Retail Podcast 316: Paco Underhill on the Science of Age When it Comes to Retail

Jan 17, 2020 6:01:12 PM

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Bob Phibbs interviewed Paco Underhill, author of "Why We Buy" and environmental psychologist. In this episode Bob and Paco talked about the science of age when it comes to retail and the evolution of retail. 

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Bob: Today's guest is an environmental psychologist. He's the author of the groundbreaking book, “Why We Buy” as well as several others, and the founder of market research company Envirosell. Welcome.

Paco: Hey, happy Friday to you, Shabbat Shalom.

Bob: I wouldn't have thought you'd been that jovial.

Paco: Oh, come on. Now. Part of what I tried to write is for a popular audience, and that means that I want to make them giggle. Some of them said mostly your writing is funny, occasionally funny and uncomfortable.

Bob: Yeah, I would say funny uncomfortable. Well, who are you - maybe there's someone under a rock that doesn't know who you are or what you have to do with retail. So, just in your own words, what should we know about you besides that you're a funny guy?

Paco: I grew up as the son of a diplomat, so I grew up traveling around the world. I had a terrible stutter, which I still have the remnants of now. I had to always use my eyes as a way of figuring out where I was and what the rules were. And there are many people who have said that I turned a coping mechanism for a handicap into a profession. Just a quick thumbnail. About 40 years ago, I was teaching fieldwork in a doctoral program in environmental psychology and developed a way of using a motion picture camera back then to measure how people move. And, as I looked at the different possible applications for it, one of them was within the context of commercial spaces. I had never had any interest in retail.

It was just an obvious possible application. And, when I stepped off into that world of retail, there were two tools that people used: one was the tools of media research, which was asking people questions. Part of what we know is that while we can ask people questions in person, we can ask them on the phone, we can ask them online, and we could do it qualitatively.

We can do it quantitatively, but often what people say they do and what they actually do is often different. So that's one. The second of the two people used is sales research is the myopic view of the functionality of a space or a website. Now, from the vantage point of the cash register, while it's always very important to understand where you're winning, it's often even more important to understand where you're losing.

We developed a process to go into physical spaces to set up cameras, just put observers on the floor. And rather than be anthropologists in Papua New Guinea, we were anthropologists in the aisles of grocery stores and fast food restaurants and fashion outlets and department stores. And we watched what people do - one of the applications with that came very clear and the origin of our business was a testing agency for prototype stores.

Paco: Of the 50 largest merchants in the world, we've wrote work for roughly half of them. Of the 50 largest merchants here in the U.S. we worked for more than two thirds of them, and we went from studying an entire store to studying a section or a part of that store.

And that led us to the world of consumer product goods companies. We have gone beyond stores and banks to work in doctor's offices and airports, museums and other types of commercial spaces. And over the years we've built other tools and have gone beyond that original motion picture camera to look at what happens online.

Our largest clients today are technology companies. Looking at that meeting of cyberspace and physical space, because so much of our tech world still involves something that deals with either going to a telecom store or going to a computer store or going to some other place to try to figure out, “is this the right thing or product or even software for me?”

Bob: Are we all just rats to the cheese? Is that what you're studying? Because on one side, I can see that it's behavior-based - why does she go over here? Why did he pick that up “Oh, I like the color,” but then you look at something else it really wasn't the color. You know, Martin Lindstrom - we've worked with him before as well. There's a huge disparity from what I say in the moment and what I do.

Let’s say three things are in common between doctor’s offices, retailers and airports. Is it that we're predictable or is it that there are fundamental ways that we show interest in something?

Paco: I think one of the first ways of looking at it is that there are biological constants there. Things that govern how we move and how we see things. The first is maybe the fact that 90% of us are right handed, and therefore, whether it's a doctor's office or an airport or a store, a counterclockwise circular pattern puts that dominant hand closest to whatever we want to interact with.

You know, I'm 67. I know that our eyes age in the same way all over the world. And therefore, understanding the difference between how someone sees at 67 and how someone sees at 14 is a really critical part. And if you're an Abercrombie and Fitch, or you're a Century 21 maybe you have a certain target market, but if you're an airport or you're a target being able to understand the difference between young eyes and aging eyes is a very important part. We also know that mostly we love our children –

Bob: Mostly

Paco: And that we tend to move often in very predictable social clusters. I can move by myself. I can move with a friend, I can move as part of a couple, I can move this part of a family. We have a younger generation that often moves as a positive. And those are all things that are common to many different types of spaces.

Bob: Yeah. I I've told this story before, but I was working with Frito lay, and when the VP  said, “when we do tracking and we just look at sales numbers, we can see that the person who buys a pineapple is the most likely to buy a calling card and a toothbrush.”

And she goes, “what are we supposed to do with that? Are we supposed to put toothbrushes by the pineapples and say that that's going to do it?” Because a while ago, that is what we thought, and now we're kind of realizing it's a lot more nuanced than that.

Paco: There's the old joke that they tell in the market research world that  moms driving mini minivans with kids that play soccer, preferred Jif to Skippy two to one.

I think one of the things that is really important in the broader world that we're trying to function in is that for all of the emphasis on strategy, being able to have an understanding of tactical execution is a really important one. And part of what we know with our clients is that when we go out to do a study.

If we can come back with something that they can do in two weeks or a month to be able to win some victories it gets a lot easier to be able to start talking about what they should do in six months or next year. And that familiarity with tech with tactical execution or winning victories, I think is one of the dominant issues in the broader world of being the retail doctor or whatever or being able to function successfully in the context of our very rapidly changing world.

Bob: Absolutely. So, 40 years ago, you are this pioneer with your camera and you're going out and looking at stores. You look at how consumers have changed in 40 years - have we changed? Are we still that same person?

Paco: No. One of the great things about our job is for all of the things that are the same, what made a good store or what made a good website in 2000, and what makes a good store or a website today are different and they are a reflection of the evolution of us.

There are generally five things that we look at that are changing. First is the understanding that our visual language is evolving faster. Then our spoken or written word that our eyes, courtesy of the internet, courtesy of movies, whatever, have just fundamentally changed how they were. Second is probably the most seminal event in our species since the taming of fire is birth control, and therefore the relationship between gender is very much in transition.

The third issue is the issue of time. All of us are moving through our lives with a clock ticking inside our heads and for everybody who talks about being money poor, there's somebody else who is much more acutely aware of being timed more, and how do we factor that process? Fourth issue is what is global and what is local?

And this is the difference between Dubai and Istanbul, or the difference between Albany and New York city. Those are all things that are key to understanding change. And then the final issue is that in the mid 1990s, we went through a very important evolution as a species, which, up to that point, the overwhelming majority of global wealth was in the hands of an aristocracy.

And in 2019 the overwhelming majority of global wealth is in the hands of people who earned it in the course of their lifetimes. And therefore, that combination of educating and selling has taken on a much more important role than it ever has in the history of commerce.

Bob: interesting, that last one, that they've actually made it. What are the implications for the whatever it is, 99% who are not the wealthy people on billionaire’s row in New York city? Does it mean that there's more of a sense of that? I could do that too. Retail kind of existed to answer a customer's question, “what's new?” But also, I defined myself by what is a boomer, right? My parents grew up in the great depression, and my mom saved string and darn socks and all of these things. So, when I could buy my own and do something, that's how I defy. I still have that in me. That's not millennials or iGen. But ultimately, are we changing that much from what we used to value? Or once that's baked into you at an early age, is that what you carry forward?

Paco: Well, I think there's always that sense of conflict here. I think that that first point you make is a very important one, which is that merchants and marketers need to remember that the medium household income in the USA is just under $60,000 a year.

And for all of the fascination with rent the runway, and all of the other aspects to it, that there is a core consumer out there in small town America. That is where you have two working adults raising a family. And there are some priorities that you have to look at. And some of those may be, for example, what is the difference between a tee shirt from Fruit of the Loom with one quality cotton and with a very moderate price point, versus a tee shirt with a much higher quality cotton.

Cotton that may last four times as long. So I think one of the things that we're wrestling with is the degree to which the consumer is either going, “Oh, I'm going to get it as cheaply as I possibly can,” or can I educate you to buy fewer, better things and be able to lower your carbon footprint in the world.

Now, certainly, all of us can look at those one per centers, and we can look at it with some degree of envy and with a certain understanding. But one of the things that's really amazing is that the knowledge of brands. You can go to Brazil and see that most desperately poor teenagers have the same knowledge of brands of somebody who's grown up in Grosse Pointe Michigan and gone to a fancy private school.

Bob: That's really interesting cause I talked to a woman who worked in the HUD office and she talked about how she goes into struggling homes and shows it and it is not uncommon for her to find a product bag and I'm not talking to knock off. The thing we seem to forget is that the poor or whatever you want to call it, those who are not the 1% or lower have the exact same aspirations as we do. And yet we think that they’re somehow different. I was recently reading today that 80% of jobs in America pay less than $20 an hour.

So, to your point, they're not going through and buying an Oculus and they're not going to be using beacons on their smart phones to be navigating things, right? They're just trying to get through the day. What does that mean for retailers? If people are more time-starved, if people are discovering products in a new way, I'm riffing on this, H and M had - $6 billion in unsold merch last year. We thought that was the future. Everything was going to be fast fashion. What are the clear markers that you see going into 2020 about how retail is evolving, particularly from the consumer choice, but also the product choice?

Paco: I think there are a number of issues. As you may know, I am working on a new book for Simon and Schuster. With the working title, “the future of eating and drinking.” And one of the things that we're looking at is the conflict between what is global and what is local and the degree to whether it's the impact of the farmer's market on grocery, or it's the fact that we have a 10,000+ small scale distillers who were putting out rum whiskey and making their own wine and beer and the customer out there is going, “you know, maybe I do want to start using stuff that's grown or made within a hundred miles of where I sit.” That said, the other aspect to it is that saving money.

It isn't just about the economically challenged. It is about people feeling smart and empowered and that there are lots of us who do a major part of their food shopping at the farmer's market and end up paying a premium. And then we're at Costco buying Kirkland or at Sam's buying Sam's club product because we know that the quality of that generic product is actually just as good as the branded product that we've been historically told was better.

Bob: We were all trading down, I think we're actually returning to the pilgrims where I don't have to open Bob's coffee house and I'm going to take on Starbucks. So, it'll be Bob's coffee house and I'll serve my little trade area. And that's it. And then someone else will do their little gift area.

I think craft breweries have made that difference. Somebody said recently that we've lived through the golden age of restaurants Paco that now with so much delivery you can open a storefront kitchen without even having to have a restaurant.

That the future without getting you to give away everything in your book. Is that the future or do we believe that human beings have a need to go out and be social to eat and drink and shop?

Paco: Well, I would create another dimension to it. As I see it in my office in New York city, we have counted eight different places within a hundred meters of my front door where you can have a cup of coffee.

And you can have a cup of coffee in the cafe inside of club Monaco, you can have a coffee inside the Red Fleece Cafe at Brooks Brothers. You can have it at Godiva. The coffee shop around the corner and some of it is where do I want to be seen holding that cup of coffee.

One of the defining issues about going out is that you and I, as aging guys don't see ourselves or who we are in the context of where we tend to go. Whereas in our work for the adult beverage community, one of the things that we're seeing is that much more discerning or discriminatory practice that the female consumer is having about where do they want to be seen and what do they want to be seen with in their hand.

Bob: And is that a function of branding or is that a function of consumer identity?

Paco: Well, one of the things that was very interesting to me, which made complete sense, is that we have a very popular product where we have researchers outside a restaurant. And as somebody comes in, we asked them if they will wear eye tracking glasses, mobile eye tracking glasses, and we asked them to wear them for the first 10 minutes they're inside the restaurant or the bar, and then we get the glasses back and we have a little video screen and we go through what they looked at and then interview them about what that process is.

And one of the things that we found is there were a certain group of women who were ordering things based on the outfits that they were wearing that the beverage wasn't extension. Which when you think about it in terms of the fashion and the presentation makes absolute and complete sense, but I don't think there's a guy on the planet that orders beer based on what the color of the label is versus what the color of his shirt is.

Bob: No, that's interesting. And, ultimately how does a brand react to that? You know, do you say you'd look good with this? I mean, one of the things we're also noting is why are CPG manufacturers all in trouble right now? These brands that were built for decades about consistency and were cleaner than the other guy, or fresher or fill in the blank, and that mass market seems to be going away and they're trying to figure out how to be more boutique about it.

Paco: There's an erosion of trust here and that is a very intense issue in both the consumer product goods companies and with some of the global merchants here in terms of being able to establish a better connection to their customer.

Bob: Like Johnson & Johnson with the baby powder. “Well I guess it did have asbestos in it,” or some of the other things that have gone on. I mean, when I grew up, it was Tylenol, right? Remember the Tylenol scare? What was it like? Two or three people had trouble and then Tylenol was gone so I always loved to ask, since you've built a business and brand for yourself, what's the best advice you think you've ever got?

Paco: I think the best advice is that if you're focused on winning victories and you have the history of winning victories, people will accept whatever it is that you're packaging. And the fact that you have that history that's real. People are always attracted to winners.

Bob: It's interesting you say that because I'm always frustrated with small businesses this time of the year, invariably they'll get this story, some little paper. We'll call up somebody, “how's business?” “It's terrible. You know, the internet is pushing us out. It's all Amazon, all of our customers.” And I'm like, “do you realize like no one is attracted to this message? Do you realize that this is the time when you would be saying, ‘Oh, we're excited. We're doing this and this and this.’” Because perception, especially in a smaller world is all about trust.

Paco: Well, I think this is one of the more exciting issues that we're dealing with in the broader world of consumption is that in the context of the farmer's market. A small boutique farm is economically viable if they can go directly to the public one, and second, if they find some interesting ways of doing some modest processing.

If you're running an Apple orchard, being able to go from selling apples to making cider. Or two drying apples that people could put in people's lunchboxes. Those are all things that can contribute to a lot of couples starting businesses that are viable fun and they feel good about themselves.

Bob: And that's really important as well. So, what was one of your books a few years ago? Are men and women that different, well, obviously you just said about the premium shelf average -

Paco: It used to be in our research work that we observed gender as being one of the big differences. Men were hunters who needed to go into the forest and shoot something and bring it up quickly. Women were gatherers. I think one of the things that's very interesting now is the difference between generations, and that is recognizing that my son or my godson or my grandson has a different relationship to consumption than I do.

And that therefore, he's much more willing to call up one of his buddies and go, “let's go hang out at the mall” than I ever was.

Bob: And that's important too, because we're hearing that iGens are returning to the malls and that millennials are absolutely the ones that are going to lead back that path to brick and mortar.

So, you have a friend of yours in the middle of the country, Oklahoma, and says, “me and my husband, we've always wanted to open our own little store.” What would you tell them?

Paco: Well, actually in June of this year, I was in Oklahoma City with the downtown association, talking to small merchants about what does it mean to start and operate a boutique business in the context of a Midwestern setting? And you know, there are a couple of things. First of all, recognize that the internet isn't just a way of selling. It's a way of creating community. And one of the things that I cite is a wonderful merchant that I know who used to operate an evening wear store where she's talked about 5,000 long dresses and her position was if you bought a dress from her, you registered the dress and you registered the event that you are wearing the dress to and she guaranteed no one else would wear the same dress to the same function.

And part of what she did is to go and asked for an exclusive in a hundred-mile radius. And part of what that did is that women would drive past Macy's and Neiman's and whatever to be able to come visit her. And one of the things about being a small merchant in the 21st century is that you can be nimble.

And you can make your own unique proposition out there to the market and use social media as a vehicle to compete very successfully with those big boys who just can't move as fast or as well as you can.

Bob: Great point. I always say it's about being brilliant on the basics in retail. You know, retail isn't hard. It's just a lot of really tiny details you've got to execute every single time. Well, I have to ask you one last question. With rent the runway and some of these other big ones, everyone's going to be doing it in the future. Do you think that a rental is going to be the killer stores ?

Paco: You have to recognize that rent the runway is actually a dry cleaning business.

Because part of what happens is you rent that gown, you bring the gown back and they have to clean it. And there's a green signature to that that I think is unsustainable. It doesn't mean that rent the runway doesn't have the role, but I think one of the things that we're going to be looking at is what is the green signature of things and whether that's Amazon delivery or whether that's rent the runway that ultimately, we need to be better to each other and we need to be better to the planet. And retail is one of the ways that that's going to happen.

Bob: Particularly in somewhere like New York city where you have so many Uber's and so many delivery vehicles and so many FedEx and UPS that the city was never designed to do that. And people are like, “Oh, but it's easier online.” We are realizing that other costs is not only going to be in human capital and money, but frankly in traffic and in your ability to get your own house.

Paco: I can look out my window right now and be able to see somebody sorting boxes on the sidewalk. They're all Amazon related, and literally in the same frame of reference out the window is the garbage can filled with packing material. And I think there's some good creative solutions to it. It doesn't mean that Doug Liberty isn't an essential part of our future, but we have to figure out a better way of doing it.

Bob: I would totally agree with it. And on that, I appreciate your time today. And how can they find out more about you? And the great work that you do

Paco: Envirosell.com.

Bob: Well. Great. You've been a great guest and as always, I look forward to reading your next book and turning the page on even more to explore retail and food and drink. So, thanks again.  

Paco: Thanks, bro.

Find out more about Paco here

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