The following is the interview with Paco Underhill, CEO at Envirosell, a US-based behavioral research and consulting firm which has some of the top Fortune 50 companies across 47 countries among its clients. With over 30 years of industry experience, Paco is the author of popular books including “Why We Buy: The Science of Shopping” out in 28 languages and used in MBA programs, Design Schools and Retailing Training Programs across the world. He is also the author of a very popular program for the International Council of Shopping Centers (ICSC) called “Learning from emerging market shopping.”
You’ve been in the industry for over 30 years now. How has retail been changing throughout these years? How is it being affected by the coronavirus outbreak?
Retail has always been, particularly here in the US, about birth, life, death, and compost. If you look at the top-10 list of merchants here in the US in the 1960s up well into the 2000s, it is constantly changing. Certainly, there is any number of people that were on the 2010 list that may not be there on the 2020 list and so on.
I think part of what this does is set up the opportunity for innovation-powered growth. It also prompts people to recognize two things. Firstly, retail is the dipstick of social changes. Secondly, we are a reflection of these changes. And those changes are generally five things:
1. Our visual language is evolving faster than our spoken language. Therefore the issue of how I organize and understand what people see is becoming more critical for retailers. Whether we are talking about online or physical shopping, we need to understand that people in their 20s see things in a different way from people in their 80s in terms of color and contrast, etc.
2. The changing status of women. Historically, we sold women cars, cosmetics, food, and apparel. And yet in 2020, women are the most important buyers of technology. Women are not only buying for themselves, but they are also shopping for their children, parents, and partners. The kinds of questions that they come to a tech purchase with tend to be based not on what the specifications, but what the implications to that technology are.
3. All of us are moving through our lives with a clock ticking inside our heads. The degree to which we are making the choice between physical and cyberspace is a way of multitasking. For example, the number of households in the USA where the woman is the dominant bread earner goes up with each passing month. So, you have a woman who both is earning a living and caring for her husband and kids, and for her house. Thus, many of her choices about how she accomplishes the things that she needs to accomplish are based on time factors — and that is where technology breaks in.
4. Global versus local. The way someone shops and the things that they buy in Albuquerque, New Mexico are different to how someone shops or the things that they buy in Dallas, Texas. Just in the same way that we know in the fashion world that there are dresses that will fly off the rack in Dallas that nobody touches in Philadelphia.
And this is, again, one of the challenges that the retailtech industry has: it is recognising that it isn't the scale of the pile of data that you accumulate, it is the relevance to whoever it is that you're trying to serve. So, as you think about retail software packages, it isn't being able to aggregate across a chain, or if you think of a technology platform, it isn't being able to aggregate the clickstream data nationally — it's being able to do it locally and being able to give the people who have tactical control the active information to be able to solve the problems.
5. The paradigm of consumption is changing. For example, I have a T-shirt which I bought at Walmart that might last for 2 years. I have another T-shirt which is made of higher quality cotton where the construction process is better — and I can make it 15 years worth of work. The idea that I spend 3 times the amount of money and get 5 times the amount to use is something that is very important, particularly, now.
Because post-pandemic, many of us, having been locked in our homes, are doing a certain degree of editing; we are looking at things and going: “How often do I wear this? How often do I use this that has been sitting on my shelf or in my refrigerator for 5 years? Maybe it's time that I started to do a better job of consuming?” It’s also true for being able to recognise that the fewer better things may be very much in my interests and in the interest of the broader world in which we live in.
Thus, the ways of how we communicate what the value proposition is in terms of what the difference in the quality of goods in correlation to its price is are changing. There are some things that may be obvious like cars, but there are lots of other things to which often in order to generate the interest we have to generate the education first.
E-commerce has been booming in the US, with the COVID-19 outbreak giving it an even bigger push. What is your take on the development of online shopping pre-pandemic, today, and tomorrow?
Let's just recognize, first of all, a series of painful realities. Particularly here in the US, somewhere between 30% and 40% of households and workers cannot accept delivery after work or during the working day. Thus, the delivery is often left on the front doorstep, which adds a certain degree of vulnerability, too.
Certainly, during the present crisis where we are confined to our home, the parameters of us being able to interact with online shopping have changed dramatically. On the other hand, there are many dedicated digital shoppers who have arrived at the pandemic and had trouble scheduling deliveries and therefore have had to go to the store, in many cases, for the first time in a long period of time because that's the only access to goods now.
Surely, post-pandemic I can imagine that there may be many homes that put in some form of a locked bin at the front of the house that the delivery services have some digital access to. But for this to happen, the protocols of online shopping and the logging into it are things that will have to change.
Will the ratio between online and offline shopping be another thing that’s going to change in the nearest future? Somewhere between the ages of 35 and 40, we get to a point where about 80% of our weekly purchases are the same thing. I know the kind of mustard I like, the dog food that my dog likes — and they are the same thing every time. Many of those commodity repeat purchases are going to be facilitated by access to online services. At the same time, there is a series of purchasing choices — vegetables or fruits, meat, or shopping for a special occasion — which needs to be fulfilled in a physical location.
So part of what we're looking at is, first of all, something where I can go shop for the things that I need to shop for or that I want to shop for and the things that I have ordered online that can be simply loaded into the back of my car or delivered to my doorstep.
Thus, in the eyes of the consumer, online and offline shopping are pretty much the same thing; that hybrid of physical and online shopping is going to be very much part of our future. Making this type of shopping smooth is one of the challenges that many modern merchants whether you are Walmart or Kroger or anyone else are chasing right now.
US shopping malls have been having hard times for quite a while now. Then came the coronavirus crisis making it unlikely for many of them to reopen their doors once the lockdown is over. How do you envision the future of shopping malls in the reality of ‘new normal’?
I have a very popular program that I give to the International Council of Shopping Centers (ICSC) called “Learning from emerging market shopping.” Its main idea is recognising that the cutting edge of the shopping mall left North America a long time ago. Most of our shopping malls here in the US are 40 or 50 years old. By contrast, there are a number of fundamental issues that are different in “younger” malls such as the Zorlu Center in Istanbul, Tokyo Midtown in Tokyo, or the K11 shopping mall in Shanghai.
K11 shopping mall in Shanghai, China
First of all, around the globe, the shopping mall world is focusing on “alls,” not “malls.” That is the premise that combines housing, hospitality, work, and shopping in the same place. It means that there is an incentive for somebody to live in a place where they don't have to drive their cars. It’s a place where they can access the supermarket and entertain — they can do all of the things that they like to do without having to go drive somewhere.
Certainly, here in the US, with the exception of the Brookfield Place in New York City, very few shopping malls are complete solutions to people's needs. It means that most American shopping malls don't have a hardware store, a grocery store, a drugstore, a dry cleaner, or a locksmith in them. Thus, there aren’t many necessary pieces of the puzzle in the US, much less going to a shopping mall where they are schools, libraries, doctor’s offices, yoga classes, daycare centres, etc.
Also, here in the US, the most misunderstood asset that many shopping malls have is the parking lots that surround them. These parking lots can be turned into housing and can be used in other forms of services.
For a younger generation of consumers, the idea of living in an edge city is something that has an advantage. Some shopping malls already have to deal with TikTok teenagers gathering in the shopping mall and acting out. So, part of the challenges for shopping malls’ management is figuring out what to do with the fact that there is a generation of people that like to physically interact with each other and want to be in a central location. Should they be separated from the broader landscape of other shoppers or controlled in terms of which of their actions are dangerous and which are not?
All in all, I believe my point is that the ageing US shopping mall without the broader mix of tenants is an endangered species.
Meanwhile, the “all” has a future as a modern village. This idea of living responsibly and small — living in a village or a smaller-scale city where I have some density, but not overwhelming density, know my neighbours and vice versa, and when I go to the store, somebody recognises me — has a huge potential to it.
How would you describe the role of the price of a product in the modern product offering?
One of the things that we are looking for in the broader world of shopping is, for example, somebody offering the following: “Here’s a cleaning package”, “Here’s a cleaning bundle,” “Here is a dinner plan bundle,” “Here’s meat, potatoes and vegetables.” It's all ready to go and this is the price for it. For example, in Brazil, you can buy a package for a ready-to-go dinner with a fixed price from a local farmer.
In fashion, there was a major revolution in a presentation of goods perpetrated by Inditex. For example, Zara and Massimo Dutti did a wonderful job of presenting not the price on an item, but the price on a solution which combines this top with these shoes and accessories. A version of such a pricing technique is called bundle pricing. So, that’s one thing.
Because somebody can always go online and be able to find something cheaper without realising that if this toilet paper is 10% cheaper than it was somewhere else, the reason for it is that it is an ageing lot that may be 8 years old and they will have to use twice the number of sheets to be able to do their job than if they had toilet paper that was manufactured 2 months ago rather than 2 years ago. So I think part of what we're looking at here in these pricing model issues is the degree to which we have a consumer understanding of why something is being discounted and what the potential flaws are.
Another downside to blind discounting is being sucked into a race to the bottom, which is dangerous. I think they're a series of eminently more creative ways to be able to entice customers rather than bombarding them with discounts.
All in all, our phones and our access to the Internet have given us the ability to be smarter and more educated shoppers. At the same time, in the next year, it's going to be a major issue that there will be many people who are going to be looking at a level of poverty that is unprecedented in their lifetime. Thus, there may be some people who will be going for the lowest common price, but there are going to be other people who will be going to want to consume fewer better things.
What are your tips to retailers that are struggling to survive the crisis?
There are three pieces of advice which can work for retailers:
1. The first and foremost thing is to look after your employees. When I do an inspection of a store, one of the first places that is on my list is to go see the employee bathroom. Because that shows me what the moral of the story is and that’s where the customer service starts. So it isn't just how much you pay people, it’s how much you actually take care of them. It’s pretty simple: if you look after your employees, they will look after your customers.
2. To recognise that, particularly in the 21st century, the experience of shopping starts and ends in the parking lot or out on the sidewalk. And that being able to extend your management and your perspective that covers the start and the finish is one very important way of doing it. Looking at security issues is one of the ways that you ensure that the customer comes back.
3.The issue of hygiene is crucial. Even if you pre-shop some place online, but then you're creeped out in the parking lot or you think that the place that you're picking something up is filthy, you won’t come back. In today’s reality, it’s also about a way to facilitate some social distancing and simply making people more comfortable.
Thank you, Paco!