sort of expect that we have the, let's call it the Walmart experience. Every single thing that I could want would be available at every retail store front when I visit it. Which is what I'm being told the exact opposite when I speak to a merchant directly. They say that they want more digital experiences in store. Their consumers are asking for more digital experiences, asking for more tactile, the Tory Burch sitting on a leather couch, you know, trying on shoes and buying a handbag and feeling like you're in your living room. But that's not... It doesn't seem like the ones that are struggling also seem to have a good mix of the these sort of sparse retail experience, H.H.Gregg is one that comes to mind. They're a big box store, but there were sort of setup into these, you know, smaller, more compartmentalized stores within stores that had more retail experience or experiential retail. So it's interesting. It sort of flies in the face of the things that we say that the consumer wants now.

Brian: [00:11:21:15300] So let me kind of throw another sort of theory in there, I guess. So interestingly enough, this gets back to another concept. This theory gets back to another concept we talked about before, which is passive commerce. I can't help... And this is just based on my personal shopping habits. And I feel like I might fall out of the norm on that front. But with all of the deal sites, Retail Me Not, Deal News, Slick Deals, and so on. I can't help but think that now the average consumer knows about all these sites. I think maybe one of the things that's happening right now is people expect to get a percentage off because when you shop online, you expect to get a deal. I can't help but think that technology is simply driving people towards, "Wow. I can wait on this." And there's such an oversupply, too. That's another thing. If you look at some of these stores, a lot of them have crazy discounts. I mean, my wife and I we go to The Limited, and we never buy something at full price because their clearance racks we're packed. Penney's has another insane amount of discounts that happen there. I think a lot of the shoppers that went there just weren't buying things at full price. I mean, the kind of shoppers that they were, that was sort of the lower end of the market. And so those people are going to wait. And so they're not going to buy anything at full price. They're gonna wait till the discounts end up being, like, absolutely crazy.

Phillip: [00:12:54:72899] And we're also in that place, too, Brian, where we've trained the consumer in that way. Right?

Brian: [00:13:01:1800] Exactly.

Phillip: [00:13:01:77400] JC Penney went for price transparency, and it almost killed their business entirely. Well, I guess one hundred and thirty eight stores closing is killing their business to some degree.

Brian: [00:13:09:1800] Yeah. Yeah. And so I feel like it's this weird spot of, like, pretty much any style I can think of, at any quality level, is going to come down in price. Neiman Marcus Last Call. I've got stuff on there, and I've been able to get top shelf brands for like Gap prices or less. And so, you know, the reality is I can find clothes that make me look good that I'm happy with, that are brands that I like or prices that, if I wait, I set up price monitoring, or I just do do a certain amount of monitoring myself, I can... I'll be transparent. I don't buy a pair of shoes for more than, you know, 30, 40 bucks, because I can get the brands that I want and I like for that price, even though their listing prices are over a hundred dollars. And so I think it's a scenario where maybe actually brands need to be really careful about what their supply looks like and how they go about discounting. And I'm not saying that they don't discount, but I think maybe pricing strategies right now are... I don't know if people are thinking about this in that context or not.

Saku: [00:14:34:74700] I also think there's this thing where the average age of someone who goes into Neiman Marcus is like 54.

Phillip: [00:14:41:13500] Yeah.

Saku: [00:14:43:40500] So they have like this aging population who are spending less with less and less consumption. Disposable income is a smaller and smaller share of their budget. So they kind of want to spend less. And then you go to your young people and either they go online or they have less money than people did twenty years ago. They have less disposable income. They actually one interesting thing is Neiman Marcus actually got Rent the Runway as a feature in their stores to get young people to just walk through the store because the hope is that they'll go there, stop in and buy something which isn't discounted. I'm not sure, but that kind of attempt to make people behave in what was an irrational way is never going to work again because once you know you can get the discount is luring people into the store to tempt them going to help? I mean, I'm not sure.

Brian: [00:15:42:00] Yeah, I totally agree. Totally agree. I think it's a really good point.

Phillip: [00:15:45:55800] But maybe it's different strategies. It can't entirely be based on price. I think it has more to do with with our perception of value. My understanding would be that I don't know that I have a higher perceived value on a shoe of a particular brand so much as I have a value on my need for a brown shoe and it to look a certain way or fit my style in a certain way. I'm becoming less brand conscious. And maybe I'm the worst barometer for the American consumer.

Brian: [00:16:27:74700] I think that's a really good point. You're nailing it right now. Like brand doesn't really matter. It's all about quality, fit and look.

Phillip: [00:16:35:16199] Yeah.

Brian: [00:16:38:40500] It's just not as important. And then if you look at a lot of these brands like Abercrombie and Wet Seal and Limited, they had a very specific feel to them.

Phillip: [00:16:50:10800] Well. Yeah, exactly, I think with the exception of... You can actually if you want to go down the list a bit of 2017 retail store closings... And this is from But in the top 20, 50% of these look like they're all sort of fashion retailers. You've got Wet Seal, Bebe, Crocs. Well, let's not dwell on Crocs. But anyway...

Brian: [00:17:16:49500] {laughter}

Phillip: [00:17:16:49500] Crocs, JC Penney, BCBG, American Apparel, Kmart... To some degree...

Brian: [00:17:23:86400] Let's not dwell on American Apparel either. I don't know if that had anything to do with it.

Phillip: [00:17:26:72900] But the thing with some of these is it's disposable fashion. Right? Some of these are, it's not fashion, it's not like it's high fashion to some degree, but with The Limited and the others, it also feels like there might be something that's just changing as a culture in our expectation of what maybe work dress expectation. I don't know where I'm going with that.

Brian: [00:18:00:76500] No, I think you're getting it.

Saku: [00:18:04:33300] Yeah. I actually think one thing that's kind of interesting is you have a lifestyle brand with something which was invented in the 90s. I mean, Like Nasty Gal is like a new invention and even though they've gone bankrupt, for kind of unrelated reasons, that seems like still something which is on the ascendant in the culture. So I'm not sure if a cultural expectation makes that much sense because you can still create value by telling a story about a lifestyle and that this brand represents that lifestyle. So I just kind of think that it's in more cases, just inefficiency. Like, how long were you able to get away with that kind of inefficiency? It turns out in 2017 it's not okay anymore. It's just kind of creative destruction we're having.

Phillip: [00:18:58:3600] Without going too deep into it, how much of this do you think is opportunistic? Like if you're going to, follow me here, because this is a stretch, but if you're ever going to close retail stores and you're ever going to sort of own up to the debt you're amassing, wouldn't this be the best time to do it when we're kind of at the precipice of the markets where regression to the mean is all but certain at any minute? We have the first hundred days of a Trump presidency, massive de globalization talk. A really interesting time. Right? And wouldn't this be the time to do it sort of now to get it out of the way?

Saku: [00:19:50:80100] Well, I'm not sure of that. Wouldn't you just wait until the crisis actually hits?

Phillip: [00:19:54:68400] I think the crisis is here, right?

Saku: [00:19:57:21600] I mean, my feeling that they just already living on borrowed time, and now it kind of hit the fan.

Brian: [00:20:04:56700] I agree with Saku on this. I don't think it was an opportunistic moment for them.

Phillip: [00:20:09:9000] You don't think it was the dam broke with The Limited? It's interesting, I feel like there was a chain reaction here.

Saku: [00:20:23:64800] Well, who started a chain reaction? So you have, like, global instability. And the thing is, you have like a market rally now. So I think that kind of suggests that people are expecting just more gridlock and nothing much... It's kind of hard to tell. I don't think I've seen anyone come up with a cohesive theory of like the relationship between like the stock market and politics right now.

Phillip: [00:20:54:33300] {laughter}

Brian: [00:20:54:33300] Yeah I think also, if you look at Macy's, they're not declaring bankruptcy, but they're having troubles. I think that's a good indication that this isn't like an opportunistic chain reaction. I think it's a real issue.

Phillip: [00:21:07:87300] Perhaps it's just one of those... I had this interesting conversation about the prevalence of flagship stores in first rate shopping malls. And they're the keystone. When flagship stores and large retailers like Sears or Macy's departs, it doesn't matter how great the brands are inside, they tend to wither over time. And I think the smaller retail chains, especially in the fashion world, sort of thrive on the traffic that's created by the larger Keystone brands. And so their borrowed time, their lifeline is only as long as Sears can hold out in its new strategy this week to sell...

Saku: [00:22:03:21600] I can totally believe that all the small stores are closing because the big stores are closing. Have you see what's happening with Starbucks? They're suffering lower foot traffic. That's why they're doing their high end coffee thing. Kind of because of the fact that people don't go to malls anymore.

Phillip: [00:22:24:18900] Yeah. That's a good... I'd like to pull on that thread for a minute. You would think that... There's a great example of sort of digital transformation in a business. They've done a lot, a lot, in the last 18 months to to bring more digital enablement to their retail stores. It's not just order online. They had a whole voice commerce bot enabled coffee ordering. They've done a lot of really sort of very public consumer facing tech. I feel like that should be, if it should work for any brand, that should be what aspirational what every brand should be working toward, is bringing more a sense of digital enablement to customers. And it's not working for them. And that's sort of scary in and of itself.

Saku: [00:23:38:3600] We just live in a very crazy and interesting times. I saw a really good interview with Eric Schmidt of Google on YouTube a couple of days ago, and he was just saying... It was him talking to Peter Thiel, and Peter Thiel was saying, oh, Google what you have billions of dollars in cash, and you know what to do with it. And he's like, Why? Why aren't you going and building more stuff? Why isn't Google expanding? You know, what are you doing wasting all this cash? And he replies that the three things that are talent, regulation, and then also real estate. So it's because rent is too expensive in the Bay Area. You can't get people to meet there. So it's just like this kind of weird thing where there's all this kind of stuff preventing new stuff from emerging. And so it just seems that that's kind of related to the...economy, where you have very low interest rates, kind of high unemployment. So that means you have like a surplus of both capital and labor. And so the limiting thing is like, you know, building institutions to put that to use. And so this is when we come to like digitization of retail and digitization of Starbucks or whatever. I mean, the opportunity is there. But like the execution just isn't. Which is, I think, a very strange kind of situation to be in. Right? If you believe the rest of the argument.

Brian: [00:25:09:72000] Yeah. I think you'd like a while back referred to an article from Gray Lock. And they were like, just give us something to invest in.

Saku: [00:25:19:12600] Right.

Brian: [00:25:19:63000] It was like this weird call, like broad call, to people please we want to invest, but we just don't see anything that's really coming together. Like we know the tech is there to do something with. Please do something with it.

Saku: [00:25:37:19800] {laughter} Actually, I had someone say to me, to describe the state that we're in, he's like, "The 20th century worked and made a lot of people are rich. But now it's kind of run its course. Like we can no longer make incremental improvements in the paradigm we have. You can no longer just build faster roads, bigger shopping malls..." So we kind of need to invent a new kind of paradigm for growth. And that's just kind of struggling to be born right now. In some ways, we're kind of like running up against the limits of the old system. It's especially true with like all you see in real estate where you have housing regulation driving up rents in all the major cities, people can't live there and get jobs there. That's I think one of the most egregious examples of this. And it's just kind of like a very strange situation, I think.

Brian: [00:26:27:26100] Yeah, I think... I'm really happy you brought up real estate, because, like, my mind's just been like, I want to get back to real estate. She mentioned real estate. And I think, you look at what's happening with the malls and other... it's not just malls, but like space in America in general. If we start to see major corporations start to pull out of spaces, what's that gonna do to communities in real estate in general? But on the other side, I think there is a big switch coming. You mentioned having to sort of reorganize. And with the advent of the mobile workforce, I think there could be great opportunities for businesses to do the exact opposite of what IBM just did. And it can actually incentivize people to work remotely and train people how to be attached to each other, to properly communicate, and work in a remote capacity. And I think that that is absolutely doable. I work remotely right now. I've worked remotely in the past. And it's something that's a different experience than working in an office. But if you do it right, it can be extremely effective. You don't have to commute, and you can live somewhere that's more affordable than probably the major, major metropolitan area that your company is based in. And so I can see a huge opportunity here for one, companies to to build out better systems for mobile workforces, which I know is happening already. I think Robert Scoble might be involved in one of those.

Phillip: [00:28:21:23400] Which we say nice things about Scoble because he's given us a soft commitment to come on the show.

Brian: [00:28:29:14400] Actually I just talked on today. So I think he's coming on.

Phillip: [00:28:32:27000] We like having people like Robert on.

Brian: [00:28:36:9900] Yeah, totally. And I think it's a really good move for him to be involved in that right now, because I think...

Phillip: [00:28:41:6300] We're on the way up. He's got to get in on the ground floor.

Brian: [00:29:58:40500] {laughter} Actually, I would love to see some, not regulation, but some incentives put in place for remote workforces.

Phillip: [00:30:04:6300] Yeah.

Brian: [00:30:04:32400] Because think about this. If we put incentives in place for companies to have mobile workforces, one, would reduce congestion on roadways. Two, it would give people opportunities to not spend all of their money on housing. Three, it would give people a lot of time back. And four it would I think start ushering in a new generation of workers, a new way of working. Oh, and it would reduce pollution.

Saku: [00:30:40:86400] Companies already have a huge incentive to do mobile working. It's just clearly not high enough. People prefer to work remotely and not spend a lot of time commuting and live in a cheaper area, and they cost them a huge amount of money to be close to their workplace. And that's like a massive incentive for companies to allow remote work. But yet it hasn't happened. Why is that?

Brian: [00:31:01:10800] Why is that? Good question. I think that's a question that would be worth pursuing further.

Saku: [00:31:10:82800] I want to talk about this book that I read, which I'm telling everyone to read. I think kind of explains like the kind of economic situation we're in now. It's called A Great Leap Forward, by Alexander Field. So it's like this book about how, contrary to popular opinion, the 1930s were the most technologically advanced decade of the 20th century. So it had the highest productivity growth. There were tragic levels of unemployment, but you had very high levels of employment in industry, R&D. People working in petrochemicals, in manufacturing, and in like the electrification factories. They kind of perfected the assembly line. All this kind of stuff. And also they were building roads, there were building everything which made the shopping mall, suburban kind of world possible. And so, like, it's basically it's kind of revisionist theory that, like what fixed the Depression was not the war, but it was in fact scientists working for 10 years kind of invent this kind of new paradigm. And so the parallel today would be like, OK, there are tons of people working in all kinds of different types of technology. We have new improvements in transport. Maybe self-driving cars will be important somehow later. We have the Internet. We still haven't really seen the productivity gains from mobile diffuse into the rest of the workforce. So you don't have like a rich company using stock in mobile apps to communicate and you don't have them restructure because of that. And I think there's like all this kind of stuff, which is just like, we're on the verge of it happening. But it's not for some reason. So maybe it's more ways a creative destruction like what's happened in retail, where it's actually a thing, but I'm not quite sure.

Brian: [00:33:05:78300] Actually, that's a really good point. All of this stuff that's happening in retail, there's a lot of doom and gloom associated with it. But, I mean, maybe it's a really good thing. And I mean that in the best possible way. I don't like people losing their jobs. But I'm hoping that we'll find ways to employ them that are actually better. And that the companies that are not keeping up and innovating are going to be the ones that sort of go by the wayside. And that might be OK.

Saku: [00:33:39:24300] Yeah, I mean, I think one of the big puzzles that we've seen... You have like some firms have 5% productivity growth. And it's really high. They're innovating at this like crazy pace. If you're in the top five or 10 percent of firms. And everyone else is just kind of lagging. And, you know, like, why is that? One theory is that they're in a different region, and they're not copying the cutting edge techniques effectively because it's happened far away. And the other theory is that there's just not enough creative destruction happening. The big companies have found a way to like to entrench themselves. So they just kind of don't die. And then no one can compete with them. So you just kind of have the stasis, which is bad because it means no one's innovating. So it's probably a blend of both of those or maybe something else differently. But I think that's kind of like the most interesting question to me in terms of like what's happening in the economy.

Brian: [00:34:45:77400] I just heard someone say recently, sort of ironically, that person was really successful doing it that way, so they must know what they're doing. And so actually I don't agree with that philosophy. I think, you know, just because something worked in a certain period, even if that period was five years ago, doesn't mean that it's going to work again. And that well, I think companies need to be preparing for change. We're in a state of rapid change, the likes of which we've never seen, except for maybe the 1930's, according to this book. But I think basically what we're experiencing right now is the businesses that are setting themselves up for what's next, and they have an open mind and are flexible... And actually, I heard that is an extremely common theme from people that I really respect. Businesses need to be setting themselves up to have structures in place that are conducive to change. So it's not that you don't have structures, but that you have structures where you can be flexible and adopt what's next. And open source.

Saku: [00:36:10:88200] Right. Totally. Also one thing is just like the spread of organizational economics. The fact that you still have people who kind of get offices were still kind of act the same way that they would in like the 90s. Like there hasn't been that much like organizational change is kind of strange to me. It might be like startups are the new way of doing things and they're very geographically concentrated, so those kind of techniques can spreads. I'm not exactly sure what it is.

Phillip: [00:36:52:59400] That's an interesting point, too. I think that we're seeing more industries sort of adapt to the more manufacturing based approaches. We're seeing more innovation now than ever before and across different industries other than just hard goods. We're seeing Just-In-Time manufacturing hitting everything from textiles to soft goods to even to digital, to digital product development.

Saku: [00:37:34:54900] Yeah.

Phillip: [00:37:34:78300] And I'm not totally convinced. I'm not totally convinced that the entirety of our economy weighs on 5000 low paying service jobs at a Macy's. But I do think that it sort of has a sort of a... It sort of tells a dark tale that these retailers, which ostensibly operate on incredibly low margins to begin with because of all of the reasons that Brian extolled earlier... The business... Not everybody can be Amazon and hang in 20, 21 years with zero margins and sort of be propped up by continued investment and sort of this long term payoff that may come one day. Amazon's kind of the...

Saku: [00:38:26:7200] Actually, I would disagree with that. I think you can. I think if you actually know and have a good idea to be a retailer, you can just get capital to prop you up for ages because capital's basically free. If you have any business, you can do that. So I think one interesting thing to think about is incremental versus paradigm shift improvements. So I think what we've become used to is growth coming from incremental improvements. Like every year the car gets 5% faster or the plane gets 10% lighter. And so you don't really have to change the way society functions. You can just get growth just from people making incremental improvements in various industries. But I think kind of ran its course and then now we have to find something new. I feel like what we have now is just like it's kind of a decade of experimentation in science and in industry. And we're kind of like figuring out what models work. And then actually, I think what we've already figured out what works and it's now a question of diffusion and implementation installation. But I mean, that's just my theory.

Brian: [00:39:44:30600] Yeah, I agree with that in many ways. One of the things that we talked about in our prediction show for this year is this idea of convergence, which is a term that's not really a term, but we've got a lot of different disparate techs that have come a long way, but they need to be applied together in a first mover sort of way. And so retailers are going to have to find ways to to apply this tech in a way that's never been done before. And so I think that's going to happen on sort of a small scale. And there's gonna be... They're going to have to be OK with some of that failing. I think that's one of the things that's like a lot of these businesses are not OK with a strategy flopping, like investing in something that's just actually like legitimate tech onto itself, because that's the only way that they're gonna be able to actually apply the new technology that is available. Baseline Technologies. So like we talked with Body Labs just a couple episodes ago, and they have an unbelievable piece of tech right now where they can map the human body using AI with a 2D picture. One 2D picture of a full body shot. They can give a body data on their entire body using AI, and it's almost as accurate as laser scans. Mind blowing.

Saku: [00:41:24:81900] Right.

Brian: [00:41:26:6300] That technology is something that could fundamentally change fashion and other industries. But it has to be applied. And so those companies need to start looking at things that didn't seem possible before, but actually are just becoming possible in an affordable way and actually be ready to apply those pieces of technology with other things that they're already doing. And that's scary. That's scary.

Phillip: [00:41:56:33300] I would disagree vehemently to say that a current generation, a current existing retailer is going to be able adopt technology to somehow compete to consumer demands changing. I think we couldn't have envisioned Facebook 20 years ago or even the iPhone, which are the two worst examples, but the only ones I could think of. But in the way that we couldn't even fathom what that would do to our society and to our lives and affect elections and all the rest. I don't know that commerce, the way it exists today, has any parallel to what will exist 10 years from now because the experiences that will be built in virtual reality or augmented reality will be unique to themselves and not an old retailer creating different versions of their existing brands in those spaces.

Brian: [00:42:58:58500] Sure. I don't disagree with that. I think I'm saying that those businesses need to figure out how to apply those technologies. It doesn't have to be applying their current existing model to them. They might need to go spin out some additional brands or try things that are way outside the scope of what they're doing right now.

Phillip: [00:43:15:75600] Maybe.

Brian: [00:43:15:75600] In fact, I think at NRF, the Big Show, just this past year, Richard Branson basically said this exact thing. These big brands need to think like they're entrepreneurs and start spinning out things that they wouldn't have ever thought that they would spin out.

Saku: [00:43:37:26100] Yeah. I mean, it's kind of tough to think of examples of legacy companies that actually did adapt to the new way of doing things. You got like Kodak, which is like a famous example. Actually, one interesting example of a retailer, I guess, that adopted to the digital economy is Domino's. Have you guys heard the story? It's like so crazy. So basically what happened is like the original Domino's business model was all based around real estate. You had the pizza place in the center of town, and people would go to it. And then just by being in the right place, you get enough customers to be sustainable. But after online ordering became the thing that was no longer the edge it once was. So then the Domino's CEO was like, "Okay, we have to rethink our whole strategy." And so he just put like tons of effort into just like making the pizza better. And then they also perfected that online experience. They were like delivery 20 minutes or less or something like that. And then their stock has gone up more than Apple has in the last five years.

Brian: [00:44:55:37800] They've dominated the pizza industry. It's crazy.

Phillip: [00:44:58:23400] Yeah, but that's a testament to transparency and supply chain and ubiquity of the brand and a lot of things that wouldn't have made anyone else successful, but helped Domino's. I agree with you.

Brian: [00:45:10:85500] And voice ordering. I mean, come on now. {laughter}

Saku: [00:45:17:17100] Just in that case, it was just pretty amazing that they did pull it off because if your business model is based around one thing and then you kind of have to keep that going whilst you switch to something completely different...

Phillip: [00:45:34:1800] Yeah. It's such a great example, actually, Saku. That's a phenomenal example because it sort of illustrates the other thing that we were saying, which is just because Domino's proved that could be successful doesn't mean that Sal's Ristorante in West Palm Beach is going to be successful with online ordering, even though their site continues to still have a worm or some sort of virus affecting it, like three years later on some old version of Drupal and the webmaster, Kathy. Her e-mail is very prominently displayed there. We could all email her and find out why we still don't have online ordering. But I don't know that that's... I think we have very low expectations for brands that we don't identify... Like we we have a higher expectation on a Domino's than we do on Sal's for instance. And I don't know that what makes Domino's successful will help Sal's, but it could help other businesses of similar size or shape to make that transition.

Brian: [00:46:41:47700] Or inform them on how to compete, like Mod Pizza. I think Mod is the other one that's just like blowing up. But they have a completely different model. It's almost a different food, actually.

Phillip: [00:46:52:89100] Right. Well Just In Time Pizza would be great if we could somehow outfit, you know, Ubers with pizza ovens and they could just show up. That's transformative, right?

Brian: [00:47:04:40500] I mean, that's happening. Just so you know.

Saku: [00:47:06:63000] Uber Eats. {laughter}

Phillip: [00:47:08:80100] Do they do they prepare the food in Uber Eats? I feel like it's delivery, right?

Brian: [00:47:13:18000] No, no, no. Not Uber. But there are pizza trucks that are going to be cooking pizzas along the way. So there you go.

Phillip: [00:47:21:45000] Yeah. Well, I mean, not to take too much of a side journey, but that does kind of touch on what you were talking about earlier with real estate, which is, CVS has announced that they're sort of experimenting with the idea of autonomous brands, staple items, being driven around in autonomous cars and sort of available to you at given times. So like like Pop-Up Shops, but for CVS. And a roaming vehicle, autonomous roaming vehicle, may become the real estate of the future. I mean, real estate doesn't have to be fixed in one place anymore, especially when a vehicle can be wherever you desire to be.

Brian: [00:48:07:83700] Or you have a giant floating warehouse.

Phillip: [00:48:11:66600] Yeah.

Brian: [00:48:13:40500] Amazon.

Phillip: [00:48:13:84600] Dirigibles.

Brian: [00:48:14:42300] I don't know. Amazon.

Phillip: [00:48:17:7200] I find it interesting that the idea of the retail experience doesn't have to be fixed in one location like a mall. It could be mobile and come to us. And maybe that's more transformative than AR in the store.

Saku: [00:48:35:8100] Yeah, it might be weird the layout of cities in the future. You have really densely packed housing places. And then all your services are just like these warehouses kind of in the suburbs. And they're kind of driven to you in self-driving cars or something. I mean, I can totally see like Manhattan being like that. It's just like this grid densely packed with people. And then you have, like warehouses surrounding it.

Phillip: [00:48:59:76500] Yeah really.

Saku: [00:49:04:38700] So this whole cities, housing thing has interested me for a really long time, because it seems like one of the limits to our growth right now is people can't live near each other, so they do have access to the best jobs. Then I read something somewhere. This year, rents in all the major cities have started falling. And then they were connecting that to OK, people are building housing. But also there are fewer twenty five year olds than there were five years ago. So that made me think that maybe we were actually kind of wrong about this whole cities being tied to productivity thing. Maybe it was just like the millennial youth boom moving into the cities that drove the rents up and they just made a whole narrative about it, which I would love that to be true. But I'm not sure it is.

Brian: [00:49:59:8100] I'm not sure that it is either. But we have talked about communities and like the next wave of what a community will look like on the show. And one of the things we talked about is sort of open sourcing blueprints for like technical focus communities. I'm sorry, like...

Phillip: [00:50:19:60300] Stepford.

Brian: [00:50:20:13500] Like more future focusing communities. And I just haven't actually gone and looked it up to see if there is anything like that yet. But I am really excited to see what home build... I think you've touched on something that's important, which is this large shift that needs to happen. We've been doing home building the same way for a long time. And so at least there's been a lot of community building up here in the Northwest, but it actually hasn't been that different from what happened in the 90s. It's a little better, but it's incremental. It's not transformative. And I would love to see instead of Alphabet going out and building an entire city, I would love to see them build a bunch of micro communities that are tech focused and really optimized for what we have available.

Saku: [00:51:17:75600] So one thing that was interesting is, I read this paper, which is like the best way to create a booming economy in like a random place is to build a university there. It's the fact you have like, crystalize institutionalized knowledge in that particular region. So I just wonder if you can have this charter city experiment where you say, OK, I'm going to take this random piece of land in Nevada and put the ultimate drone institute research here, I'm going to pay every top drone researcher to move here, I'm going to make it that everything drone related here is completely legal. And there's like an initial seed market. And like then you've kind of created this city, which is like it's like a slice of the future. It's just optimized to do one thing. Hollywood for drones. {laughter}

Brian: [00:52:11:72900] Yeah. I mean, so what if instead of doing something quite that grand, what if we just did that exact thing with communities throughout the U.S. instead of centralizing it again? We made it a more micro version of that, and it was spread out everywhere. I think that would be a lot more achievable, like building a small, few hundred houses type communities or units or whatever they are, and doing some really like out of the box stuff with that, like having the houses self built by robots.

Phillip: [00:52:49:30600] Here it comes. I knew it. I knew you were gonna go to some crazy degree.

Saku: [00:52:53:37800] Oh, I think that's not an efficient use of robots.

Phillip: [00:52:59:68400] {laughter}

Brian: [00:52:59:68400] It's not an efficient use of robots. I agree with that.

Phillip: [00:53:01:68400] We're all living in the robots while we're building houses with the robots. See?

Brian: [00:53:05:83700] Sure. Sure. Exactly. Well, let's not get that crazy. Let's just talk about efficiently built houses that are set up to actually interact with the technology that we have and are set up to interact with the technology that's coming, a.k.a. augmented reality. Having shared workspaces that are built around augmented reality or mixed reality. I think that would be really cool.

Saku: [00:53:35:900] Yeah.

Phillip: [00:53:35:900] I think it's interesting because real estate sort of adapts over time and has retrofitted with whatever the latest and greatest is... Electrical, plumbing, AR... I think real estate will continue to be what it is and we'll adapt it to fit. I'm really interested, and just to kind of wrap up this particular piece, but I'm sort of interested in the idea of somebody coming along and sort of designing and open sourcing a, never mind a community, but just how to make more energy efficient homes available for a lower cost and sort of make housing more affordable from the total cost of ownership over the lifetime. And I think we saw that. That played out really, really well in the car, in sort of the electric vehicle, and we are seeing that in some other spaces where patents are sort of being open sourced. And I'd like to sort of see that continued innovation, but I'm not... I'm getting a little off the topic here.

Saku: [00:54:59:72000] So it's just kind of weird to me... OK. Like, it is kind of a cool idea, but I why are we building smaller homes? That's deflationary. How can we get like bigger and better? I think it's just like the kind of symptom of the kind of bad economic situation that we're in that people can think of, like, okay, you know, here's a way for that to be more stuff. It's just kind of like scaling down, cutting back. I feel like maybe it's cool to have flexible communities where the cost of living is low. But, you know, that kind of assumes that we're going to have, like, very low growth forever and we're always going to need to be like scrimping and saving in that kind of way. I don't know.

Phillip: [00:55:49:8100] I see.

Brian: [00:55:49:8100] I think you're touching on something that gets back to our original conversation, which is our generation, and we're at the top end of this,  has been through a very difficult economic period. And our mindset is... And then this is fairly specific to America, I think, or Western society. The 90s were a very opulent time and there was a lot of like bigger is better. And coming out of that culture and sort of kicking back and saying, well, hold on, maybe it's not better. And then going through the economic period that we went through, changing people's mindsets around this to go the direction you just you just talked about, which is like, hey, wait, hold on. What if we can grow things had an incremental rate that's a lot faster than we thought? What if we can get bigger and better? And what if this technology stuff that we've got is actually going to help us live larger lives that are more efficient and more enjoyable? What about that idea? And I think getting people to think like that that have just been through what we've been through, is going to be hard.

Saku: [00:57:16:36000] I think you have to. Actually, not to keep making these 1930s comparisons, but, you know, this was kind of the same thing that happened. You can have another equity bubble since from 1929 until 1960. People were like terrified. Spending rates were lower even after the depression ended. And I think it's kind of an attempt to change it. Maybe it's a good thing that people aren't going to have that kind of manic consumerism that we had before 2008. I just kind of think that you're trying to be objective and make predictions about the future, perhaps maybe be aware of that kind of bias, perhaps?

Brian: [00:57:55:64800] That's a good call.

Saku: [00:57:58:54000] I could be wrong. Maybe we are actually all doomed and we should live in tiny houses. But I'd like to think that's not true.

Phillip: [00:58:07:5400] Coming to the History Channel: We're all doomed, and we all live in tiny houses. I do think that's interesting.

Brian: [00:58:13:76500] There are a few listeners that I going to like that statement.

Phillip: [00:58:15:38700] Yeah, I think so. I think so as well. While I'm the one who said it. So they won't like it. If you said it, they would like it.

Brian: [00:58:21:41400] Oh that's true. Maybe that's true.

Phillip: [00:58:22:64800] I think there's an interesting sort of wrap up, which is, I don't think I care or even think about the technology that sort of is pervasive in my life as long as I feel like I'm enjoying and am satisfied with my life. And I think the thing I'm trying to get at, which is coming back to retail crisis, which is I don't know that people are unhappy with the level of retail. I don't think they're unhappy with their purchases or their ability to get the goods and services that they require.

Brian: [00:59:04:34200] Good point.

Phillip: [00:59:04:34200] I think the consumer satisfaction is telling a pretty decent story that they're happy to get that from the most convenient place possible so they can continue enjoying their lives. And that slogging to the mall and fighting crowds and having to worry about parking and all the rest is not an enjoyable experience. And so that's changing. And I don't know that it's a bad thing. Reclaiming some of that space that's being used for parking all over suburbs and cities for other purposes is a bigger picture thought to say that we can do better. And having to herd people through and parade people through these edifices to consumerism is maybe not the best use of our space here on this planet.

Brian: [00:59:55:45000] Well, I think you touched on something that I didn't think about as well, which is basically, in some ways, we're perfectly happy as consumers. Maybe we just don't need those brands. Reality is, I'm not going to miss any of those brands at all. I'm not going to care one lick if they're still around, from like a very like satisfaction of my life standpoint. And so maybe we've over branded. These additional brands are just not necessary. That's another thought as well.

Saku: [01:00:33:40500] Do you mean there're limits to consumption in general, or just like these brands are crap?

Phillip: [01:00:39:45000] That's what Brian said.

Brian: [01:00:41:10800] That's exactly what I said.

Phillip: [01:00:43:36000] I mean, I don't know that the RadioShack was a bad brand. I personally, as someone to sort of like a tinkerer, and spending a good portion of my youth buying radio parts and pieces of odds and ends to sort of make things, it was nice to have a local store to get that and have someone at the store to sort of ask questions to and bounce ideas off of and bring in the part that I'm working on to see if they could take a look. And, you know, that was a unique experience to that particular store and something that I'll miss. Now I have to go on a parts catalog somewhere, type in... They have literally 20 million parts. I don't know which one is better than the next. I can't take anything to anybody. And I can only type to a chat bot, and that's it. It's not the same experience.

Brian: [01:01:43:87300] Sounds like a market opportunity to me.

Phillip: [01:01:45:82800] Yeah, but it's a hard problem to solve. But my point is, is that I think, there's always another fashion retailer. There are brands that we're gonna be poorer for missing. But they just didn't have a sustainable model.

Brian: [01:02:04:11700] Yeah, again, that gets back to Saku's point, which was some of these businesses were just poorly run.

Phillip: [01:02:10:55800] Yes. I hope we're not at peak consumerism or peak consumption. That would be terrifying.

Saku: [01:02:22:00] No. I hope not.

Brian: [01:02:23:8100] I don't think we're a peak consumption. But I do think that those brands were relatively unnecessary. I just don't need Abercrombie, and I don't need the Limited. I can't live without them.

Saku: [01:02:34:67500] It's important to remember we did consume more in 2007 than we do now. So we can't be at peak consumption or even close.

Phillip: [01:02:44:52200] Yeah. I for one, wore more Abercrombie in 2007 than I do now. Let's make that graph.

Brian: [01:02:54:45000] I don't know if I did.

Phillip: [01:02:54:63900] Okay. Parting thoughts. This was really great. Parting thoughts, Brian.

Brian: [01:03:01:78300] Parting thoughts... One, I love having Saku on the show. She's amazing. She can talk about a lot of different things. And it's... VR, AR... Actually on our way out, I would love to know if that thing that we had the bleep out of our last show is something we can actually talk about now.

Saku: [01:03:23:54000] Oh ask me that after the show.

Phillip: [01:03:26:57600] {laughter}

Brian: [01:03:26:57600] {laughter}

Phillip: [01:03:26:57600] That's great.

Brian: [01:03:27:39600] OK.

Saku: [01:03:28:36000] All right.

Phillip: [01:03:29:10800] Did you mentioned the Carlota Perez book that we had mentioned the pre show? Did you touch on that?

Saku: [01:03:36:49500] Oh yeah. So it's this book called Technological Revolutions and Financial Capital. So it's something I read when I worked in VC. It was just another book, with just this whole paradigm shift theory that you have periods of incremental improvement and then periods of paradigm shifts. And I guess the theories predict that we are now in paradigm shift from like the economy that was invented in the 20th century, which is all about cars, trucks, shipping containers, malls, and moving to something which is about information technology, the Internet, mobile... And I think it's just a really interesting theory to understand what's happening right now.

Phillip: [01:04:16:43200] Interesting. Any parting thoughts, Saku?

Saku: [01:04:19:40500] Yes, thanks for having you on the show. This is really interesting. podcast. Yeah, it's great to talk about retail and all this stuff I didn't know.

Phillip: [01:04:26:58500] Yeah. Thank you so much. And I don't really have anything useful to add other than to say we want your voice. And so thank you for listening. And we want you to give us feedback. So make sure to get that to us. You can reach us on social... CommerceFuture on Twitter. And you can also reach us at And we're always available there. Start the conversation there at in the Disqus comment box at the bottom of the episode. Anyway, thank you for listening. And what's our sign off again, Brian?

Brian: [01:05:00:7200] Keep looking towards the future.

Phillip: [01:05:01:46800] Wow. We need a better one, but that'll do for now. {laughter}

Brian: [01:05:05:25200] All right.

Phillip: [01:05:05:25200] Thank you, Saku.

Saku: [01:05:06:23400] All right. See ya.

Phillip: [01:05:06:61200] Thanks.

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