Shelley E. Kohan (00:44)
Hi everybody. Thanks for joining us on Retail Unwrapped. I’m Shelley Kohan and bringing back one of my favorite guests, Mark Cohen. How are you, Mark?

Mark Cohen (00:53)
Good, good. G glad to be with you.

Shelley E. Kohan (00:56)
I always like having you on because it’s never a dull conversation when you and I talk shop, so to speak. So thanks for joining us today. And for those who don’t know, Mark ran the Columbia University’s retail studies program ⁓ in the past and ⁓ now is doing some cult consulting work in the field and always an expert in all things retail. So welcome, Mark.

Mark Cohen (01:22)
Again, glad to be with you. Hope hopefully we’ll not disappoint.

Shelley E. Kohan (01:26)
Well today I well I think our topic today is very interesting. So I’m sure you ⁓ listen to Retail Unwrapped and you keep hearing all the podcasts I’ve been having. AI, AI, AI, AI. And you kind of have a different spin spin on things because everyone’s talking about AI, everybody’s talking about the impact of AI and all that. But ⁓ today you kind of have a different viewpoint. So let’s jump right in.

And let’s talk about where the money’s actually made in retail. So I’ll hand it over to you.

Mark Cohen (02:01)
Okay, so for many years the the headline de jour was e-commerce. And of course today the headline de jour odd nauseum is AI. ⁓ so let me just preface all of that by saying I’m originally an engineer, so I was an early adopter of

e-commerce and the technology that backs that up and I certainly have been an admirer of the the march of technology which today is now known as AI. ⁓ But but having said that I would point out that the majority of merchandise sold in the majority of classifications represents merchandise sold in a store, an actual physical place

Where customers either seek a remedy or are curious and discover something they’re interested in. It’s a store. And even though ⁓ e-commerce has grown ⁓ enormously, it got turbocharged during COVID and will continue to grow, it will be a very long time before brick and mortar stores disappear from view, if at if ever. On the flip side, with regard to AI. ⁓

⁓ AI is a extraordinarily interesting, challenging, in some cases, frightening version of rudimentary search. It’s the juxtaposition of search with analytical tools that address an organization’s ability to optimize its decision making. So let me let me talk about AI last. The store is a place customers

seek by way of a driveway decision or discover and once inside ⁓ satisfy their need if they had one and ⁓ get to browse and consider all sorts of things they may not have been thinking about. There’s an elemental behavior that I’ve always believed from the very day I started in retail, which was a hundred years ago, as a trainee at Abraham and Strauss’s executive training squad.

Shelley E. Kohan (04:16)
That’s

right.

Mark Cohen (04:17)
And that is that the store is a hallowed temple of commerce. It’s sacrosanct. And for a store to to ultimately be successful so as to acquire customers who come back again and again, the store has to be neat, clean, and friendly. Sounds like motherhood and apple pie. What’s the big deal? Except it’s a really big deal.

It requires that an organization creates standards that are adopted everywhere, including of course the store, and that those standards are upheld because not only has everyone bought in, but the structure of the organization, financially and operationally, supports those standards. And and and what do I mean by neat? I mean that there’s more merchandise on the fixture than on the floor.

And that throughout a day, a sh a busy shopping day, as customers mess things up, there is ongoing episodic regular recovery as necessary. So the store opens in pristine shape and it pretty much stays that way throughout the day. And at the end of the day, the store is recovered and restored so it’s ready for business the next morning. ⁓ Neatness is not just a state of mind, it’s a process.

And of course, underlying it is the organization of the merchandise in the store itself, so that it is represented in a way that customers would find logical, orderly, and intelligent. ⁓ Cleanliness is another motherhood in apple pie attributes attribute. But but stores, physical spaces do not stay clean by themselves. They have to be cleaned.

They have to be cleaned rigorously and the cleanliness of a store has to be measured and monitored. And that’s not just the selling floor, it’s the restrooms, it’s the customer service desks, it’s the pickup docks if a store is putting customers’ lawnmowers on the into the the the trunks of their cars. It’s everywhere a s a customer comes in contact. And by the way, that also includes the parking lot. So cleanliness

is not a ⁓ an sort of a a loosey goosey condition. It’s a requirement. and then of course friendliness sounds kind of obvious and sounds kind of easy but that may be the most sophisticated dimension of all because it requires that sales associates, customer facing associates be hired with some intent to scope out their personality.

To determine whether they are potentially going to be happy to work with customers, excited about the prospect, as opposed to just looking to to acquire a job, punch a time clock, and you know, kind of power through their day. How often have we seen associates in a store practice customer avoidance? They’re either on the phone, talking to a fellow associate, or looking

Shelley E. Kohan (07:36)
Yeah.

Mark Cohen (07:37)
Really hard to avoid having any contact. And contact is an elemental basis of friendliness. It’s it’s something that has to be ⁓ standardized, measured, monitored, inspected. It’s the approach that that associates ⁓ should be expected to make, and then the follow-on. ⁓ introduction, how may I help you? And then, of course, you would ⁓ assume that.

Shelley E. Kohan (07:59)
Yeah.

Mark Cohen (08:04)
retail organizations imbuing their associates product knowledge so as to be able to do more than just transact a sale and and put a a product in a shopping cart or shopping bag. so so those are the three attributes that I am really a bug on. ⁓

Shelley E. Kohan (08:22)
Well hold on, but

I n I know we’re gonna jump into maybe some s retailers that I’ve lost sighted up, but before we do, I wanna share two interesting things.

Regarding the stats and about the physical space and stores. So we know we talked about the sales, 80, 83, 84, 85% of retail sales are still coming from the physical stores. But but that’s where most of the profit’s coming from, too. Most of the profit, if not ⁓ you know, significant majority of it is coming from the stores. So when you think about all these retailers and brands really reshifting the thinking to all this technology and digital and e com and all that.

I’m not saying it’s not important. I’m just saying we’re kind of losing sight of the physical store. And I think you’re going to talk about some examples of some retailers that have lost sight of what you call like the three basic things that aren’t an afterthought but a priority for retailers.

Mark Cohen (09:23)
Well, you know, back in the day some of the masters of the universe thought of e-commerce as a f as a fad that would come and go, and that was a stupid view. ⁓ I was in the room with some of them when they they offered that up. but then they saw e-commerce as an antidote to the complication and expense of running a store. Of course, as you pointed out, over 80% of retail transactions take place in a store.

And the store is the fountain of profitability, whereas e-commerce profitability still eludes quite a few retailers. ⁓ and where they have become profitable, it’s marginal at best. So so you know, you you you you’ve got to focus on ⁓ the customer and where the customer engages you. And ⁓ at the end of the day, it’s a place.

That has to present itself every time an interaction takes place that’s favorable and attractive enough so that the customer comes back. Because you know, today they have far more choices than they ever had in the past. And if you make them unhappy, irritate them, aggravate them, disappoint them, they tend to disappear.

Shelley E. Kohan (10:42)
So let’s talk about so some of the stuff just going back to your like neat, clean, and friendly, I think ⁓ I know from personal experience, I know Kohl’s, I used to love to go to Kohl’s, it was fun, it was it, you know, it was kind of like a treasure hunt in a way. ⁓ and I feel like they lost some of that. ⁓ and I know there’s other retailers that maybe have lost some of that. You know, Target’s been they they have a lot of issues that I know they’re trying to overcome ⁓ as well. But any thoughts about

What broke down at some of the big major players in terms of of this idea that you have to start with the basics?

Mark Cohen (11:20)
Well let’s start with Kohls Kohls cut its bones on its ability to present attractive assortments in a very convenient and easy way to shop. You know, they they they focused on ⁓ brand presentations by classification, all ⁓ surrounding a central checkout.

They offered customers instead of a a clunky shopping cart, they offered them a mesh bag, which they could effortlessly carry with them throughout the store and then take their selections to a central checkout. And all by the way, Kohls was off-mall, and so there wasn’t the clutter of a multi-anchored parking lot to be dealt with. And so Kohls was a real winner in that regard. And then what happened?

Shelley E. Kohan (12:03)
Right.

Mark Cohen (12:14)
Well, they didn’t change the the the blueprint of the store. They just cluttered the daylights out of it with more and more brands, more and more merchandise, more and more choices, to the point where customers could not even get off the aisle into the departments without having to force their way past the fixtures in their in in the in their in their path. It became a joke. And and somehow the the the folks that created

Shelley E. Kohan (12:32)
Yeah.

Mark Cohen (12:44)
the the the phenomenon that was coals ⁓ moved on and the people that replaced them lost complete sight of what was going on in their stores probably because they weren’t visiting their stores which is a big issue in sustaining a standard of neat clean and friendly you’ve got to you’ve got to be on the ground in the store in stores

Shelley E. Kohan (13:00)
Hmm, true.

Mark Cohen (13:12)
Your organization has to be with you. You have to organize the visitations so that they take place on a regular basis. They have to be both announced, which is obviously sort of begging the store to prepare for your your ⁓ your your arrival. They have to be unannounced. The organization has to have a a focus on its presentation to customers that’s almost religious in its view.

Shelley E. Kohan (13:41)
Exactly.

Mark Cohen (13:42)
And and Kohls lost the narrative and still has not recovered it from what I can see. ⁓ the the the place is a sloppy mess. And though they’re working hard allegedly to refocus their assortments, I don’t know that they have fundamentally addressed the fact that they’ve stuffed way too much into their stores. I could go on. You talked about target.

Shelley E. Kohan (14:08)
I did. Target’s got a lot going on and I know they’re trying to make a comeback, but they they really lost a big core of their customer for many reasons, not just the ones you described.

Mark Cohen (14:19)
Well, way back in the day when I was with Dayton Hudson, now known as the Target Corporation, ⁓ there were a group of ⁓ newly minted executives at Target who who decided that the way to deal with Walmart was to create a price war against them and beat them. And the new the then new CEO of Dayton Hudson, who had been the CEO of Target, Ken Mackey, said to ⁓ this this group of ⁓

Shelley E. Kohan (14:24)
Yes, Dayton Hudson.

Mark Cohen (14:48)
Masters new masters of the universe. Slow down, ⁓ stop. ⁓ in a price war or in any war, there’s a winner and a loser. ⁓ Sam Walton still controls 100% of Walmart. He can afford to decide to win. We’re a publicly held company with a broad base of shareholders. We can’t afford to lose. So he allowed them to run a test. I was involved with Mervyn’s.

running their division in Dallas. I was asked to provide them with logistics support for the stores in the Texas Texas area that were going to be their their beta for their test price war. And of course, it’s a very long story and I won’t share it in this podcast. But they got their head handed to them. And when they discovered they could not take on Walmart on price, which lots of people have discovered when they’ve tried, they they they launched what became Tarjay, which is to say

A store with exciting assortments, very well presented, with an associate strategy involving the Disney guest ⁓ practice. And the store became a very cool place to shop and to and to shop often, and they were extremely successful for quite a few years. And then the then CEO, ⁓ Bob

Ulrich ⁓ retired and his replacement who had been with the with Target for many years was expected to maintain the view and he didn’t. He basically went to sleep. And of course ⁓ when the CEO is not f you know focused on what made the business famous the business becomes less famous and eventually he he did something catastrophic in Canada

And eventually he went by the boards and his successor, ⁓ Brian Cornell, came in, dispensed with Canada, which was a catastrophe, good for him, announced that the company needed almost five billion dollars in CapEx to clean up its act physically in its stores, and ⁓ and they started to do very well. And then of course they got the benefit of COVID, unlike other retailers who got killed by it. But then he went to sleep.

And for almost a decade the presentation, the the neatness, the cleanliness, and the friendliness of Target started to dissipate. And it wasn’t because they they ⁓ they they were hiring careless, stupid people, it’s because they were squeezing the store’s budgets, the staffing levels were ⁓ were were curtailed, and the the focus and the energy of the sanctity of the store

disappeared. And they lost their mojo. Now of course they are making all sorts of pronouncements about how they’re going to get it back and we’ll have to wait and see whether that ever happens. It’s it’s easy to see the standards dissipate over time. It’s a whole other issue to bring them back in a hurry.

Shelley E. Kohan (18:04)
Definitely and I’m I’m gonna add another factor that they probably lost insight to.

I’m gonna say a few years ago that now I don’t think they’re ever gonna get back because over at Walmart, Walmart is now really killing in on the fashion side. And and Target owned that many years ago. Target owned the kind of hippie fashion side. And I remember Target’s Mossimo collection when it first came out. What a home run! And that now they’ve just literally over the past five, six years, they’ve just handed the fashion business over to.

To Walmart. And course, we know ⁓ Denise and Candel is there and she’s killing it on the fashion side and the collaboration side. So the assortment at Target used to be special, it’s not anymore. But ⁓ I’ll let you comment on that. But I want to get into assortments and buying in a second.

Mark Cohen (18:59)
Well, you see, there I

I’ve talked about stores needing to be neat, clean and friendly. The fourth element, which is the codex of retail, is assortment. The store has to have on the shelf, on the floor, the kind of merchandise that customers expect to find when they shop,

plus a whole lot of things the customer may not even be thinking about that when they encounter, they buy more things. And that was the beauty of Target.

Shelley E. Kohan (19:26)
Right.

Exactly.

Mark Cohen (19:30)
⁓

now interestingly you mentioned Walmart by comparison. Walmart has struggled forever trying to be quote unquote fashionable. They have failed at it up until recently. They failed at it miserably. They’ve also not been particularly focused on the condition and presentation of their stores. They certainly were when Mr. Sam was running the show, and as he back as he backed down, retired and went away.

Shelley E. Kohan (19:40)
Ha ha

Yeah.

Mark Cohen (19:59)
His successors became far less fixated on that. And for many years, though Target was certainly profitable and certainly growing, their stores were really ⁓ not particularly appealing. In many cases, they did a lot of business by default. Today they’ve gotten their fashion act together once again and seem to have gotten it right or getting it right.

And they have also been focusing for several years on the stores. They’ve been ⁓ revising their compensation schedules. They’ve made it far more important at every level in the stores organization that neat, clean, and friendly is just as important as four-wall expense management. And so, you know, you you can have your cake and eat it too. You can’t.

Shelley E. Kohan (20:48)
That’s right.

Mark Cohen (20:53)
squeeze the daylights out of your stores ⁓ to enhance your PL without having consequences. And by the way, Target is has got an enormous job ahead of them because they’ve really slid down the rabbit hole.

Shelley E. Kohan (21:11)
Yeah, they have. So let’s talk about this assortment thing because I find it interesting. And I want to go back to our earlier point when we started the podcast about the AI and focusing on technology and the human side, because I think this is a great example. So AI is great for merchandise and buying and planning for rudimented ⁓ tasks. So, you know, getting the history from years and years, looking at trend charts from the past, ⁓ even maybe projecting future based on past purchases.

Purchasing. It’s great at doing assortment planning, doing all the, you know, going down to the store level, but you need humans there. And I think this is your big point because a lot of the assortment is based on relationships, collaboration, negotiation on margins, and all of that, right?

Mark Cohen (22:01)
Well look, you know, as I said, ⁓ assortments, assortment planning, assortment maintenance ⁓ is the codex of retail because you you don’t get to create assortments and then you call it a day and go off and do something else. involvement in assortments is a constant, ever challenging ⁓ issue that is never conquered.

Now now what is AI? There’s so much noise. There’s so much ⁓ craziness surrounding AI, from the ridiculous amount of investment that’s going on today, ⁓ to expectations that are completely unrealistic, including fears that may or may not be at all realistic. So so, you know, once upon a time, ⁓ some very smart guys out in California created an efficient engine which was be

which was known as search became Google. And and and search represented a very effective way to gather information and present it in a usable way. That explosion in technology went hand in glove with the emergence of analytical tools and techniques, which is to say the the aggregation and organization of data.

Shelley E. Kohan (23:00)
Ha ha ha ha.

Mark Cohen (23:24)
As soon as retailers went to point of sale equipment, they they got data in in fire hose fashion, didn’t know what to do with it, didn’t know how to look at it, didn’t have the the the arms and legs and the in in intelligence with which to to use it. But you see, tools have become extraordinarily more and more sophisticated and effective. So with with extremely

effective search, which is all encompassing, and extremely effective analytics. We now have something called AI, which is the aggregation aggregation of of technology. And it’s not a surprise. It’s been a building for many years, you know, the the predictive and analytics ⁓ business started maybe 15 years ago. I was on the board of First Insight.

Shelley E. Kohan (24:16)
Yeah.

Mark Cohen (24:22)
For many years, and they were one of the first ⁓ creators of predictive analytics in a manner in which users could actually ⁓ make more successful decisions. So assortments require decisions. Effective assortment planning takes all of the history, good, bad, and indifferent, all of the ⁓ surrounding data, which is to say the performance of others.

Shelley E. Kohan (24:23)
my gosh.

Mark Cohen (24:52)
all of the answer the ancillary data like demographics and economics and presents it in a format that gives decision makers more ability to be more successful. What AI doesn’t do, and in our lifetime, in my opinion, will never do, is provide intuition, vision, and and decision making that takes into account

the vagaries of customers whose behavior is not and likely will never be entirely predictable. You know, that that is the heart and soul of what makes fashion fashion. There are trends that emerge that are a follow-on from the past. There are there are trends that die for reasons no one can ever figure out. And then there are things that customers have to have that no one

Shelley E. Kohan (25:45)
Yeah.

Mark Cohen (25:49)
would have ever imagined would have been an appeal of appeal. Someone woke up one day and said, you know, I think this color is really cool. And someone was brave enough to put it on a selling floor or on a website and discovered it was way more than really cool. And that’s not something that AI is going to be able to create. AI can pounce on it by way of observations, but AI is not going to create that kind of intuitive

Shelley E. Kohan (26:13)
Right.

Mark Cohen (26:19)
⁓ creative spark. That is the ⁓ the icing on the assortment planning cake.

Shelley E. Kohan (26:27)
I definitely ⁓ agree with that and I think the intuition, I mean, if all of us could if AI and all of us could predict what the consumer’s gonna do next.

with precision, we’d be millionaires. All the companies would be successful, right? But we can’t do that. We do the best we can. And I do think it takes intuition and a deeper dive into what’s happening in the future as opposed to always looking backwards at the past. You really have to understand tomorrow’s customer today.

Mark Cohen (26:58)
Well AI AI and predictive analytics, they’re one and the same in many respects, can can create present inferences, ⁓ biases, ⁓ pointers, but but there’s a limitation on just how far that can go. And for those out there who see AI as some magic toolkit that will suddenly make them better.

Shelley E. Kohan (27:04)
Definitely.

Mark Cohen (27:28)
Or well, ⁓ they’re fooling themselves. And you know what? It requires success requires obviously delivery of performance down to the bottom line. But the delivery of success requires that people engage with the customer where the customer shops. Which is to say, retail organizations have to be devoted to being in their stores. It isn’t just retail.

This is this is the bane of industrial organizations who move their headquarters away from the factories into more attractive places and lose sight of the fact that what’s going on in the factory is going to take them down the rabbit hole. Example, for example, Boeing. Paragon of Virtue and Quality Engine. The geniuses move their corporate headquarters from Seattle to Chicago.

the factory floor started to ⁓ buckle under the squeeze of productivity demands and suddenly a ⁓ a door on a new 757 blows out. fortunately no one is killed. And why did it happen? Because someone forgot to put the bolts back in when the door had been removed in the factory. You know, this is this is an example of loss of touch with the reality of the business you’re

responsible for running. And in retail, that means being in the stores. Not just the the suits, but the organization at large. And and and bearing witness to the strategies you have mounted to ⁓ observe whether they are working or they’re not. And if the store is sloppy, dirty and unfriendly, it’s not working.

Shelley E. Kohan (29:21)
Love it, Mark. So thank you so much for being here. You did an excellent summary. ⁓ thank you for that. But really a reminder that retailers should be investing in the stores and kind of balancing out the AI with the human side of it and investing in their people. I mean, that’s what it comes down when you talk about, you know, the basics. You know, that’s where retailers and brands should really be thinking. And of course, you gotta inspect what you expect, right?

Mark Cohen (29:48)
Well let me leave you with one last comment. Has anyone ever been in a sloppy, dirty, unfriendly Costco?

Has anyone ever been in a sloppy, dirty, unfriendly Apple store? I’ll leave you with that.

Shelley E. Kohan (30:07)
Thank you. Excellent. Thank you so much, Mark, for joining us.

Mark Cohen (30:11)
You bet.