Walmart Stalls, Target Stirs & Amazon Flies, Plus Bain Capital's Scott Friend and VMG's Indy Guha

0:06Steve Dennis: Welcome to Remarkable Retail Podcast, Episode 310. I'm Michael Oblong. And I'm Steve Dennis. Our guests on this episode are Indy Guha, General Partner, VMG Partners. Indy joined VMG in 2024. VMG, or Velocity Made Goods, philosophy is growth with direction, not just momentum. two distinct investment strategies, one singular focus building the brand's technology, shaping the future of the consumer. And Scott Friend, Bain Capital is a global private investment firm with 24 offices worldwide, 2 ,000 team members, and about$225 billion, plus or minus a billion here or there, assets under management.

0:45Steve Dennis: They're just huge. Fantastic interview and kind of the theme of venture capital, which we've done a couple times before. This is, by the way, the last of our interviews from our pop-up podcasting studio in New York at the Commerce Next Growth Show. And also in this episode, we'll be talking about Steve's top secret visit to Amazon in Seattle, the latest in U.S. retail results, results from Walmart, Target, TJX, Ross Stores, Simon Property Group talking about physical retail, and then what's on our respective radar screens. So Steve, you look and sound a little bit different. You look a bit different for our YouTube fans, sound a little bit different.

1:18Steve Dennis: Where are you today? I am steps away from the Victoria Harbor. on Vancouver Island in British Columbia. And as we were talking about off mic, well, first of all, if people have been here, it is beautiful. But also I am escaping the 104 degree heat in Dallas. It's quite lovely here. So I did not splurge for the Harborview room, but I am mere steps away and will be enjoying the gardens and the very polite Canadians and the exchange rate. It is a beautiful city, and it is a quick ride, a ferry ride, or a float plane ride away from Vancouver, just to kind of set some context. It's the provincial capital and just a wonderful, wonderful city.

2:07Steve Dennis: Now, we were both invited to Seattle by Amazon. I passed as I was celebrating my wedding anniversary in lovely Prince Edward County between Toronto and Ottawa, where, by the way, I met and chatted with fellow podcaster and Canadian David Frum. And since I elected to celebrate another wedding anniversary, I passed on the trip. But what did I miss? What can you share? How was your venture out to Seattle? It's really good. We may get back to some of this in future episodes. And I'm also under NDA, so got to be a little bit careful about what I say, or maybe a lot careful. I don't know. But this is my second Amazon analyst day.

2:45This was focused on Prime and grocery. About a dozen of us, analyst types, thought leader types, spent a couple of days at the mothership, or one of the component pieces of the mothership. Because if you've been out to Seattle, you'll know that Amazon pretty much operates the entire downtown area with all their buildings or apartment buildings that people live in. Just learned a ton. First day was focused on Prime. Second day largely on grocery. Very senior executives. meeting with us. Jamil Gaheen, who runs Prime, was kind of the leader of the first day. And then Jason Buechel, who's been on the pod, who runs World Wide Grocery, spent a lot of time with us, but also a lot of their lieutenants digging into different pieces of the business.

3:34We got to visit their drone facility as well, which was very, very cool. And that was right before they made their announcement that they are expanding drone service to, I believe it's 500 markets. That's pretty interesting, though, in the scheme of things. I'll have a quick comment on that in a second. But in the scheme of things, not a huge percentage of their deliveries at all will be done by drones, which maybe is a good thing for people.

3:57Steve Dennis: Well, I was going to say, in one way, it's neat science tech, but in another way, I'm not sure I want my environment around my house flooded with buzzing drones 24-7 because they do so much volume. For sure. In a world where they shift a lot of volume to drones, I feel like I'm on the battlefield in the Ukraine or something. Yeah, and that was a point of conversation. And I think there are various limits to how big this can ever get, even under kind of a best-case scenario on the economics and what consumers want. But I guess just a few quick comments. I mean, one is the amount of investment and progress they are making have made on faster and faster delivery and more products available for what they call sub-one-day delivery.

4:48So that's three hours, four hours, in some cases under 30 minutes. Most of that is by truck, not by drone, just to be clear. And I think will be for the foreseeable future. I think the other and other thing that I really got a better handle on is just how unique the Prime membership model is. I think to a certain degree as Walmart and Target and others have added a membership layer. I didn't necessarily assume they were equivalent, but I think you really can see, in some cases, if I had stopped to think about it, probably, but I think they really emphasize, yes, you're paying for free, fast delivery.

5:29That's the original core value proposition of Prime. But you also get Prime Entertainment, the movies, streaming, music, Audible, discounts on add-on channels. They're a pretty big aggregator, I guess you could say, for other streaming services where you're on Prime, but you can add a Yellowstone or something that's on Paramount Plus or whatever. So, I mean, really understanding the breadth of the offering that, so far anyway, really none of their competitors offer in a significant way, as well as because of their frequency, the amount of value you get from free delivery for your$139, different levels in different countries.

6:13But that really struck me and how the flywheel keeps spinning, so to speak. And then, you know, I guess the other thing kind of overall was just the scale they have to be able to continue to lower their cost of serve, cost to serve, and how that unlocks other opportunities. I guess the other thing is just their ability, the drone thing is one example, to invest in inventing new things. I mean, I don't know that anybody except maybe Walmart would have the appetite, the deep pockets, the culture to invest so much money in something that may or may not ever pay off or won't pay off for a significant amount of time.

6:56The other thing I just wanted to mention relatively quickly was what's going on with grocery. And we've talked about the Amazon grocery business quite a lot over the last year. They've become the number two grocer in North America. I think last week when we talked about Amazon's earnings, about how they have continued to talk about how quickly the grocery business is growing. I think they shared something like twice the rate of the rest of the business. It's already well over a$100 billion business. But I think they continue to see this unlock through offering more perishable items historically.

7:30Again, I think we've touched on this a couple of times, but historically their strength has been in center of the aisle kinds of things, ambient, shelf stable. Now they're being able to do much more fresh, refrigerated, to a certain degree frozen. More products available for very fast delivery, including in some cases, or often less than three hours, more and more less than an hour, some cases 30 minutes, much more limited selection. And they've clearly put a lot of effort and can continue to. So I think we'll see some other things coming out here in the next few months of improving the customer experience.

8:10So if people have shopped on Amazon recently, they may know that they've redone the app, redone the website in terms of how grocery shows up on the website, reducing steps, making it more clear. But I think so far to me, the thing that really impressed me, both in a good and bad way, a good way because it's phenomenal on a bad way. I'm like, if you're other people in the grocery business, I would be very afraid.

8:35Steve Dennis: Looking over your shoulder. Better be looking over your shoulder. The ability to add something to cart very, very easily. And for them, if they're already running a truck to your house, to your office, to your apartment, whatever, to get those everyday essentials or replenishment items, whatever they might be, into that same cart that you're already not paying anything for and having that all show up in 30 minutes, an hour, two hours. And that's a real, real capability. And my sense is, they didn't say this specifically, but that kind of thing. is driving a lot of that incremental growth. All right, well, let's shift gears a little bit.

9:12Steve Dennis: Let's talk about the U.S. consumer that seems unbothered by war or tariffs or explosive poo and just keeps on shopping. So take us through the U.S. retail numbers. I'll do this really quickly because to me, it's a little bit more of a setup for what we're going to talk about with earnings. And there's so many earnings, just to warn the listener, we're not going to go super deep on them because we do have a great interview to get to. And so, you know, try to do a mix of content here. But last couple of weeks, we did get the monthly numbers from both the U.S. Census Bureau and the CNBC NRF numbers.

9:44Again, we've talked about this before. Slightly different methodology. Largely line up the same way. But anyway, the headline is overall U.S. sales grew about 5 % exclusive of fuel. That is above average, meaningfully above the long-term average for monthly retail growth. The trend is slowing a little bit. The movement of prime days probably is a bit of an explanation for a bit of the slowdown anyway. And, of course, we see real divergence. We always see, I think, real divergence at the category level. I think really the only thing, two things maybe worth pointing out. One is, again, the big ticket items, home improvement and furniture, I guess I would say, continue to be consistently the slowest categories.

10:35But grocery, and I think we touched on some other research around this a couple episodes ago, grocery is definitely slowing down. And we're seeing that mostly in lack of unit growth because, of course, there's some inflation there. The other thing I was going to mention, which is related to the Census Bureau, is our friend Jason Goldberg did a deep dive on the quarterly, so not the monthly, but the quarterly Census Bureau numbers where they sort through a bunch of revisions. They have a bigger data set. It's a little bit delayed. The specific thing I thought was interesting that Jason really dug into was the overall online growth for the first half of the year.

11:14And that number looked pretty strong compared to what we've seen the last little bit here. Almost 11 % year over year. All of retail is up 5.4%. So if you do the weighted averages there, it means physical retail is around like 3%. So that was a pretty big jump. and the biggest one since before the pandemic, but it's up against a soft comp. So if you look at the two-year stack, that really works out more to like 8%. So people who have been following this for a long time will know that that average is much below where e-commerce trend lines were prior to the pandemic. So we're definitely seeing this kind of flattening of the curve, which I think we would expect to see.

11:59Of course, we have a lot of people with agentic commerce speculating, and this was one of the debates we had from our shop talk rumble about whether agentic commerce would be a reacceleration of e-commerce growth. Hard to say, but when you go through all the math, I know you were told there would be no math in this episode, but there's a little bit of math. What we're seeing is e-commerce share kind of chipping away at about half a percentage point, share to total, about half a percentage point per year. The share continues to grow at a slightly slower rate, and I guess we'll just have to see whether anything changes by virtue of widespread adoption of agentic commerce, which we actually touch on a little bit in the interview.

12:40Steve Dennis: Let's move on to results by a few retailers anyway. Let's start with news from a retailer that usually impresses to the upside, but not this time. Well, you know, this was very much open to interpretation, but the headline here for Walmart was that they did have what a lot of people looked at as a fairly lackluster quarter on the top line. Overall sales were up about 6%, but that's a mix of all their international business, their ad business, membership, et cetera. I think the number that got the most attention was the U.S. comp increase, which was just 2.6%. So, just talked about what some of the numbers have been for retail overall.

13:20So, that's quite a bit below the average and definitely weak relative to Amazon's number, which would be, I would say, the most comparable. But as we talked about, some important differences there. I think it's almost certainly going to be much weaker than what we'll hear from Costco in two or three weeks. So, this is the worst comp store sales growth in six years. They also gave relatively soft guidance, so that freaked out Wall Street a little bit. I guess a couple things here. On the one hand, they may just be experiencing the law of large numbers. Here, their customer base, particularly if you compare it to Costco or Walmart, again, we'll see what Costco has to say shortly, but is more economically challenged on average.

14:08and as we see fuel costs go up. And they alluded to a lot of the macro factors. I guess just another couple of things I'll mention overall, which was very good for their earnings, was that advertising, which is already quite large for them, the number two retail media network was up 46 % for the quarter globally. Wow. So presumably that was a real margin enhancement. They also, like a lot of people, and I don't want to spend too much time on this because it just really is confusing, but because of all these tariff refunds, We're seeing earnings reports, which are greatly inflated by essentially a one-time.

14:43So they got almost$3 billion back in tariff refunds. We'll talk about a couple other big numbers in a second. So net of all this, is there something that's really a headwind that is mostly macro? Is there something going on like with the Amazon grocery competition or people trading down to dollar stores, off-price, other kind of retail? a little bit unclear, but I wouldn't panic about this. But yeah, it was a little bit surprising on the downside, for sure.

15:15Steve Dennis: Did they comment at all about this one-time tariff refund of$3 billion? Are they going to do some pricing activity, or how are they going to position that? They did, and I think they mostly listened to your advice, which is that they're going to, quote-unquote, invest it in price. Now, a lot of that is going to be through, I'm sure many people know, they do this rollback program where they make a big deal of taking prices down. And they've been doing a lot of that forever, but they are going to take up the number of items and perhaps some other things. So they made it sound as if most of the refunds would go back to consumers in some way, shape, or form.

15:52Now, maybe being a little bit sharper on price will get the traffic and the sales going a little bit more. But as we'll talk about in a second, and I think we'll continue to see, this is what a lot of retailers are saying. They're using it as an opportunity, whether they're really going to do it or not, but they're using it as an opportunity to say, we can be sharper on prices because we just got this kind of windfall. I mean, it is their money that they're getting back, but given that a bunch of cash just landed in their bank accounts, they perhaps can convince themselves to put a little bit more money to try to get some market share back.

16:25Steve Dennis: Well, and at their volume,$3 billion goes pretty quick as a rollback, right? I mean, And that's next week. They've probably used that up. Now, when we talk about Walmart, we often talk about their doppelganger, Target. And we got some good news from Target. It was definitely positive overall in that Target's results have been quite weak, as I'm sure many people will know, for quite some time. They managed to get almost a 4 % comp increase. And their traffic was up 3.6%. And they've mostly had traffic declines again for a while. Their earnings were up nicely, even if you back out their tariff refund, which was almost a billion dollars.

17:04So, pretty good amount of money. I think this is some measure of progress now because I'm of the cynical type, as our listeners would know. My experience has been that it's, well, first of all, it was against a very weak comp. So, we have to keep that a little bit in perspective. They were negative last year. So, as the saying goes, the best way to get a positive comp one year is to run a crappy comp the year before. that was very popular to say by the way at Sears back in the day until it wasn't it seems funny now but not funny in the moment I think a lot of times what's happened you could argue at Gap we've seen this at Macy's, we've seen this at Penny's I saw at Sears back in the day when you put a bunch of money into marketing you make a big deal about better pricing you've got this focus of the new CEO that you can get a little bit of a bump.

17:55But I mean, the question is, of course, can you sustain it? But a lot of times, and this is what we talked about back in the day with the softer side of Sears, where we had negative comps in apparel, and then we ran the softer side of Sears, and we had a nice bump that didn't last. And that was largely because the invitation was better than the party. In other words, get customers interested in you. A lot of people like Target, for sure. Maybe they've been disappointed. They hear all this press. They come back in. They buy some stuff, but maybe not as much as you really need them to buy, and maybe that does not lead to frequency.

18:25So, I will say to Michael Fidelke's and his team's credit, they're being very careful to say, you know, this was an easy comp. We're just getting started. The problem in particular in our apparel and home business is like a two-year plus fix. So, you know, calm down. But they are putting a bunch of money into remodels. And, you know, so I think definitely a positive sign, but I would say, There's a long way to go before we can say this is a successful turnaround story.

18:55Steve Dennis: All right. Well, let's get now. Let's take a break from the news. We'll be back with TJX and Ross Stores. But for now, let's get to our fantastic interview, venture capital-focused interview with two of the industry's leading players, Indy and Scott, recorded live on mic and camera. So be sure and check it out, the full interview live on our YouTube, live on the YouTube, if that's your thing. Anyway, let's get to that right now. Well, Scott and Indy, welcome. We've got you here at the Commerce Next podcast studio, and you guys just got done, I guess, refereeing a pitch contest. We might talk a little bit about that, but we've got some other things to talk to you about.

19:34But before we get started, maybe just teach you, you could talk a little bit about who you are, what you do, how you got there. Scott? Yeah, happy to. I've spent the bulk of my career in and around the commerce industry. I was a co-founder of a company, boy, back in 1998, we started it, that sold software to big retailers that helped them figure out when to take markdowns. So we were doing big data and analytics before it was kind of in vogue. We sold that company to Oracle in 2005. It turns out Bank Capital was my largest investor in that business. So when I left Oracle, I was in their retail industry group for a year.

20:11I joined Bank Capital Ventures. That was 20 years ago. And for the last 20 years, I've been leading our investments in the commerce ecosystem. Nice. And Indy? Funny enough, I got to apprentice with Scott in the early days of that Bain Capital Ventures epic run. So spent about a decade at BCV as well across Boston and launching our California office. And then jumped into a commerce infrastructure company called Signify. Which is when I think we first met when you were just starting to do that? Absolutely. So initially was running marketing over the years, ended up with one of those made-up titles that exist everywhere in startup land, chief business officer, which was a nice way of saying I owned all of go-to-market and portions of our product team as well.

20:57And Signified is one of the presenters here at Commerce Next. So it's actually my fifth Commerce Next. The other four times I've been here was as a solution provider. Signified is in the payments and fraud prevention world, working with Walmart, Samsung, etc. I have transitioned back into investing at VMG Partners. Two years ago, it felt like a pretty special time to come back to investing given the rate of change in opportunity created by AI in the application layer. And VMG felt like a pretty special place to put together different chapters of my journey. A 20-year-old firm investing a billion dollars in its sixth consumer fund in breakout brands ranging from solid core fitness to rare beauty.

21:46And alongside that, I co-head our$400 million tech fund, which is focused on commerce infrastructure and, if you will, the B2B behind B2C experiences. Very nice. Well, we'll get, I guess, a little bit more to the big picture. But before we got started, we were talking off mic, and I was saying, as I listened to some of these pitch contests in other venues, but here today, hey, a lot of these companies sound the same or at least seem to be following kind of a pitch formula. And I'm curious not to name names or anything like that, but just in general, how difficult is it to be able to spot who's got the differentiated product, who's got the real ability to sustain business over time?

22:29Either one of you guys want to jump on that? You know what? So many of the capabilities that these startups are offering, as we were talking about earlier, sound alike. There's a combination of good ideas from a lot of different people, ease of building things, leveraging AI, and lots of venture money, which I think is leading to lots and lots of early stage companies in each and every micro category. And it's really hard to separate the wheat from the chaff at the earliest stages. The thing that's less hard to figure out is how great the founders are. And so, love to hear Indy's view on this, but from my perspective, I come away from these early pitches if they're not super clear on what they do and why they think it's different, whether I think it's different or not.

23:23and if I'm not super inspired by the founder, I kind of move on. And that doesn't mean I'm right at all, by the way, because there are plenty of great founders that may not be my cup of tea and vice versa, but it's the only way I can find to get any signal early on on what might be promising. Yeah, hard to agree with that point of view. I think a flavor of that in the context of everything getting easier to build is arguably domain expertise or clarity of vision has never been more important because there's less time to go in an idea maze and, you know, see what sticks. You have to have a really clear vision of what you want to build because a couple of quarters of Head Start has never mattered more.

24:09And of course, you know, we can't all be clay from Sierra, but if you are a larger-than-life founder, That's certainly one way to build a trusted brand in this market. For everybody else, you have to lead with expertise that is earned through conversations with customers.

24:27Steve Dennis: So, Scott, you built this price optimization model. Fast forward to today in an AI world, does it become, if that might have been the differentiator, does it become table stakes now, price optimization becomes kind of easy for everyone, or am I overstating that? I mean, you could argue that personalization should become table stakes and identification of shoppers that aren't previously identified should be table stakes. 20 years later, we're not that far. All merchandising, not just price. Assortment planning and allocation and pricing should all be table stakes. And probably with the capabilities that are now available to vendors and to retailers and brands themselves, there will be better solutions to all these problems.

25:13But table stakes only happens based on the implementation. Like, how do the brands take advantage of the stuff? When I was raising money for ProfitLogic a million years ago, I got asked this exact question. Well, if you do markdown optimization for everyone, doesn't it not matter anymore? Like, A, that would be awesome. That sounds like a you problem, not a me. Exactly. Great for me and great for them. But the reality is some brands do a better job at taking advantage of these capabilities than others. And I think that is particularly true in this era where the capabilities are even more powerful.

25:52But how you decide to unleash them, how you enable your people, what things you let just set it and forget it versus actually continue to have people involved in will vary dramatically across the ecosystem. And I think that will influence who gets benefited and who doesn't.

26:07Steve Dennis: We'll be back with more of our conversation with Scott and Indy right after this quick break. Registration is open for a special webinar featuring Steve in conversation with Placer AI's head of analytical research, RJ Harvi. From changing shopping patterns to emerging market opportunities, shifting consumer demand continues to reshape the industry. So don't miss this data-driven session unpacking the most important trends defining today's marketplace and the strategies leading brands are using to win retail's future. It's all brought to you by Placer.ai, and it all happens on Tuesday, September 29th at 1 p.m.

26:42Steve Dennis: ET. Register at the link in the show notes or find more information on Steve's LinkedIn profile. So a quick follow-up question. It's a very hot political episode or issue today, surveillance pricing, as they called it, which we might call it dynamic. But do you see optimization going into this, being unleashed and being then restrained by legislation? We've already seen it in a couple of states who are, they don't even know what it means. A few people do, but it falls into this kind of same discussion. I don't see how it's different than personalized pricing was 20 years ago when Amazon first tried to do it.

27:17I don't, just because we may have better capabilities to understand who you are versus who I am and what we're willing to pay. They were already pretty decent. And in many states, it's not been allowed. It's discriminatory pricing, but there are other ways to get at it. There's other ways to offer promotions and discounts and other packaging that might allow you to do the same thing. And I think we'll see some of that.

27:38Steve Dennis: Andy, one of your animating principles as you think forward is experience and building brand that way. And in a world that it's difficult to optimize and experience, how do you kind of stitch together what's happening in AI and brand building and the idea of people buying the story before they buy the brand? I think I said clarity more than experience. It's not necessarily the case that you've done it before at a senior level, etc., etc. Now, one of the things we end up looking for is what is your initial product? If it's a lot easier to build everything, then the starting point is really important, right?

28:18What is that initial value problem? And one of the markers would be can that wedge drive clear business impact? and does it, in doing so, give you the right to connect to a whole bunch of underlying systems? You could apply that logic to the pricing thread you just threw out as well. In order to do pricing optimization well, there's a large number of systems you'd have to connect with and I think that gives you a chance at adding product capability over time.

28:49Steve Dennis: Beyond the technology, just as a retailer would think about it, in the world of optimizing everything, does community still matter? Does brand building still matter? Looking at it from the retailer, less about the technology. Does it still matter? Does it still make a difference? I think it's everything, right? You look at how heritage brands trade in the public markets, what has proved durable. As technology abstracts more and more things away, brand and community is everything. It's what's left. It's what's left. And the biggest brands in the world are therefore finding more ways for their fan base to participate in the brand.

29:25and in the expression of the brand. So I think technology has to play a role in making that participation scalable. But it is the ultimate thing for human sort of talent to shine.

29:37Steve Dennis: Well, we were just talking to the folks at Alta, and they said they were going to run like 140 ,000 events across their stores in America. And these are in-store events from small to micro events. This isn't technology. This is running events that help them connect with people, right? Yeah, absolutely. So I have two kind of philosophical questions. I'll try to make the questions brief, whether the answers will be so or not. One is this idea that as AI develops, it tends to force everything towards more homogeneity and less interesting. Now, there's the brand, I think about it as a fork in the road between sort of experience and efficiency.

30:15But anyway, but, you know, is there a worry with everybody glomming on to agents and, you know, all this AI technology that it sort of forces this kind of regression to the mean where everything becomes very flat? Or is it just like, that's fine. You get as much efficiency as you can. But then, to your point, the value added is in creating meaning and belonging. And, Steve, do you mean is the worry from the brand standpoint or from the consumer standpoint? Well, I think from both. I mean, I think ultimately if it's a consumer problem, it's a brand problem, right? They can't tell the difference between one person's...

30:48I mean, it's a little bit like all websites at a certain point start to look alike. Yeah. I mean, I don't view it that way. And look, we're all guessing at this point, right? But we've lived in a world for 20 years where, in great measure, thanks to Amazon driving a new perspective on what's possible, using technology to run a big retailer, everyone else has tried to catch up. And there's been plenty of capability around efficiency. Look at the whole show floor here and what all these vendors do. And the world is already, from a shopper perspective and a shopping mission perspective, in my opinion, bifurcated between stuff I shop for because it's enjoyable, which may have to do with brand, it may have to do with experience, it may have to do with my interest, and stuff I just want done for me as efficiently as possible.

31:42one click, press, go. Yeah, I want it. That's already the world we live in. That's going to continue. It may be that agentic capabilities allow me to do the efficiency stuff even easier with even less friction than I could before. I think personally, I think it's unlikely that I'm going to offload to an agent the stuff I like doing myself. And so those brands and those stories and the reasons that they connect with me as a consumer will continue to matter, just like they do today. Anything you'd add? I would. I guess I reject the premise of the question a little bit. Not the people, just the question.

32:22Just the question. Love you, Steve. You're going to have to leave, sir. Yes, getting voided from the booth. Look, I think the fear of sameness exists in a world where there's a singular dot com and all experiences have to cater to some weighted average of your audience. And that's not the reality of modern consumer internet, right? My YouTube feed, if it's not hijacked by my kids, is entirely full of the World Cup and Formula One. And your YouTube feed is going to be completely different. And that level of end of one customer journey still doesn't exist in most of consumer and retail. So the real opportunity, as much as we like to say that personalization has become a bad word over the last 10 years, is truly that.

33:14What is a fully adaptive, dynamic experience that is purpose-built for you? And the only way we can get there is if AI automates everything that is wrote. And I think that's the prize. Because it opens up the possibility to do the more curated, whatever you want to call it now. How do you find the perfect journey and have that incredibly bespoke, fits like a glove experience with the brands you love? Participate in the brand journey.

33:42Steve Dennis: And still have interesting suggestions of stuff you might like layered on top of that, right? Right. If you do it right, you know, expanding that shopping cart becomes... Like Steve might like, you know, in the YouTube feed he might like hoof trimming or something like, you'd never know. But it could come up in his YouTube feed amongst other things. It could. I'm not going to tell you what my YouTube feed looks like. This is a little bit, I don't know if it's off topic in a way, but I'm curious. And of course, I'm talking my own book here a little bit like literally. But, you know, Silicon Valley sort of famously, and a particular venture capitalist in particular, predicted that it all, you know, I always say it's the world's stupidest prediction, or at least in the retail space, that all shopping would be done online.

34:26And I think a lot of that, you know, related to kind of left brain versus right brain thinking, or just the jobs versus the joys part of the bifurcation, right? So I get that a little bit. But people, on average, have consistently underestimated how much physical retail would be, right? Now we have all this discussion about where AI is going. And yes, important differences. But what would you say in terms of where we are on the hype versus hope cycle? And is there something different about what people misread about the e-commerce dynamic? Or is this just a different thing and you can't really extrapolate?

35:05I think physical retail is going to continue to blur into experiential retail, events, participation in the brand. You look at where Gen Z and Gen Alpha are trending in terms of how they express identity. Right. Polaroid cameras, you know, purpose-built low-tech headphones with wires. All these things are making comebacks. People want tactile disconnection from their devices. And that all points to experiential spend is going to grow. And you see that with concert tickets, sporting events. Anything that's live has become a huge wave in consumer spending. You just mentioned earlier the Alta event.

35:53I think that's a great manifestation of the same phenomenon. So is there a role for AI to play in that? Absolutely. Because how do you scale, dumb example to make the point, CRM to support, what did you say, 150 ,000? 140 ,000 events. 140 ,000 events. Well, what is your hyper-geo-targeted fan CRM strategy for that?

36:13Steve Dennis: Yeah, yeah. Yeah. Well, that was my follow up question was, do you have a team of thousands of people working on that? And sure enough, no, because we do exactly what you're describing or something similar. You've used the term clod proof. Have I got that right? Yes. Unpack that for for a couple of seconds. I have a question about that. If I if I had a bulletproof definition for you, I'd be a lot richer. It's catchy. It's catchy. I think the simplest way to think about it is, you know, I think, Steve, when we were sitting down, you made the comments, hey, 90 % of the NRF exhibitor floor might not exist in a year.

36:49Right. What are the foundation models going to do next? What do they give away for free? What do they simply fold in as a feature on the platform or a small upcharge that wipes out somebody's business? or to justify their valuations, what do they deliver via forward deployed services teams that wipes out very large businesses? And I think having an answer to that is really critical for anybody building in the categories we all care about. And I'm sure Scott and the team spend a lot of time thinking about the definition of the plot curve as well.

37:20Steve Dennis: Scott, this is not your first cycle. It's not our first cycle either. I launched e-commerce in 98. I've been through a lot of hype cycles and some turn out to be real and some a little less. So how do you view this one? Do you have passion about it? I mean, it's kind of like another way of saying, what inning are we in here, this AI thing? Are we in the seventh inning stretch, the first inning? And are we just living in a simulation or is this a real thing we should really be paying attention to? The thing that is most striking to me about this cycle versus prior technology cycles and leads me to believe that it's not overhyped, despite the hype, it's maybe under-hyped, is the revenue ramp of the AI native companies.

38:02And it's, you know, the telecom boom and bust cycle, and then the mobile boom and bust, and then boom again, and cloud, you know, you didn't see companies being formed that were going from zero to 10 to 100 in a year and a half, and then scaling to 500 and beyond. I'm leaving OpenAI and Cloud out of this and dropping out of this for the moment, It's just, you know, AI native companies building on top of those things. And so what does that mean? It means the dogs are eating dog food, right? It means that what people are selling isn't just hype. It's actually solving problems. It's being adopted.

38:40And so that is despite the fact that the smart young builders that are starting these companies are learning as they go. They're learning how to build companies as they go. And they're learning how to take advantage of the technology as they go. And that technology keeps changing every few months. So, from my decade as a founder prior to being in venture capital and now 20 years in venture capital, I certainly have never seen anything like this where it feels like no matter how closely you study it, it changes every month or two. and the ceiling seems to keep rising. And the best sort of fine point I think any of us can put on that is the fact that one of the two leading companies in this universe that's defining what AI is all about, I'm talking about Anthropic, has gone from$10 million to$100 million to$1 billion to$10 billion in revenue faster than anyone's ever done.

39:33And take the valuation, what that's worth aside, aside, just the fact that the level of adoption has been so high so fast just tells me that we're in a game-changing ground shift like we've never lived through before. So is it possible, and by the way, I'm leaving autonomy out of this for the moment and robotics out of this for the moment and things that are also going to change our lives over the next 20 years dramatically. Well, I wonder, you know, even though it's moving so quickly, I wonder, this is kind of like a historical business question, but, you know, if you think about the waves of retail and how kind of the playing field got reshaved, no suburbanization with malls and then discount merchants and then category killers and then e-commerce and smart, you know, like there have been some things that have really reshuffled.

40:16I mean, Walmart's managed to hang in pretty well, but, you know, for the most part, you know, you and I, I think that when I was at Sears, you know, not even in business anymore, it goes from the second biggest retailer to non-existent. So I guess I'm thinking a little bit about the fear of disintermediation, but can you make any sweeping statements about kind of how you expect the playing field to be reconfigured over the next five, 10 years? Or stated differently, which retail executives should get their resume together? I think one of the through lines in this conversation has been brand community, brand identity, brand participation, lifestyle brands, and as a general rule will be in a much better spot than demand aggregators.

41:01Unless you have years of compounding moat on supply chain, membership basis, et cetera. So Walmart, Costco, Amazon. Are going to be fine. But like Target? Very different question. Right. I think, you know, more generally, though, in the near future, I do think the hype around agentic commerce is exactly that. It's overstated. You made the comment about left brain, right brain earlier, Steve. I'd be curious if you have a different take here, Scott. People like to shop. They like to treasure hunt. They like what it says about them and their aspirations when they find something they're passionate about.

41:39And you don't want an agent doing that for you. So maybe putting that lens on it, commodity products that can be automatically replenished are at much more risk of being disintermediated by an agentic commerce group than aspirational or I don't know if I want it, but that looks cool shopping. Right, right. Yeah, I mean, the interesting debate I have with that is whether people want some products just to be bought on their behalf because they don't want to deal with it or they want some missions to be done on their behalf. To me, it's more of a mission than product typically. It'd be like planning a trip or something like that.

42:21Planning a trip, actually amazing use case for AI. I want to be involved, but boy, it can help me not open 17 tabs at the same time on my desktop. That's like a high stakes, big ticket purchase with a lot of emotional content. But think about if you're onto your second or third, in my case, fourth kid, and there's a third grade birthday party. Like, do I really want to go shopping for a gift for my kid to bring you a third grade birthday party? Absolutely not. Do I really want to go do the back to school? So you think you don't love your children? Is that what you're saying? Mostly I do, most of the time.

42:56Do I really want to do back to school bats and balls and gloves and shopping and return the other stuff? No, I just want that to happen automatically. At the same time, there are plenty of things that I do want to spend time on. And I do want to invest emotional energy and physical energy learning about and shopping for. So I think the missions will define where agentic capabilities serve us and where they don't. I think that has interesting implications for who delivers the agentic capability to us. Is it a retailer? Not so sure that makes any sense if it's going to be about my mission. Is it one of the major consumer aggregators who I already use for 90 % of what I do in my life?

43:38If that makes more intellectual sense to me, time will tell. Last but not least, I would say, and this is why I'm like a little bit, I agree with Indy, that AI as it relates to commerce feels a bit overhyped in the following sense. Like technology throughout history has been used in commerce to solve problems. Consumer friction points. It took friction to go to a store and buy stuff that I didn't want to go to a store for. and if I could solve that with e-commerce and really fast delivery, it's going to get solved. Turns out DoorDash is a really good idea.

44:15There's plenty of stuff that is solved. Maybe you can make delivery a little faster and you can do it by drone, but I don't need to agentify that in a way that makes it totally different than it is today because it's not a problem I have.

44:30Steve Dennis: Last quick question for you both. We can wrap up. You know, five years from today, we might be in a place, maybe you don't even believe in the construct. Like, you know, when I first did e-commerce, it was a million dollars to credit card. Like, it was very, very expensive. Then you had the Shopify come along. Big leveling of the playing field. Other things mattered more. Are we going to get to that place in AI? And if we do get to a place five years where everyone has access to pretty powerful tools, small, mid, and large retailers, what's the moat that makes things different? And Indy, you've been trending towards, I think I know your answer, but I think you've been trending that experience and building up the brand and all the elements around it, right?

45:07A hundred percent. I would stake my money there. And I think it will, though, require operationally for retailers to let go of, say, resource intensive merchandising and experience layer staffing. and it means employees have to think like architects versus a spot on an assembly line in whatever activity they have been used to doing and that's going to be a really important unlock for freeing up resources. That's not a euphemism. I genuinely think that the net headcount reduction won't be that dramatic because it's actually really expensive from a human mind sharing capability perspective to build community and feed it and nurture it and make it vibrant.

45:56And so I suspect that's where a lot of the staffing has to evolve to. But it's a different skill set. It's a different mindset to the organizational transformation. To get to that five-year endpoint is going to be meaningful. Scott, last words? Yeah, I mean, I couldn't agree more with what Indy said. The way I frame it is on the back end of all these businesses, everything needs to change. that companies that have merchandise planners with spreadsheets today, like will not be a thing. And if it is a thing in five years, they're not going to be businesses that are performing well. So on the back end, everyone, I love Indy's term, everyone needs to become an architect, not working on an assembly line, totally agree.

46:35On the front end, to me, it is 100 % about authenticity. That is going to be the differentiator between brands that people aspire to and care about and want to follow and those that they don't.

46:48Steve Dennis: Well, gentlemen, thanks so much for joining Steve and I in the Remarkable Retail Podcast here at Commerce Next. It was great to see you both and so much insight packed into a short amount of time. Thank you for sharing. Congratulations on both your success and what you do and figuring out the next big win. So good luck to you both. Indie wins on amount of insight per word uttering. All right, we are back. See, this is not the first time we've had some folks from the VC community on. I really enjoy these episodes and these interviews because it gives you that, boy, they take a very, not cynical, they take a hard-nosed, realistic look at all these vendors.

47:25Steve Dennis: They look around and say, I don't know how many of these are going to be around, but here's a couple of good ideas. And it's very helpful for me to get their perspective. They're putting their money where their mouth is. So, unlike me, who just opines, they're putting dollars down on the table, right? Yeah, I think, you know, we've talked about this a few times where this kind of horizontal view of a sector, as opposed to talking about a specific brand with a specific executive, I think is often really, really interesting. I guess a few things struck me. I mean, one is, obviously, I mean, I think really to your point, they're looking at a spectrum.

47:59They're looking early. They also have a very different risk profile than a company can have. So just their whole way of looking at the retail world, the technology world, I think is quite interesting. You know, maybe a couple things. One was Indy used this phrase about getting lost in an idea maze. I'm definitely going to steal that. I don't have really more to say about it, but I'm like, yeah, yeah, that happens a lot. But enough about me. Scott talking about personalization as kind of table stakes. I do think, and we have touched on this, but I found that people are using personalization in different ways, and maybe that's worth coming back.

48:40But a little bit of what Indy got to, which is this idea of an end of one. How is the customer experience really targeted for you, kind of on the push way, but also from a customer standpoint? Maybe how can I use an agent to piece together something that is really built for me in a way that people have talked about. I think you mentioned that. People have been talking about this for a long time, but now it seems much more doable. I appreciated that both of these guys seem to have a much more, I would say, EQ versus IQ version. though they obviously have IAQ view of retail. The number of tech people that really couldn't understand the fun of shopping, the tactile aspect, they both talked about that a lot.

49:28And I don't think that is the sort of story you would have heard when people were investing in online-only businesses or the Marc Andreessen, all shopping is going online kind of nonsense. And then the last little note I made was this idea of the difference between the need to be an architect versus an assembly worker. And I think that, to me, is just a good visual of thinking about what AI can do or what automation can do. And if you're going to be relevant and you're going to find ways to add value, you've got to be much more of the architect as opposed to just like a cog in the wheel because that, I think, is happening and it could be very easily the kind of thing that really affects the nature of the workforce and, I guess, the sheer numbers.

50:13Steve Dennis: So up here in Canada, they're known as Winners and HomeSense and Marshalls. In your parts, they are TJX. But no matter where they operate, they continue to deliver strong performance. Yeah, just hit on a couple of others that I thought were most interesting because we just got so many earnings. And so the off-price segment is one that's been very hot for a while. TJX, that owns TJ Maxx, Marshalls, HomeGoods, Winners, has been the leader for quite some time. This was also a little bit like the Walmart numbers, a little bit of a mixed report, because some people definitely looked at this as a bit of a cautionary tale.

50:50Are they really starting to max out, no pun intended, their opportunity? Because their comps were just up 4%, that's a very nice number for lots of people. Plenty of people would take it. On strong numbers. But it's below, if you look at the, well, at least the apparel growth rates, it's below that. And if you think about the discretionary income pressures, you would think that would favor off price. I think some folks were looking for a little bit better number. But again, their size, their scale, their consistency, pretty good number. Their margin continues to be good. They raised their full year guidance.

51:28So it's Midas guidance. They seem to think there's going to be a bit of a slowdown in the back half of the year. One other little trivia thing I want to mention, though, and I'll talk about this with Ross Storrs in a second, too. TJ Maxx also got a pretty good tariff refund,$219 million. And I sometimes get people push back on me when I say, well, not everything in the off-price channel is purchased as overstock. There is a lot that is MFO or made for outlet. And so, obviously, if they got$219 million back, they must be doing some direct importing to be able to get that kind of refund. So, anyway, Ross got$253 million.

52:13So, anyway, not proportionally nearly as much as a target would get. But there is a lot of product that is engineered and bought directly by these off-price guys. And some people, like me, call that faux clearance. But anyway, story for a different day. Ross Stores, though, continues to be the belle of the ball, smaller than TJX and not nearly as internationally diverse. But their comps were up 10%. And sales were up 13 % because they continue to open a lot of stores. So this is the second straight quarter that they had double-digit comps. So that's very impressive. Though it did, over a little bit of color, it did come against some not really strong comps last year.

52:57But they appear to be doing something that's allowing them to gain relative market share. Ross continues to be on the rise. I have to say people should go check out what Simeon Siegel has said about them because he's a big fan of Ross. I don't totally get it, but I think the numbers speak for themselves.

53:16Steve Dennis: All right. One of my favorite interviews earlier this year was with Eric Satty, Simon Property Group president. And we see some numbers coming out of Simon Group that seem to point to the fact that physical retail may not be dead. No one's more surprised than me about that. We've talked about Simon a bunch, not only with that great interview, but I thought there were a couple of interesting things. For sure, their numbers continue to be impressive. Now, they are tilted very much towards the higher-end malls. But to the extent there's been a narrative that malls are really challenged, I think this continues to be more evidence that lots of malls are doing really well.

53:55And Simon has a great mix, and they're a very good operator. Their sales per square foot, and this may be a K-shaped economy thing, but their sales per square foot were up almost 14%. And when you think about the amount of square footage and number of properties they have, that's super impressive. Occupancy's at 96%. So I think you just look at this where we see this bifurcation going on very clearly and great malls, great specialty retailers, great scale retailers doing really well. Store closings continue to be really among the unremarkable middle or maybe private equity guys that get over leveraged.

54:30But the fun fact, I thought, in this, which speaks to a broader issue, is that Simon took back, and we touched on this a bunch of episodes ago, they took back from the SACS global bankruptcy almost a million square feet of SACS off Fifth space. So this is mostly SACS off Fifth, but also a few Neiman Marcus outlets. So this was part of the bankruptcy restructuring. They wanted the space back. the rent that was paid, annual rent paid on that space, was about$18 million a year. They expect to be able to release that space at about$40 million a year. So that's a pretty nice delta. So good for them.

55:13But I think the broader point is, you know, what used to be the case with anchor department stores, but also the off-price outlets of these big retailers that that were very prestigious, I say we because I was in Neiman Marcus, we would get these really great deals because we were viewed as being central to the development and to be able to lease other spaces. Well, how the tables have turned, those deals look like good deals for the retailer maybe, but not so good deals for the property owners and managers. So I just think we're going to continue to see a lot of this once premier space that is poor for traffic, sucking up a lot of space often.

55:58I mean, the other thing is not only were there sweetheart deals, but often if you were Saks Off Fifth or you were Neiman Last Call and say an outlet center, you would get the premier space, end cap, visible from the highway. And so that's part of the reason, well, who else can we put in there? It might be not an outlet-type client. It might be Sephora. I just think we're going to see more and more of this because that kind of real estate, that luxury department store kind of real estate, is just not nearly as highly valued anymore. And there's still, because physical retail isn't dead, there's still lots of really good retail tenants that are looking for better space, more space, expansion space.

56:40Steve Dennis: All right. Well, let's start to wrap up the episode. What's on your radar screen? Well, this is a radar screen topic that I brought up a couple of months ago probably now, which is what's going on in the bond market. And I know that probably sounds very boring to most people, but I think it is both an escalating story as well as something that does have pretty big implications or potential implications for retail. So what's going on is interest rates, particularly on the U.S. Treasury markets, have been going up quite a bit. Now, part of what a lot of people will likely remember is the view a year ago was that interest rates were going to be coming down.

57:18Well, they've gone very much in the other way. Long-term treasuries hit a multi-decade high, in fact, a 19-year high on the 30-year. 10-year is now up to 4.75%. It was below 4 % just back in February. So what? Well, why is it happening? Part of the reason it's happening is because of inflation. Part of it is the U.S. federal deficit blew past$40 trillion, despite Trump promising to lower it. So there doesn't seem to be much care in it. I mean, it's difficult, and this is not just one administration, but it's not going in the right direction. But another big thing is all this debt that's being issued to fund these AI data centers and other capital projects.

58:02There's a lot of competition for borrowing, and there's inflation, et cetera, et cetera. So this is tending to drive interest rates up. Why does that matter for retail? In case it's not obvious. Well, one is we talked about the home market being kind of frozen for a while. We didn't talk about Home Depot and Lowe's earnings, but they've continued to be pretty stagnant in terms of sales. And so without home buying, without refinancing, home equity loans to do remodels, et cetera, et cetera, that's got a big implication on certain sectors. But the more debt costs go up, that goes against discretionary income.

58:40So, you know, we've already had plenty of squeezes because of fuel costs, plenty of squeezes because of health care costs. So consumer borrowing rates going up or staying high, you know, is a significant issue for retail going forward. And, you know, I'm not sure, you know, I don't want to get in the predictions game on this topic anyway, because many of us have been wrong about it. But, you know, I don't think the conditions are really lined up for there to be a significant decrease in interest rates anytime soon. The other issue from the retailer side, of course, is if they're going to do renovation projects, they're going to sign new leases, they're going to build new stores.

59:19The construction borrowing costs, financing borrowing costs are another issue. Now, I don't know. We didn't talk about this last episode, but one of our favorite retailers, Tractor Supply, announced that they were pulling back on store opening. and that may be more because of operating dynamics or you know other macro factors but it wouldn't surprise me that the cost of financing these new stores you know you can tilt the balance as to whether a store works or not if you get a little bit more conservative on your operating environment and your interest rate costs go up one percent one and a half percent so anyway definitely something to watch uh you know we've been circling around the home

1:00:00Steve Dennis: improvement sector so home depot and lowe's both came out with results it just reminded me that to congratulate one of our prior guests uh chandu nair who was at the time lowe's svp of technology and ai is now target's first chief ai officer so congratulations uh to chandar we really enjoyed his interview we'll put a link uh you get a good sense of why he was chosen for such an important gig at target on my radar screen i'm thinking of the past present and future of brands and Can they come back if they're not irrelevant, but maybe past their best days of glory? And here I'm thinking of Canada's Roots.

1:00:35Steve Dennis: We're one of their heritage shirts today for the show in honor of Roots. They've been a retailer for many, many years here in Canada. They were in the U.S. I think they still have a couple of stores. They've got about 100 stores here. They're international. They've got some franchise stores. They have been sold off to New York's Marquee brands, houses of familiar brands, including Martha Stewart, Body Gloves, Sula Tab, Totes. So that's the end of Roots as a Canadian-owned and operated brand and retail icon, at least for now. They've partnered with Canadian Joe Mimram to help with their merchandising retail strategy.

1:01:07Steve Dennis: Joe's the Joe and Loblaw's big apparel brand, Joe Fresh. That also helps bury the lead a bit of an iconic Canadian brand sold to the Americans in these somewhat tense times between our two countries. Anyway, we wish them all the best in terms of what they're going to do with Roots. You know, Roots is one of those brands that everybody's got some in the closet here in this country, many places, but nobody thinks of that much anymore, even though they've got a bunch of stores. So can they reclaim their former value? Can it be turned around and people want Roots products? Is it one, two, three product lines away from being back on everybody's radar screen?

1:01:45Steve Dennis: So that's what I'll be watching in the weeks, months, and days to come. All right, well, that's a wrap on this episode of the show. thanks for tuning in. Thanks for listening. To learn more about my keynote speaking, bestselling books, and advisory services, go to stephenpdennis.com. And don't forget to check out my sub stack, Pardon the Disruption. Be sure and follow us on your favorite podcast platform or on YouTube and give us a five-star rating and review. This summer, new episodes will be released every two weeks. You can learn more about me or get in touch on LinkedIn or online at emileblanc.co.

1:02:25Thank you.