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April 16, 2018 • Volume 11


Adore Me’s big store ambitions are a perfect fit for their model 

Last week, Adore Me, the online seller of lingerie, announced that it would open seven to 10 stores this year, 20 stores next year, and up to 300 over the next five years. Victoria’s Secret, the established brand that Adore Me hopes to disrupt [which, in the tech business means that Adore Me hopes to either kill or compel Victoria’s Secret or a competitor to buy Adore Me at a silly dot-com valuation] has struggled as of late.

The CEO of L Brands (parent company to Victoria's Secret), legendary retail leader Les Wexner, made news in February when he told the Wall Street Journal that he believed we were on the cusp of a fading fascination with smartphones and that people will come back to the malls to be able to engage with other humans in person. So, Adore Me’s plans to open hundreds of stores seems, at first blush, to validate Mr. Wexner’s argument. 

First, let’s step back for some Slice data-powered context. Victoria’s Secret’s online sales alone were nearly nine times Adore Me’s in 2017, but Victoria’s Secret’s online sales are waning, down 5 percent from 2016 while Adore Me’s sales were up 40 percent.   

Adore Me’s expansion will deliver returns

Adore Me is not the first online native brand to open stores. Warby Parker, Bonobos, Birchbox and many, many others have come to see the virtues of brick and mortar to allow shoppers to try (but not necessarily buy) their tactile, tough to find-the-right-one goods. But Adore Me has announced a much more ambitious store count than we’ve heard from other digital native brands – moving beyond a few high-profile brand showcases in places like New York and San Francisco. 

Many online apparel retailers, which suffer return rates typically between 25 and 40 percent, are investing to reduce the adverse impact of returns, from investments in fit technologies to more cost-effective return solutions. Lingerie has this problem on steroids because there are more dimensions to fit and comfort, and I’d assume, a higher percentage of returned goods that cannot be resold.  

Finding the right size

The question, then, is whether 300 Adore Me stores is the right number, or whether it is going too far. In my mind, Adore Me is playing it just right. To strive to hit 300 stores in five years gives the retailer plenty of time to play around with different models to see what works. Will customers want to have coffee and engage with shoppers while buying bras? I don’t know, but the only way to find out is to try. Will fit technologies evolve to such a degree that there isn’t a need to try the product on in store? Probably not. How an apparel item looks is just one dimension of fit. I don’t believe that artificial intelligence will ever solve for how an item feels.

I’d bet that if a young Les Wexner was time warped to 2018 he would still see the virtues of stores, but he wouldn’t dream of building them on the scale that Victoria’s Secret now has, with 1,200 stores. I’ll take this one step farther:  Barring an acquisition, Victoria’s Secret and Adore Me will have roughly the same number of stores five years from now.

Mr. Wexner’s forecast for a coming Golden Age of malls seems to be a modern version of Henry David Thoreau’s dream of a simple agrarian society while the industrial revolution steamed forward. Spoiler alert: The industrial revolution did not abate and Disney is planning to build a theme park on Walden Pond [OK, that last part isn’t true, yet].

Click & Carry delivers for Walmart

Stop the presses:  Amazon.com is beating Walmart.com. Soundly. OK, this probably isn’t a surprise to anyone that reads this newsletter, or to anyone that hasn’t been living in a cave for the past 20 years.

Here’s a headline that WILL surprise those that didn’t join our Amazon versus Walmart webinar last week with our terrific partners at RetailWire [for those that didn’t make it, a recording is available here]. Walmart Grocery, Walmart’s buy online, pick up in store, full assortment grocery offering is now bigger in the U.S. than Amazon Prime Now and Amazon Fresh combined.

The chart above shows monthly sales for the three services going back to January 2015, which is roughly when Amazon Prime Now [free delivery for Prime members in two hours in select markets] launched, and about nine months before Walmart began significantly scaling Walmart Grocery.

As we can see, Amazon Fresh has been flat-ish for the past few years as Amazon sought alternatives to pricey local market grocery delivery, launching Prime Now and acquiring Whole Foods. We can also see that Walmart Grocery overtook Amazon Fresh in Spring 2016, Prime Now in Spring 2017, and the two of them combined in Fall of 2017. 

One would be tempted to say that this is evidence that Walmart is turning Amazon’s tide, but that would be overstating matters.  Amazon is still 15 times bigger than Walmart online.  

What online grocers can learn from McDonald’s

The more interesting takeaway from this data is the contribution that it makes to the click & carry versus delivery debate. It’s always been easy to make the case for delivery because, well, who wants to get up off the couch unnecessarily? But the virtues of click & carry have always been there (superior economics and greater consumer control), the problem was that omni-channel execution was poor.

Online order pickup desks were in the back of the store, employees were poorly trained, and retailers didn’t have an accurate view of in-store inventory. When we look at Walmart Grocery, though, we don’t need to get out of our cars, employees are well trained, and, well, I’d doubt that inventory is as reliable as it ought to be. But two out of three isn’t bad.

This shouldn’t be a surprise. We have been trained to embrace drive-through at fast food restaurants [did you know that 70 percent of McDonald’s business in the US is through the drive-through window?]. Drive-through windows are a requirement for drug stores, at least in my part of the country. It seems that drive-through grocery pickup is just the next manifestation of this trend.

Yes, retailers in dense-enough markets will need to find last-mile delivery solutions that customers will pay a premium for, but it is increasingly clear to me, anyway, that Walmart Grocery’s fast ramp is showing us a critical component of the grocery store of the future.

About Ken

Ken Cassar is vice president, principal analyst at Rakuten Intelligence, where he looks at trends in the e-commerce industry armed with Slice’s robust set of online sales data.

Ken brings a rich online retail background to Rakuten Intelligence. Most recently, Ken was SVP, Media Analytic Solutions at Nielsen, where he developed several innovative digital commerce measurement and advertising effectiveness solutions. Prior to Nielsen, Ken was an analyst at Jupiter Research, where he was an early thought leader, trusted adviser, and media source on e-commerce. His prescient outlook on fledgling e-commerce industry was a key contributor to Jupiter’s dominance as a digital media zeitgeist at the dawn of the Internet.

Ken has an MBA and Bachelors Degree in Political Science from the University of Connecticut. Ken aspires to stay technologically ahead of his teenage children, as evidenced by his ‘Gadget Geek’ Rakuten Intelligence profile. He also has the appropriate jacket for every occasion.