Guest: Andrew Cox
Topics: Retail Supply Chain, FreightWave

Transcript:

Chris Ressa 0:01
This is retail retold the story of how that store ended up in your neighborhood. I’m your host, Chris ReSSA. And I invite you to join my conversation with some of the retail industry’s biggest influencers. This podcast is brought to you by DLC management.

Welcome to retail retold everyone. Today I’m joined by Andrew Cox. Andrew is the senior retail analyst at freightwaves is the host of the podcast, great quarter guys. He is also the host of the podcast, point of sale, a retail supply chain podcast. And he is the retail lead for the freightwaves community. He writes their weekly newsletter. He is a supply chain guru and I am excited for him to join the show. Welcome, Andrew.

Andrew Cox 0:53
Thank you, Chris. I would not consider myself a guru quite yet, but hopefully on the way.

Ressa 0:58
Excellent. excited to have you on tell us a little bit more about you and what freightwaves is.

Cox 1:03
Sure, yeah. So I’m Andrew Cox. I am 25 I guess I used to call myself a recent grad. But I guess I’m just now emerging from the recent grad. You know, Monica, so I graduated a couple years ago, I’ve been at freight waves for two and a half years. I started there as an intern back in 2018, got a full time job right after graduation, with with freight waves riding on the research team. So Kevin Hill set home and I started the research started on the research team at freight waves when it launched in May ish of 2019. So we wrote long form research reports for the research division and and then soon after, they’re in the in the fall of 2019. That kind of beefed up the freight waves TV aspect of it. And I’ll get into the whole picture of freight waves in a moment. And then I started doing podcasts and getting on TV with virtual events, and so on. But anyways, you can think about it as a mini Bloomberg. So the the breadwinner of the company is its is our data platform called sonar. It is an amazing real time data platform for the freight and logistics industry. But it has a lot of warehousing data real estate data, it has loads of data in it. So we have customers that are not only in freight logistics, but in investing. And we have retailers, of course, big shipping companies, everybody can use some of the data in sonar. So that is our bread winner. But similar to what Mike Bloomberg figured out was that you need a media arm to kind of evangelize some of that data and help connect people to the data. So freightwaves also has this big media arm including freight waves.com, which is the leading freight and logistics news website. So our media includes the website, we also have loads of podcasts and shows. So as you said, I lead two of those and and now, ever since COVID began, we had a third arm which was big in person events. But that has shifted on to virtual events. We actually do have an in person event that just got announced we’re going to do it in November called f3. The future of freight in Chattanooga, it’s going to be amazing November 8 through the 10th. But that’s gonna be a first in person event in a while because we had shifted to virtual events. So I got involved with virtual events and freight waves throughout the Coronavirus, which was great, I had a lot of conversations with amazing people from all over the place, including NASA, we did a space waves event, which was the future of freight logistics in space. So that was amazing. So we’ve got a wide range of conversations. But freight waves is a pretty much a two headed monster right now, which is it’s our data platform, sonar and our media platform, freight waves.com and all freight waves TV and all the virtual events that we do. Really interesting. Don’t talk about supply chain and the freight industry all that much on this podcast. I’ve been following you on social media, you’ve put out some provocative, thought provoking content. And I am excited for you to share that today. Before we get there, we’re gonna go to the part of the show called Clear the air. So I’ve got three questions for you. Are you ready, Andrew? Probably not. But let’s go for it. Question one. When is the last time you tried something for the first time? Yeah, I have to think about this one and I was thinking back and I remember doing this for the first time it wasn’t that long ago was probably three weeks ago and that was try virtual reality. I put on one of the Oculus quest twos that I had seen the Oculus quest one they had it at my in laws house last Christmas I didn’t try cuz I honestly was like I don’t want to get I want to try it when it’s even better. I want to like have my first experience when it gets better. I saw my girlfriend put it on and she was just amazed. I was like, Okay, let’s do it. And I played top golf on it. And it was amazing. So that virtual reality first time a couple weeks ago. Incredible, great answer. I am fascinated by the vast array of answers. I’ve gotten on that question. So really cool. Second question, Andrew.

Ressa 4:57
What is one skill you don’t have but you

Cox 5:00
Do you wish you did? Yeah, there’s only one answer here. So my mother is Cuban. But I was born very late in her life. She was 40 when I was born, so by the time that I was born, she, she is still fluent in Spanish, but she didn’t just didn’t have the energy to fight with a very difficult child to learn it. So I never learned I never learned enough Spanish growing up. So that is like my biggest regret that I haven’t learned Spanish yet. And it’s just a shame to my Hispanic heritage that I don’t. So it’s definitely speak Spanish. It is on the bucket list. Is it on the bucket list? Are you going to go into or it’s on the bucket list? The thing is, I want to just move to South America or Central America, and I’m only gonna be able to do that if I can save up a significant amount of money and just uproot the family and take the wife there. And we can just live there for 18 months or so. And we don’t have to work like very serious jobs. That would be ideal. So that is on the bucket list. But you know, it may take a while. Understood. All right. Last question.

Ressa 5:59
What is something? Most people agree with what you don’t? And

Cox 6:06
that, that Italian is the best food? You know, I think I think like when they think about their favorite foods, that’s their favorite cuisine. They always think Italian and I think that’s wack.

Ressa 6:17
What is your favorite food?

Cox 6:18
Oh, yeah. Well, I mean, I can’t say Asian because it’s just too many foods in one, but I do love Korean food. Yeah, I’ll probably say Korean food.

Ressa 6:28
Korean food is great. I love Korean barbecue. All right. I’m excited because we are going to talk about top three trends in retail supply chain right now. All right, Andrew, what is the first top trend in the retail supply chain right now?

Cox 6:44
So I think there’s this one of the big one is just this divergence in delivery strategies. So you know, there’s obviously an arms race going on between Amazon Walmart target, and those that really can can keep up with them on faster and faster delivery. They’re trying to bring that down to ideally, you know, I mean, it may get too fast. Did you ever watch Ned’s Declassified and you might have been, might have been a little bit, Wilder might have been a little bit under your age. But it was funny that the rich kid would have a phone and he’d call and 10 minutes later that whatever he wanted, would be there. And it’s funny, because like, that is what Amazon is eventually going to go get to in in densely populated areas with drones. And so it’s Walmart and everyone else. So they’re going to this faster and faster delivery. And there’s going to be divergence between the people that can keep up and should keep up and the people that just shouldn’t. And I think there’s a lot that shouldn’t. And those people that shouldn’t, are going to, to I think need to find creative ways to incentivize customers to take a longer delivery time. And there’s a bunch of creative ways that people are doing that. But the divergence here is there’s going to be the retailers that can keep up and the retailers that can’t. And I think the ones that can’t are going to find this, this creative solution. So for example, a couple are and before I say that, I will say that there’s been a lot of data to prove that you can do this that customers are willing to take a longer delivery time and exchange for other benefits. And some of those have been Timberland, the outdoor apparel company, they figured out that if you just offer to plant a tree, in the retailers in the customers name, in exchange for a longer delivery time, they’ll take it 14% of the time. And some other examples I’ve seen. There’s a Mexican company called Kapil, that did this where they just showed the they just showed the hidden cost of transportation. So the the carbon emissions to the customers, I can remember the exact number that that that ended up taking the longer delivery time, but there’s people that will take a longer delivery time, and there’s others that will take a longer delivery time just for a lower cost. So there’s a big one here that pin Duo Duo is a Chinese ecommerce company that they really kind of pioneered this and figured this out that if you if you offer the cheapest cost, people really will take a longer delivery time. And that also has to do with the way people are shopping, whether they’re browsing or ordering on demand. If you’re if you’re doing browsing shopping, you’re much likely much more likely to take a longer delivery time. But I think that is a big trend here that there’s going to be this divergence between who can compete and who can’t compete in this arms race for faster delivery.

Ressa 9:10
You put it so eloquently in this divergent delivery method. And I think you’re spot on that not everyone should be competing for faster and faster delivery. One of the things that we are in the value retail space and one of the things that I like about being in that space is one of the best ways to provide the real value is to go to the store. And I think you know, we were talking earlier about some of the companies that provide a significant value in their products. And the most efficient delivery method might be for Bovis or me to go pick it up in the store and I think that that is going to make this this delivery race really interesting to see what people come up with?

Cox 10:02
Yeah, I was I had a conversation with Satish Jindal, who has been in the freight industry for 30 years he now has, he’s the president, CEO ship matrix. They’re a data company and a great parcel data. But he was saying that they’ve done surveys of people that they said, 85% of people that order Amazon today, or same day delivery, they don’t end up using those products for three or four days after. So it’s, they’re giving away that that delivery, but people don’t even really need it. And if you if you can give them other things in exchange for for them, not just taking advantage of the faster delivery, they’ll end up taking it. And I think a really interesting thing that I wrote about the other day was his company called Olive that’s just recently launched. It’s Nathan Faust, He is the former, he’s got a long laundry list of successful exits and ecommerce diapers.com jet.com was his big one. And then he’s been an executive at Walmart for the last few years. But what he started in Olive is is delivery consolidation company, so free to use for customers. And right now they’re only going after apparel. And I can tell you why it’s a really good idea to only go after apparel. But what it is, is you download a web browser on your chrome extension and or an app, you shop as you normally would they partnered with hundreds and hundreds of apparel companies you shop as you normally would when you go to when you got to check out the all live delivery addresses already inputted it sends it to the to the all of a consolidation place. They consolidate all of your weekly all of your orders into one weekly delivery. So the whole your area has one weekly delivery date. And it’s sent in a two way reusable, recyclable shipper, not no cardboard, completely cardboard lists. And so you get all your things delivered once per week. And you know what, what they’re the what they incentivize with is free returns seamless returns, it’s a two way shipper. So if you get things delivered on Wednesdays, if you have things you want to return, rather than having to take it back to the store or take it to a FedEx or UPS, you can just put it in this box, and then it’s returned as easily as things are delivered. So that’s a big incentive for people that don’t really care about the sustainability impact. But there is a huge sustainability impact to all estimates and 75% of the carbon emissions attributable to ecommerce are from the last mile delivery, and the packaging. So if you can reduce the packaging reduce the last mile stops, which they’re trying to do to big sustainability impact too. So I think these are all creative ways that people are getting, getting customers to accept longer delivery times.

Ressa 12:21
Interesting that that is an interesting one. All of I hadn’t heard of that until you posted about it. Why should it only be for apparel?

Cox 12:30
Well, I think it will eventually get to other things. But apparel is a really good place to start. Because one, people don’t order it to be used the next day, it’s kind of longer estimated, you know, use time. And then to that is to apparel is one of the biggest problems. Apparel has one of the biggest problems when it comes to returns and people bracketing buying three or four different sizes, just to return all but one. So there’s a lot of problems with returns in, in apparel, e commerce. So I think that making this easier, and making it more efficient, more sustainable is a good place to start. There was a third point that’ll come to me at some point, but I can’t remember it.

Ressa 13:11
Got it. Okay. All right. So that’s Trend number one, the divergent delivery methods. What is Trend number two.

Cox 13:19
The job number two is fulfillment strategies. So you’re seeing a few different ones deployed. And this happened. This has to do with curbside and bopa. So what I mean by fulfillment is just how the orders that come on come from online, how they’re fulfilled, and how they’re eventually get to their their end customer. So you have kind of to begin with, you have a on one end of the spectrum, you have Amazon, where you have centralized or regional automate highly automated fulfillment. And on the other end, you have target, who is leveraging their stores, not using, you know, fulfillment centers to fulfill their online orders. 95% of orders from Target online right now are being fulfilled from store, meaning they’re either literally every one of those orders is has a picker that walks around the Target store picks up picks the stuff puts it in a bag, and it’s either delivered through shipped their their ecommerce gig economy, third party delivery company, or it’s picked up curbside, which that is the more likely option. Most of them are picked up curbside because it’s free. Right? If you’re paying people don’t want to pay that additional cost. We’ve talked about this. You know, earlier, I think you mentioned 78% of Americans live paycheck to paycheck that additional costs, it means something so people are going to accept the free one. Most often. That’s why I think both this is a good option here. But so these are the two like one ends of the spectrum. And then you really have Walmart in the middle. That is also leveraging its stores but it’s doing it in a more automated way. So they have these local local fulfillment centers is what they’re calling them. The first one that rolled out was in New Hampshire, it came out in 2019 to great success. They have this amazing automated robot system called Alpha bot that fully automates almost fully automates the the picking and packing of groceries. There’s just humans, there are still humans there to ensure accuracy. And they also have to go and pick fresh produce and other things, but that will eventually come into the automated fulfillment center as well. So you know, the difference here is that you’re taking the picking out of the store and bringing it to the back of the store. So they’re building these fulfillment centers either onto the back of Walmart’s or inside of a Walmart in some cases. And I and then you know, also on the, on the Amazon side of things you have Kroger, who Kroger is doing has a huge partnership with a British company called Ocado. I don’t know if you know Accardo. But they’re amazing. You know, they’re not yet profitable. They have an amazing product. He’s fully automated grocery warehouse warehouses. And so you have them building out these regionally outside of outside of Chicago, outside of Minneapolis. And you have them competing with fully automated, it’s always it’s obviously going to be more efficient long term. But you know, they’re only available in the highly they’re only make sense in in highly dense areas. Or you have Walmart, who has, you know, stores literally everywhere, 95% of Americans live within 10 miles of a Walmart, and they’re doing less automation, there’ll be less efficient, but you’ll reach a much wider audience. So you have all of these different matrix here between centralization and decentralization and automation and manual processes and the way that they all work out, I think there’s room for all of them. But I think it’d be really fun to see which ones end up being the best long term.

Ressa 16:31
Interesting, from giving a value to the consumer, and sustainability. I personally love both this, I think both this is really enables the consumer to get it quickly get value, and, you know, hits on the sustainability front. What is your take on that?

Cox 16:55
Oh, I’m with you 100% on long that I’m buying that whatever term whatever ESPN term you want to play on it, I’m definitely long that so I just don’t think people want to pay the additional cost. I think that they’ve been paying the additional cost to have things delivered because they’re avoiding the stores. They want to keep the family safe. But that’s not gonna be the case in 689 months, whatever, when everybody’s vaccinated, and stores are open, full capacity, but people are enjoying the convenience of not having to go into the store. So they’re going to keep using Bovis. I think people that have you know, ordered on target, got in line, push the button and had the two people there waiting with bags in hand, all you have to do is push the Trump button and rolled away I think people have gotten to like that I know I have. And I don’t think there’s going I think that’s here to stay. You know. So when you think about the COVID changes, and E commerce, it’s not going to grow at the same rate it did last year, obviously. But I don’t think it’s going to decelerate, I think ecommerce is here to stay because of that convenience factor. But when it comes to delivering those online goods, things bought from stores, especially groceries, I don’t see the grocery delivery really being it’s gonna be a bigger part. But it’s never going to be the majority. I think both is though, has a chance to be a solid portion of all grocery spend, you know, for the foreseeable future.

Ressa 18:07
Have you looked at any research around the halo effect? Have you heard of this, as it relates to it is the when someone uses bogus and they go to the store, the incremental sales that happen, you should do some homework on the halo effect. One of the things that really helps retailers is when you do actually make an order, a bogus order, you buy it online, you’ll pick up in store, the incremental sales that retailers get from that in the store are pretty dramatic. should take a look at that.

Cox 18:37
Yeah, I will get started. I mean, the doing this, you also just make better use of your space, better use of your land, but are using your inventories. I mean, it makes a lot of sense.

Ressa 18:47
Totally. All right. The let’s go to the third trend. What is the third trend?

Cox 18:53
Although everyone is kind of a discussion on inventories, there’s a couple a couple questions here. And one is, inventory levels are really low right now. But you had retailers that in the summer last year when they were ordering for the holiday season, they didn’t know what to do. So they were very prudent and they didn’t order a lot and that saved a lot of their holiday seasons. And for many of them save their year. You saw retailers across the board were able to squeeze higher higher profits and higher margins on lower sales in the holiday season because they didn’t have to discount as much at the end of the year. They had much less inventory on hand. So you have retailers especially apparel retailers that are in a really unique position where they are notorious for buying too much inventory and having to discount at the end of the year but they have just had this miraculous quarter where they were a lean mean no discount machine and they did great, but now they’re getting excited seeing that the vaccine rollout is speeding up. People are going back and bite people want clothes. You know you have this big huge pent up demand because nobody bought new clothes last year so they can get kind of googly eyed at the potential for a big snapback and rebound in demand. So, you know, what do you do? Do you? How do you balance? And another point here is that, as you probably know, there was a lot of store closures when it comes to apparel retailers in 2020. So there’s there’s market share available to them. So how do you balance that desire to gain market share with long term profitability and keeping margins the way that they did in the back half of last year? I think it’s a really interesting conversation, especially in the apparel industry.

Ressa 20:29
A lean mean, no discount machine. We’re gonna quote you on that, Andrew?

Cox 20:34
Yeah, I think I titled my, my newsletter that a few months ago. But

Ressa 20:41
that is a good one, a lean mean, no discount machine, I really like it. That’s pretty clever. And I think for full price retailers, that is key to maintaining margin. The discounting is, you know, the race to the bottom for full price retailers is a dangerous race to get involved in. And if you’re a value retailer, that’s one thing if that’s what your premises on but if you’re in a business, that’s high margin, you start to compress those margins. It’s it’s not, not a not a pretty sight. There’s also

Cox 21:17
that the fact that especially high end retail, high end apparel, retailers, and even mid range, they all not only reduced inventory, but they reduced skews to buy a lot like I saw a coach, for example, cut down their handbag selection for the fall season from 1000 to 500 bags. And that’s huge 50% of their skews. So it’s now you know, what do you do now that you think that there’s going to be a rebound? Do you then expand and try to go back to having more options? Or do you keep it low? It’s very, it’s going to be fun to watch.

Ressa 21:46
One of the things we talked about with inventory, is this port congestion. Why don’t you tell us about what’s going on with the port congestion?

Cox 21:54
Yeah, there’s a lot, there’s a big tie here, because the vast majority of our retail freight that we have comes through, comes through the port of LA, and it’s not just the Port of LA, that’s congestion. But this has been the kind of the golden child to hear the story maker has been how bad the Port of LA congestion has been. And it’s been bad for a myriad of reasons. One, there’s just been no slowdown, and there’s just more freight coming in the normal to they’re backed up on every single level, from warehouses to the to the rails that Dre from, from port to warehouse to the trucks that need to leave the warehouse there. They’re stocked up on every level. And then on top of that, you have the Longshoremen Where at 1.8 100 or 1000 of them were out with COVID out of 15,000 in total, so a significant portion of their workforce. So you now have every day it seems I hear it from from our, from our ocean guy that oh, yeah, they’re breaking another record in the San Pedro Bay for ships at berth, just awaiting port space, they’ve been one day it was 30, then it was 40 there was 50 Now it’s 60. And there’s just literally and like a third to half of those are retail consumer, or consumer focused freight. So you have a lot of freight sitting there, we have trying to get through the ports inventories are really low right now. I mean, you know, you go all over the place. And you see inventories are low even at stores, they’re there. They’re still replenished. And you still have it’s trying to get here but it’s stuck at the port and maybe weeks before it gets here. And it may be even too late because apparel, you know soils like milk and as soon as the season’s over you don’t you don’t want to be selling winter clothes in March and April. So there’s a lot going on with inventories and and the port congestion is definitely a part of it.

Ressa 23:41
What are the ship births? What is the ship birth?

Cox 23:44
Oh yeah, I’ve learned all of these new terms this over the past year. So a birth I think it’s just it’s it’s a it’s basically an anchor and awaiting awaiting birth is awaiting their turn to get into the port. Yeah, so they’ve got like 50 or 60 ships. If you look at the Port of LA, I mean, it’s just nuts. People are flying over it and it’s chips just scattered all the way down to Huntington Beach. Even up to you know, Long Beach throughout the entire complex. It’s

Ressa 24:11
crazy. Wow, really insightful stuff. Well, Andrew, this has been incredible, very unique. I love the three trends in retail supply chain that we talked about. Anything else we didn’t talk about that, you know, in the retail supply chain that you think is interesting that we should cover?

Cox 24:37
Yeah, sure. I mean, I wrote I wrote the other day that we that Amazon has maybe spoiled Whole Foods. I think this is an interesting topic because it’s a it’s a it’s a store that was known for its in person qualities, you know, having the great cafes having the food bars, and since COVID has kind of shut down the food ours and shut down the cafe’s. They’ve just Amazon has just made that space into picking and packing. And they fill the stores with pickers, which who operate much like Amazon warehouse workers, they have quotas to meet, they’re not there as customer service. So they’re inherently, you know, getting not only getting in the way of customers, but customers, they’re not there to answer questions from the customers, which is what they’re people are known for discovering products, helping people find new stuff. So I think that that is I mean, something they need to figure out very quickly, because people are really getting upset with whole foods and, and hope that, you know, grocery grocery sales were up 15 to 25%. Throughout the 2020. And Whole Foods lost market share their sales were down eight to 10%, year over years in store. So Amazon needs to get I’m sure they will, I’m confident they can. But they need to figure out what they’re going to do with whole foods. And they need to decide whether it’s going to be this, you know, this this market discovery place that people used to come to to have a unique experience to buy groceries at a premium price, or if it’s going to be just an automated warehouse for Amazon. Because right now it’s the latter and people are not happy. So then you figured out, I think that’s interesting.

Ressa 26:09
That is fascinating. And I hope they figure it out. Because I believe there’s an interesting place for Whole Foods in the grocery world. And you hit on some buzzwords that I think, you know, people were going there for unique discovery of product, really a cool shop customer service, and they’re willing to pay a premium price and to be about a business that can charge what they charge. And people leave there feeling great. That’s of immense value and to disrupt that. That to me is really interesting. And I don’t know why you would do that. And so we’ll say, anyway, so there’s that. I want to take us to the last part of the show. Are you ready? All right, call retail wisdom. Here we go. What extinct retailer, do you wish would come back from the dead?

Cox 27:08
Man? I don’t know. That’s a tough question. Oh, my favorite retailers are still around. That’s good. It is good. Let’s come back to that one.

Ressa 27:15
We’ll come back. Okay. What’s the last product you bought in over $20 that you bought in store?

Cox 27:22
Yeah, it’s definitely steaks. I’m a I’m a New York Strip guy. So I buy I end up spending, you know, on to New York strips, they end up being over 20 bucks. But I do that weekly.

Ressa 27:32
So yeah, what what grocery store do you go to?

Cox 27:35
I am a Walmart guy. I have one a quarter of a mile from me. So it’s you know, I grew up going to Walmart I couldn’t I mean, there’s an Aldi right next door and I go there for some things, but usually Walmart I’d like to graduate to Publix one day, but you know, we’re not there yet.

Ressa 27:51
man All right. Let last question Andrew. If you and I were shopping at Target and I lost you what I would I find you

Cox 28:02
probably electronics but probably like speaker systems home speakers Yeah, I’m I wouldn’t consider myself an audiophile because I’m not but I do care a lot about sound and studio audio equipment. So I would say probably

Ressa 28:15
they’re terrific. All right. Let’s come back would extinct three Saturday. We should come back from the dead. Pier One. Pier One. All right.

Cox 28:27
Yeah, I used to go there. My again, just my mom used to drag me because my dad traveled a lot. One of my other kids. I was with her all the time. So she would drag me through all the stores and we I did actually enjoy Pier One. I’ll say Pier One. Cool.

Ressa 28:39
Well, listen, Andrew, this has been great. Thank you so much. Really appreciate the time. And keep putting out that great content, man.

Cox 28:48
Thank you, Chris. Thanks for the time. Can I give a shout out to point of sale so if anybody wanna? Yeah, I’ll plug anything or to go and sign up for that the great content that I put out twice weekly. It is called Point of Sale. That is my newsletter. You can sign up at freight waves.com/p O S. You can find me on LinkedIn or Twitter just search Andrew Cox My Twitter handle is Andrew Cox 40 fairly active on both so yeah, come join our community come come you know join the conversation and if you got any comment if you have any, you know stuff you want covered. You’d like to learn more about just reach out and I’ll try to cover

Ressa 29:22
that is terrific. Thank you so much. Really appreciate the time. Thank you for listening to retail retold. If you want to share a story about a retail real estate deal that you were a part of on our show. Please reach out to us at retail retold at DLC mgmt.com This show highlights the stories behind the deals from all perspectives. So it doesn’t matter if you are a retailer, broker, entrepreneur, architect or an attorney. Also, don’t forget to subscribe to retail retold so you don’t miss out on next Thursday’s episode Oh