DEEPER DIVES: The Luxury Retail Revolution

Good Morning,

First, as always, thank you for joining.

Publishing each week isn’t always easy. And it ALWAYS feels harder after a post takes off that drives in new subscribers.

For the new, welcome.

All three articles this week are ones that I haven’t said anything about. All direct takes from me to all of you.

Here’s what this issue brings:

• Sak’s 5th Avenue (Hudson Bay Company) got all the attention this week announcing the acquisition of Neiman Marcus. With department stores in disarray, everyone is wondering what the real reason is to spend a few billion.
  

• Walmart Canada is the first retailer in North America to launch a new Hydrogen Fuel Cell Tractor. With better range and fast fill-ups, is this the real future of EVs?
  

• ShipCalm was also buying, acquiring River Source Logistics and moving into their house.

Competing on Price Is a Losing Game. Experience Over Everything

HBC set off its own fireworks on July 4th, announcing the acquisition of Neiman Marcus.

The deal will see Sak’s Fifth Avenue and Neiman operate under a new entity, Sak’s Global, while still running the respective brands.

It left everyone wondering.

Why.

Some say it’s a deal that has been coming for years.

Others say that it’s a last ditch attempt to stay relevant.

Amazon and Salesforce’s involvement have the rumor mill working overdrive that the retailers are looking to move to an online only model.

So which is it?

Probably none.

What’s left is for people to hang their hat on is the real estate angle.

See, HBC is a major player in real estate properties and investments. They have approximately 42 million square feet of gross leasable area in the portfolio.

This segment provides stable and significant revenue through leasing and property management to the parent corporation.

Of all the information going around right now, this one is the most important in my opinion.

Neiman Marcus and Salesforce are leaders in personalized customer engagement.

HBC/Sak’s and Amazon are running more effective businesses.

Department stores are still hurting, some more than others.

But luxury retail is not.

There are trends emerging that need to be taken into account.

1. Large format department (or other) stores will become more rare

2. Luxury brands are looking to own more of the customer experience - eComm d2c and opening their own stores

3. Product availability and sku exclusiveness is getting harder. You have to be a more important player to get the best stuff

4. Luxury retail requires and will continue to drive true personalization by customer

There are three reasons HBC bought Neimans.

Brand, market penetration and real estate.

Here’s how I see this all fitting together.

Real Estate

Gone are huge buildings just for themselves. HBC knows that the future of luxury retail isn’t about square footage and display after display of all the stock under one roof.

It’s about connected spaces that provide shopper’s with an experience.

Luxury goods aren’t transactions. They are about emotions. About how [insert benefit] makes someone feel

When luxury retailers don’t want to sell you their stuff anymore because they want to open their own stores, what do you do?

You build their stores.

And you put them on the same streets, and in the same buildings as your own.

The best properties in the most popular places. Creating venues that customers want to spend time in and brands want to be a part of.

Customer Intimacy

Consumers are drowning in choice.

We’re bombarded with offers everywhere we look.

We spend more time scrolling through what we don’t want, trying to find something that we might.

Enter Salesforce.

It brings expertise in customer relationship management (CRM) and artificial intelligence (AI). They are expected to contribute AI-driven personalization tools to enhance customer interactions, tailor product recommendations, and improve overall customer service.

Basically their job is to take Neiman back to its glory days then crank them up on steroids. Then help Sak’s step up.

Imagine a flurry of Tik Tok videos posted every day about people recording their personalized experience at these stores #luxurybag

It Has To Be Yes

All the glitz and glamour means nothing though if you can’t execute. Your profit is always in your operations.

Hello Amazon.

Stepping into its 30s, Amazon isn’t looking to slow down.

With its sophisticated logistics and e-commerce capabilities, Amazon's involvement is expected to enhance the merged entity's online and offline shopping experience. Shipping efficiencies, integrating advanced logistics, and better inventory planning and visibility.

With access to the consumer and market penetration Sak’s and Neiman bring, Amazon will be able to leverage their technology to create better shopping experiences specifically targeted for the luxury segment.

The Retail Of Tomorrow

It won’t take long to see what starts to happen from this acquisition.

And the trends that are going to stick, versus those that fade away.

Whatever happens here, more and more we are seeing what will be needed to succeed in tight economic conditions and with a consumer base that has too much choice.

• Deep customer knowledge

• Highly relevant personalization (Only 44% of consumers who received tailored offers said the offers were very relevant to their needs)

• Great insights on what you are selling, to who and where

• Seamless operations and execution

It Took 186 Years, But Fuel Cells Are Making Their Way Mainstream

A 100% alternatively powered fleet.

That’s the goal Walmart Canada has for itself by 2028.

What’s interesting is that Walmart stepped out of the traditional EVs space and has introduced a hydrogen full cell-powered tractor (semi-truck).

According to Nikola (the manufacturer), Walmart Canada is the first retail fleet to operate one of these vehicles in North America.

Why do hydrogen FCEVs matter compared to the battery based EVs:

• Longer range
  This vehicle has a range of 800 KMs (497 mi)
  

• Hydrogen fuel cell vehicles refuel in the same type of way as we do today with gas/diesel
  

• Zero tailpipe emissions, only water vapor as the only byproduct
  

• Hydrogen is the most abundant element in the universe

The biggest challenge with lithium-ion (or other battery based EVs) is the charging. There is a really difficult balancing act that companies are having to go through.

You try to balance your costs and infrastructure requirements against the charge time.

Basically, the faster you want the trucks to charge, and the more trucks you want to charge at the same time, the more expensive it gets.

When I was managing a fleet of vehicles and we started to explore the transition to EVs, the challenges of the transition escalated quickly once we started to get into the charging infrastructure we would need for even 10 trucks.

A second major issue for BEVs is effectively fitting them into current fleet operations.

Since charging them out on the road isn’t an option (most companies using these for delivery or service could not support that type of downtime during the shift), you end up having to create specific service runs for them, or only get to use the vehicles in one area of the business.

These issues are more related to smaller vehicles than tractors, but the vehicles do require additional considerations.

Walmart Canada has also been working with the Tesla tractors. Recent data from those vehicles is impressive when it comes to consistency and charge time. While most people don’t hit the 500 miles that was stated, generally they are doing 300-400 loaded and in real world conditions, and the charging speed is working for long(er) bulk transportation.

Hydrogen fuel cell technology and access is only going to continue to improve.

As more effective means of product continue to be developed, a shift towards this format and away from Li-On batteries that are the standard could happen quickly (especially considering the environment and sometimes questionable labour practices around mining lithium and cobalt).

Consolidation Continues At Every Level

Consolidation is happening everywhere in logistics.

While trucking has gotten a lot of the attention, the general pressure in the market is causing transportation, delivery or warehouses to either consolidate or close.

This topic comes up at least 2-3x a week when connecting with different industry people.

Most feel we are going to see more of it.

A lot more.

ShipCalm caught my attention with their acquisition of RSL.

The biggest immediate win is that this doubles ShipCalm’s client base. They are also closing their San Diego facility and moving into RSL’s warehouse in Los Angeles.

The speed of the move suggests a huge opportunity tied to the building leases and a likely renewal that was pending.

In addition, ShipCalm gets all the standard package benefits of increasing density within a network (enhances operational efficiencies, better facility footprints, better scalability).

What I’m watching is if ShipCalm continues with its professional services offering.

10 months ago, they announced their “3PO” model, which was the third party operations product for brands.

They are looking to do what Airtable was doing but more on the back of their fulfillment operation.

With bigger and better facility placements, and a much larger customer base to work from, they could be building an interesting critical mass.

That’s it for this week. Thanks for being here.