Issue #107: Instant Gratifications Versus Customizations

As we enter the end of August, and summer unfortunately starts to wind down ahead of the great lock-in, I find myself reflecting on the year so far. From a “Retail Is Not Dead?” perspective, I cannot stop thinking about the impending increase in retail traffic over the next couple of years. Or at least the one I am predicting will happen. I keep thinking back to my prediction from 2025 around returns: that there would be a great reckoning of returns. Here is a little of what I found back then:

Return policies are getting stricter, just not at the rate the finance teams would want. On a consumer note, I also had a conversation recently with someone around returns and how the policies impact purchases. We both agreed strict return policies would dissuade people from making online purchases. I strongly believe stricter return policies, especially in apparel and clothing, would drive people in person. However, I think when these customers do return, retailers are in for a tough conversion to get people to continually purchase in person. The work starts now to be ready.

With eCommerce, customers have gotten used to semi-instant gratification from an essentially endless aisle. Despite how big your mall is, you can’t wander the halls to find the item you are looking for the same way you browse seamlessly on the internet. The problem for retailers to solve is how to balance semi-instant needs with choices and customizations. Retailers need to bridge the gap between physical shopping and online shopping.

The first way to fix this problem, and the one I think that more companies will gravitate towards, is strengthening the supply chain. Making it more agile. More AI predictions going forward. I think that is helpful and needed, but to a certain extent. Customers have so many choices online. I would argue too many. How many options do consumers truly need in one retail store? That is why I think this all comes back to training and customer service within the store. Most likely, what the customer wants is already in the store. However, without the proper guidance from the sales associates, that can easily turn into a missed sale. So much of browsing is about having fun and filling time, which is why the sales team is crucial in this interaction. It’s time to start doubling down on the in-store experience, whether you have your own retail location or are just sampling doing in-store demos.

Last week, Walmart indicated that the ~$3B it received from tariff refunds would be invested in lower pricing. Now, Walmart has pretty low pricing already, so even needing to give the customer more value, what is the decision-making behind that? Well, there are some new entrants to the top grocers in America: Aldi, and to a lesser extent, Lidl. Aldi has been in the United States since 1976, but now has massive scale. It has ~2,700 US stores, with plans to add 500 more stores by the end of 2028. There are more Aldi stores than Kroger. Aldi’s business model is very different than Walmart, much more similar to Trader Joe’s, which it also owns. The stores are only 10-20k square feet compared to a traditional grocer at 50k or bigger. They also carry way fewer products, like a couple thousand, so the volume can be concentrated into lower pricing due to economies of scale. These two factors also allow them to be successful in smaller towns, where Walmart has traditionally dominated. According to a survey by Bank of America analysts in Atlanta in July, Aldi was 12% cheaper on average than Walmart. I am interested to see more details on how they compared the items given no overlap of the same products. Still, enough to worry Walmart and get them to invest in the prices.

This week, Blank Street, the coffee? beverage? chain, announced it has raised $105M from General Atlantic. The capital was split between $75M of primary and $30M of secondaries. Selling secondaries at this stage is fascinating. I wonder if it was to liquidate employees, founders, or existing investors. This fundraising brings the valuation of the company to ~$650M (unclear if that is pre or post-money). Blank Street has over 100 locations, and wants to expand to the West Coast, so it decided to use equity to fuel that expansion. On top of that, it wants to expand the daypart beyond just the typical beverage shop dominating the morning, so it is floating the idea of selling ice cream too. In some ways, that fits in with the indulgent matchas they sell. Still, I am very curious to see how this shakes out. Will Ice Cream and the West Coast be the components that push them over the top?

In 2016, the Westfield World Trade Center mall, or the Oculus mall as most call it, opened to much fanfare. Westfield paid $1.4 billion to lease the space. Upscale tenants were brought in, including Breitling, Montblanc, Longines, Smythson, and Turnbull & Asser. It is located over a major PATH station and subway lines, so many people pass through. However, that is the blessing and the curse of having a high foot traffic area. Commuters may not want to do luxury shopping; they just want to go home. Especially when it is rapid transportation, rather than a commuter rail where you have time to wait around. Now that the long-term leases are expiring, Westfield is trying to shift the tenant mix, adding a Dunkin and a Duane Reade. Having more of an emphasis on quick options. That will certainly help, but there is definitely a larger problem in Lower Manhattan. According to a recent report, the retail-vacancy rate for Lower Manhattan is nearly twice as high as the city average at 21 percent. Will Oculus be able to propel the turnaround?

When you enter a retail store, and all the signage reads everything must go, that tends not to be a positive thing. Unfortunately, recently, when you entered Barzini’s, that was the case. Barzini’s has been between West 90th and 91st streets since 1983. It was a 24/7 grocer offering a wide selection of items with an emphasis on produce. This store was the only location; it never expanded beyond that one location. It had struggled to maintain the quality in the recent years and even had some health code issues. It will be interesting to see what happens to the space, if another grocer is interested, or if another type of business takes over.

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