Retail Podcast 608: Greg Buzek The Retail Orphan Initiative
Bob Phibbs interviewed Greg Buzek, the founder and president of IHL Group, on the next big battle in retail and more on this episode of Tell Me Something Good About Retail.
Tell me something good about retail
Greg Buzek: The Retail Orphan Initiative
Bob: Today, I get the opportunity to talk with Greg Buzek, the founder and president of IHL Group, who RIS News named, along with yours truly, as one of the top 10 influencers in retail. Greg has a master’s degree in business administration from Ohio State University and 25 years of experience in the retail market analysis, business planning, product development, and consulting with Fortune 500 companies business. Welcome, Greg.
Greg: Bob, it’s great to see you and it’s great to be on the program.
Bob: We are fellow Buckeyes. When I was a kid, I grew up in Toledo, but then quickly moved to California when I turned 10. So, never looking back. What about you?
Greg: Now I was born and raised in Cincinnati, went to Ohio State for six years and then NCR came calling and took me down to Atlanta.
Bob: Nice. So what was your first job with NCR? What were you doing with...deeper world then, right?
Greg: That’s actually an interesting story. So I was an intern. I was probably the last intern picked out of my MBA program because I was planning to...I was a graduate assistant for the recreation intramural program. So I was planning to be there for the summer handling the rec centers and stuff. And then I got an opportunity to work with NCR as an intern. And that summer, my first job was I was putting a lab with IBM’s 4680 system and they said, “Make this thing lose data.” And so my first job was hacking into IBM’s 4680 supermarket system. So that was my first job.
Bob: And you were successful at that?
Greg: I was by the end of the summer, and I figured out how to run transactions without those ringing up in the back office server. And so I ended up getting a job in competitive intelligence for NCR.
Bob: Wow. Now, how does that inform your choices today with IHL?
Greg: Well, what was really interesting is that it forced me to learn everybody else in the industry. Most people get hired into a company and they get just buried inside that company and all their processes and everything, and occasionally, they’ll learn about another company, maybe if it’s an ideal or something like that, or they’ll hear some scuttlebutt at a conference, etc. But they don’t really study those companies. And I had to study those, all those competitors like NCR. I mean like IBM, Fujitsu. At the time, Microsoft was doing some things. There was a company called PSI. We were looking at all those things in the late ‘80s, early ‘90s. And so I got a good lay of the market. So when it came time to start IHL, I left NCR, went to Sensormatic for a couple of years and then started IHL in 1996. So this is our 25th year this year with...
Greg: ...with IHL. Thank you. And I had a pretty good platform of what was going on in the market, who had the strengths, who had the accounts, etc., through that. And because IBM and NCR pretty much train the industry and technology back then, a lot of friends I knew, they all moved to other companies, and so that helped me grow my business as we went to syndicated. So we started doing a little bit of competitive work for NCR as a first project I think in ‘96, ‘97, and then we started syndicated research right after that and then it’s grown from there.
Bob: So why does a company hire you, Greg?
Greg: Today, really for the market awareness and market analysis, one of the things we do as a research house is whenever we get the data...it’s easy to just do a single pass of the data and put it out there as a short white paper. But at the end of the day, you look at some of these data points and you say, “So what?” And our research has to pass that “so what.” So we always go another level deeper to see what the nuggets are. So like, for instance, we have a webinar next week that is on what winners are doing differently and investing in differently in 2022. Well, you’ve got to cut the data from who’s growing, who’s not growing, what are they doing, and like...okay, now you’ve sliced that, you know what the difference between the winners and the average folks are doing, but what are they really investing in at a heavy level? And that’s where it really becomes, in my opinion, intelligence as to what’s going on.
It’s not just 42% say this or whatever. It’s things like...just to give you an example, the winners of companies that are over $500 million are more than three times more likely to already being allowing their consumers to check out with their phones. And that’s a huge impact on their sales and the ability to get through the line faster, etc., like that. So those are the kinds of things that we do at IHL from a research standpoint, whether that’s a customer research project for an individual company or something that’s broader for the industry, we take that extra step to look at that and dig through it. So our latest study with RIS News coming out in January, at the top level, I have 133 stories that popped out there that I get to choose from and then rank the “so what,” so to speak, is what do we get to share for each thing? So I enjoy digging in and finding those stories and saying, “Aha, that’s what’s really going on there and that’s the special thing that’s happening.”
Bob: We know some people have said that the game is over, that the big boys, Amazon, Walmart, and Target have cleaned the clocks of everybody else. They got bigger COVID, they can execute better than anybody because they have been through the fire and come on the other side laughing. Is that your way you would see it for other brands or...
Greg: Not necessarily, but it’s getting close. We’re not there yet. I think the next big battle, and we believe the next decade is based on who can get the accurate inventory first. And right now, none of those guys have the inventory thing fixed. In fact, you mentioned Walmart, you go into the Walmart stores now, my local Walmart, they don’t have enough people to change the prices on the shelves, let alone do have the shelves stocked with everything right now. So this labor shortage is really holding people back and certainly the supply chain issues that are there. But at some point, you get the systems and you can get the accurate data because you can count that information on the shelves, or what have you, and you have accurate inventory data, then it is pretty much game over because it’s AI and machine learning on that data to make faster, quicker decisions.
And right now, we’ve had this huge expansion of these digital journeys as a result of COVID. We had buy online, pick up in store, click and collect, ship from store, etc., while on every one of those retailers are losing 3 to 15 points of margin, depending on the level of involvement, the level of staffing that’s involved in those transactions. So the big race right now is how do I make those profitable because they’re not going away. With the pandemic, when it started, the experience was so poor that we only estimated about 45% of people would stay with click and collect or buy online, pick up in store because you’re fighting for wait times and slots and delivery and substitutions, it was so poor. But as things elongated, it got stickier. And now, we’re seeing as close to 80% or higher stickiness in those digital journeys going forward. So, as we look forward to 2022 and beyond, it’s not people coming back to the stores or going digital, it’s both. Some cases, 40% to 50% of the business is coming through a digital channel and you’re losing 15% to 20% margin and some cases on that, you’ve got to fix that and you’ve got to invest in the technologies to be able to do that. So that’s the rates in the near term on that.
Bob: Does that silo into like... Is it more weighted to people with grocery and less with apparel? Is it more beauty and less hardware? It’s hard to believe that 80% of people who did buy online and pick up at the curb are going back. I know when I drive by our Walmart, which...I’m in upstate New York and that’s like our big...we have a Walmart and a Lowe’s. That’s our big development for 40 miles around. And those big drive-up areas that were busy last year, I don’t ever see anybody there. So I’m just curious.
Greg: It’s different by segment. What’s really fascinating to me, though, is what’s happening in clothing. In clothing, we’re seeing the big growth. Most things have started to settle. In turns, we had this big boost and now they’re starting to settle in, but they’re not necessarily dropping. The one that’s growing is buying clothes online for pickup and store and paying a fee to do that. And the reason for that is we have still not figured out the size issue and the return problem when it comes to buying clothes online. So what’s happening... And in fact, it goes up with income in terms of being willing to pay a fee, and that people are willing to reserve it at the store, go try it on and return it in one trip. So they’re not waiting two, three days to get it, only to be frustrated and have to go back to a store to return it anyway.
Bob: Wow, I haven’t heard of that yet.
Greg: So they’re willing to pay that fee to reserve that inventory at the local store.
Bob: Wow, fascinating. Do you think that that’s going to have...as we look at retail moving forward, I think everybody has come out of the pandemic suddenly believing that stores actually have a place. And instead of kicking them to the ground and saying they’re all garbage and no one would ever go there, I think everybody’s trying to figure out what that looks like and how it plays out. I know that I was shocked when I started going back out into the world and how the malls look like Christmas and there’s bags in hands and people are happy and they’re snapping things up. You said initially how demand is normalizing across everything. I was talking to somebody a couple of weeks ago and they were talking about how commerce are looking and how building materials are normalizing and they think that’s the canary, that as building materials normalize, that that’ll happen for the rest of retail. What are you seeing in the next 6 to 18 months? Clearly, I think we’re going to be in for a mother of all holiday sales, whether it’s going to affect everybody equally. I don’t think anybody knows that yet, but quite simply the consumer is finally putting their foot down on the gas and I think we’re going to drive us for a while, but then what happens?
Greg: It’s really fascinating. There’s what the market’s going to do and then what I tell my friends to do. So the market is going to be up because we have the benefits of inflation and retailers are not going to discount to the same level because they just don’t have the inventory yet. It’s still sitting on boats in a lot of cases and not going to get here in time. But come January and February, all that merchandise is going to show up. So I’ve been telling my friends, “Get gift cards because you’re going to get some deals.” And the second thing that’s happening is the child tax credit. Most consumers don’t know that that’s an advance on next year’s tax return. So there’s going to be a rude awakening come March and April where all of these folks all of a sudden realize, “That money is gone. I spent that money at Christmas.” And that’s going to have a negative impact on the holiday. So just as we’re starting to figure out all these supply chain things and the boats start to get back to normal, all of a sudden, we’re going to have a pullback in retail sales. We’re going to have gangbusters here at Christmas and a pullback in the early of next year.
Bob: And as I say, “So what? I can’t get your $100 widget from your store. I’m going to go buy $100 widget from somebody else’s store.” That’s what people will be like. It’s not about you being out of stock. I’m going to spend that somehow, whether it’s going to be travel or what other experiences I can and it’s yours to lose. So I appreciate that, and I appreciate that insight on the gift cards because it’ll be a discount, probably a mother of all discounts, because to your point, once we solve the supply chain, AI can’t keep up with that. It’s the same thing, that big of a kick. Suddenly all the supply comes on and how do you weather it as a retailer when clearly the stores need it, but that’s a headache. I’m glad I don’t have to worry with my friend.
Greg: And it’s interesting too, that retailers are buying about 30% more merchandise than they would normally buy and hopes they get some of it and have it. So we got some warehouses that are full right now with things that they think they’re going to sell, but they don’t know if they’re going to sell. But they got 30% more of certain things than others. I think when you get the fast-moving consumer goods, it’s a completely different challenge. And we’re going to do an out-of-stock index come January, February timeframe, where we’re going to rank retailers based on in-stock performance for items there. But it’s really, in many cases, not the retailer’s fault. They say, “Send me 100,” and the manufacturer says, “You’ll get three.” And it’s like, “Okay, well, what do you do in that situation?” So those are some unique challenges that are out there right now in the market as we’ve gone through this process. In certain categories, we wiped out four months of inventory for the country in two and a half weeks. And you just can’t recover from that in a quick manner.
Bob: At the end of the day, it’s probably going to have the skills for those old-time buyers who knew how to really buy and not just give everything the data they’re going to have to be called...I would think would have to be called back to figure out, “You’ve been through a lot of recessions. What does this look like?” We’ve watched stoppages before in L.A. and Long Beach.
Greg: What’s really been fascinating through COVID, the early stages of COVID, all of those people that were on the side of retail that were gut-feel old time buyers, they went to school where math wasn’t required type of thing in some of these industries. You get into some of the fashion categories and things like that, it’s more about the design and style than it is about...and they just simply don’t trust the systems. Well, when sales tanked for specialty soft goods in department stores, etc., that was an excuse for a lot of these retailers to say, “We got to invest in these systems. And if you’re not coming along, you’re not coming along.” And so they were able to do that. Now, we have the opposite problem. We can’t find enough people to work in our retail environments. And it’s mostly pushed at the store level, but it’s also at the warehouses, it’s also at delivery, but it’s also at the home office and IT, where we can’t find enough people in those positions.
But the underlying pieces of those organizations have fundamentally changed. The retailers that survived the early stages of COVID that were nonessential made a massive transformation in the level of IT that they’re spending on. In fact, we saw the percentage of revenue literally go up almost a full percentage point in our research because it’s strategic. We’ve got to catch up here because we are going after the Walmarts and the Amazons, etc. That piece is happening. But if we had the capital and you really had to delineate between those retailers that were leveraged with debt already because of private equity, those people generally went under during the early stages of COVID just because they could not handle the debt load. And so we’ve cleaned out a lot of that dead wood in terms of things there.
And now, the ones that are left, at the same time, we wiped out 440,000 small retailers, which were just devastated because of local protocols for COVID, things like seasonal businesses not opening, etc., that happened. So the people that survived, it’s gravy train. And the smart ones invested in those technologies to get better at their inventory, to get better at doing their digital journeys and delivering things and improving the margins there. And all of those things are in play right now as we go forward. The ones that are left are in pretty good financial position. They just have to plan for...hey, understand what’s coming when we get to March and April when all of a sudden that money doesn’t seem to be there that’s normally there that time of year.
Bob: Well, and if you keep giving away margin because every time somebody touches something, you’re losing margin, then you can be cash...what is it? Cash rich and...I don’t know, whatever it is. But you’ve got the sales, you look like you’re successful, but there’s really not that much underpinning. You’re really passing through the money, not really adding it to it. Well, listen, we’re going to continue in just a minute, and I want to talk about our sponsor, CoreLogic.
And we’re back with Greg talking about...switching hats on you now. So I want to talk about the Retail Orphan Initiative. I know in 10 years, RetailROI, as it’s called, has been involved in over 200 projects in 24 countries, helping estimate 226,000 children through clean water, education, computers, language, training, and care. So what was the need for this, Greg, and how did it get started?
Greg: Where do you want to start? Well, it started, for me, 20 years...almost 18 years earlier from the time we started it. Between the time I was at Sensormatic and I started IHL, I got fired from Sensormatic from my position. And I got fired after a lunch with my pastor at our church, who said I needed help in missions. And I said, “Missions? I’m a business guy. I don’t know what the heck I could do there.” And before I got back to my desk, I got fired. And so that got my attention and I was like, “Okay, I could do missions.” And everything kept coming back to the country of Liberia. And so this is South Florida, so I-95. One morning, I knew it was Liberia. I knew Liberia was about to go into civil war. I’m literally driving up I-95 going, “If you want me to go to Liberia, I’ll go. All I know is my friend there has been shot at. He’s had an 8-year-old holding AK-47 at him. He’s had malaria three times, but I need like a burning bush if I’m going to Liberia.” And as I’m praying that prayer, there’s a guy pushing his car up the road in Boca Raton, Florida, and I pull over to help him and it’s got a bumper sticker that says, “I support Liberia.”
Bob: You’re like, “Okay, burning bush, thank you very much.”
Greg: Yes. So that started my journey, and I was never able to go to Liberia back then and because they went into civil war and shut it down. So I started IHL. I started a business and needed to get started. Well, that was 25 years ago. One of the things that happened, there was a verse that was, “Leave your country, go to where I’ll show you, a land I’ll show you,” was part of a verse for me planning to go to Liberia. Fifteen years later, I’m moved up here, I’ve got kids, I’ve got everything, married up in Tennessee now, and our pastor starts teaching off the same thing. And the word families popped off the page.
And so I started searching that and that led me to an organization called Family Legacy and Lifesong for Orphans that did no interest loans for adoption. And then finally, I was at a conference and it says, “There comes into the life...” A guy was sharing a Winston Churchill quote. “There comes into the life a cause for which a man is uniquely suited. What a pity if that moment finds them unwilling or unprepared for that, which may become his finest hour.” And so at that point in time, I knew I was supposed to do something with orphans. And there’s a lot of left out there. But I met up with Paul Singer. And many of us know Paul Singer. Paul was the chief information officer for Target and later SuperValu. And he’s the guy that took over for Dave Thomas of Wendy’s to lobby Congress for foster kids and things. And I said, “What if we just did something in the industry? Let’s just create a secular charity in the industry around orphans and vulnerable kids.”
And we met at Oracle OpenWorld. It was the day that Lehman Brothers went under. So it gives you a date specifically. And Paul had taken over OpenWorld. He did a 45-minute presentation that was supposed to be on Target. He spent five minutes on Target and talked about adoption and foster kids for 40 minutes in the presentation. And we had met and we walked outside and there were like six friends who all agreed saying, “We see each other at every event. We know each other. Let’s do something together to help kids.” And so we started and did the paperwork. And unfortunately, as soon as we signed the paperwork, Paul had called and said he has a brain tumor. And he had to have surgery and it fell to me to lead after that. And we decided, “Hey, okay, we’ve got to raise money. What can we do?”
We looked around the room and the people says, “We go to events all the time. We know who the best speakers are. Let’s put on an event and we’ll treat it like ladies’ night. We’ll invite all the retailers to come for free and we’ll charge all the people that want to sell to those retailers. And we’ll put on a business event where all the funds go to fund clean water projects, school technology projects, life skills, etc.” And so that’s what we did. And so here we are 11 years later, 12 years later. And I think it’s now 250,000 kids in 27 countries that we’ve been able to impact by giving a hand up. And so it’s been incredible, incredible journey with a lot of friends and a lot of industries and just doing incredible work.
We’ve met all kinds of incredible people around the world. We travel together, we go on trips together. Our trips are...we call them vision trips. We don’t even ask people to have an idea or have a project in mind. Just come and see the work that’s going on and realize that what you do every day can have a major impact on what’s going on here. So I’ll give you one example, John Geyerman. John was one of the guys who helped Walmart grow from 4 to 2,000 supercenters back in the early ‘90s while he was vice president of Schlotzsky’s, a franchise development. So, Todd Michaud said, “If you get John down to this project in Honduras, you’ll get a new kitchen for this place.” So we bring down John to that and the kids were cleaning corn out in our laundry basket with a garden hose.
And next thing we know, John has put a million-dollar kitchen in there with...it’s basically food safety and all this stuff, a million-dollar US kitchen we’ve got to put in there for $65,000. And then we needed corn for the tortillas. They were making 4,300 tortillas a day. So we went, “Well, who’s the biggest buyer of corn?” And we said, “Cargill.” So let’s call Cargill and see if they’ll donate two train cars worth of corn, which is what we need for this school.” And they agreed to do it, but it came in individual kernels. And we’re like, “Okay, we need to get this back.” So somebody else said, “You know what? My friend’s got a seed packing plant in Indiana. Let’s just get it shipped there.” And so they put it in 50-pound bags and then somebody that does shipping and logistics for a living said, “Well, oh, this is a container.” And so they bought the container, scheduled the FDA inspection, and we got a year supply of food for 600 kids for $7,500 delivered to Honduras.
Bob: I love that idea of people coming together for the community, people you don’t even know, but you can all say, “I can do that.” I think that’s the key of making any charity work is people see how they can tap in and then it’s easy for them. That’s the key.
Greg: Our big goal is we’ve got a lot of really successful people in this industry who have incredible networks and talent. If we can just turn the light bulb on, make an introduction and let them go, it’s amazing what happens. John is now the chairman of the board for a human trafficking prevention organization here called Free for Life, now here based in Nashville, and they’ve already rescued 2,251 women and children at the border between Nepal and India with RetailROI’s help from trafficking. And he met that through our event, through somebody else, but he got started on one project.
Bob: Amazing. Now, I know that tonight you have a virtual Shark Tank coming up in Jamaica. So tell me a little bit about that before we get off our call.
Greg: One of the challenges with COVID is we haven’t been able to do the trips. And although we do have a trip in DR right now, there’s a group in the Dominican Republic, went down there now. We haven’t been able to travel. And we were planning to go to Jamaica. And Parker Avery has volunteered to teach an entrepreneur course to kids in Jamaica up in the Chapelton area. And tonight is the first presentation of the Shark Tank. So we have six students that have prepared these business plans. I’ve glanced over them so far, but I look forward to digging in a little bit more, but those presentations start tonight. And we have $10,000 in prize money set aside to VC capital for these businesses to get launched.
Bob: That’s amazing.
Greg: And so it’s a lot of fun. So, once again, Parker Avery Group does consulting and business planning and stuff for companies all day long. They taught these skills to these kids. And we’re hoping that this starts to build an industry in that area of Chapelton, Jamaica.
Bob: Nice, nice. Now, through Sensormatic and certainly through NCR, how was the way you thought about retail changed in the last few years you think?
Greg: Oh, wow. When you’re a consumer, all you see is what’s wrong. When you go into a store, a lot of times all the shelf is empty. These guys don’t know what they’re doing, etc. And then you go behind the scenes and talk to the people that are doing the planning and doing the things and it’s incredible the amount of complexity that is involved in ordering things, particularly in situations like we have now, where we’ve got shortages, where you can’t just say I’m buying one and one shows up when it’s supposed to show up and it doesn’t happen. I was just at a price management conference, and we had really, really smart people in there that are trying to figure out, “Hey, you know what? Bananas only have one code, but when it shipped, I want 20% to be green so they can ripe when I’m there. I need 40% to be a little bit green, and then I need the rest of it to be ready to go when it gets there. And I have to have so many things.”
Well, if the employee doesn’t get the count right, the order doesn’t come through the next day appropriate. So the ratio gets all messed up and you don’t sell as many bananas because they’re too green, or they’re too ripe, etc., as a result. And that’s just one item in a store, and you realize that just sheer complexity of what’s going on, particularly, like I said, when you order 10 and only 3 show up, and you’re like, “Well, wait, the thing said 10. I was expecting 10. The shelves are ready for 10. Where is it?” And how do you adjust on the fly to do that? So that I think...
Bob: I think it probably makes you also appreciate those people that did retail decades ago, who built the foundation of this industry that is responsible for one in four jobs in America. And in some ways, it was luck, but in a lot of other ways, it was they were totally flying and building the plane. They didn’t have the data, they didn’t know...if there’s less on the shelf, I guess we sold it.
Greg: And the other thing that’s happened is there’s still a ton of inefficiency in the marketplace? We lose worldwide about 10% of same-store sales due to out-of-stocks and overstocks, the difference between what the consumer wants to buy and what’s actually on the shelf there at any one time. Now, it’s a lot better in the U.S. than it is in other parts of the world, but it’s really fascinating to see how much...to put in perspective, we lost the GDP of Canada. That’s how much we lost in inefficiencies last year due to out-of-stocks there. The other thing that’s changed is the U.S. and Europe used to lead the world in innovation, with innovation and shopping techniques, etc. That has completely changed as we’re moving forward. It is being driven primarily through Asia and through South America and Latin and South America right now that are way ahead of the U.S. and Europe when it comes to new ways of shopping, like livestream, augmented reality, virtual reality kind of things, massive gains when you look at China, and Korea, and Japan in those technologies. So that lead is now moved East in a big way.
Bob: Well, I’ve enjoyed our conversation today, Greg. The name of the podcast is “Tell Me Something Good About Retail.” So I always ask our guests, share with me what is something good about retail.
Greg: Well, the thing about retail is just the sheer volume of lives that are changed for the better as a result of our industry. In the United States, we’re at $5.5 trillion industry there that is growing right now at anywhere from 8% to 10% in some cases. And as a result, that’s providing tremendous economic opportunity. And it’s really just terrific as an industry the people that get in retail and grow in retail, they leave sometimes, and they’re always coming back because there’s a unique aspect of retail that just is a magnet for people and it’s some of the great people that work in this industry.
Bob: I love that. That’s a great way to think. It’s like our listeners, they’ve magnet, and they come back episode after episode. Well, it’s been great talking to you today, Greg, and best of luck on Shark Tank tonight.
Greg: Thank you very much, Bob. Appreciate it.
Bob: You bet.
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