//Transcript: Barbara Kahn

Transcript: Barbara Kahn

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The transcript from this week’s MIB: Barbara Kahn, Marketing Professor at Wharton is below.

You can stream/download the full conversation, including the podcast extras on iTunesBloombergOvercast, and Stitcher. Our earlier podcasts can all be found at iTunesStitcherOvercast, and Bloomberg.

 

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This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

RITHOLTZ:  This week on the podcast I have a special guest.  Her name is Professor Barbara Kahn, and she teaches Retail and Marketing at the Wharton School of Business.

If you are at all intrigued by the impact of not only Amazon on the world of retail, but how overbuilt retail is and why it’s inevitable that B and C-class malls would — would go out, why so many retailers are failing to keep up, failing to compete, why it’s inevitable that we’re going to see a lot of these retailers go down and how all these really interesting applications of data analytics and technology is completely changing how retailers operate.  The experiential aspect of it, the ability to capture data in stores that previously only existed online is a very, very significant change, and the ramifications from that are going to be felt for quite a long while.

With no further ado, here is my conversation with Professor Barbara Kahn.

I’m Barry Ritholtz.  You’re listening to Masters in Business on Bloomberg Radio.  My special guest today is Professor Barbara Kahn.  She is a professor of Marketing and a director of the J.H. Baker Retailing Center at Wharton, part of the University of Pennsylvania.  Previously to that, she was Dean at the University of Miami Business School.  She is the author of “The Shopping Revolution:  How Successful Retailers Can Win Customers in an Era of Endless Disruption.”

Barbara Kahn, welcome to Bloomberg.

KAHN:  Well, thank you very much.  It’s fun to be here.

RITHOLTZ:  It is.  And — and this is such a fun topic.  I really enjoy the subject.  And let’s just jump right into it.  It’s a chapter in your book.  I have to start with how disruptive is Amazon.  It seems like every announcement they make boils an entire sector of the stock market.

KAHN:  Yeah, it’s really amazing.  Every day, something new from Amazon and every day there’s massive reaction.  And all a lot — you do see stocks move up and down as Amazon says something or other threatens to go into health industry, into financial services.  People are afraid.  And it’s interesting because what Amazon does is a disruptor.  There’s no doubt about it.  And they describe one of the most famous Jeff Bezos quotes, which I have never seen actually written down but everyone on the Internet swears he said this is “Your margin is my opportunity.”

RITHOLTZ:  Yeah.

KAHN:  And that idea of taking out margin, in other words taking out profit, is pretty scary.  and when they can do in a sustainable way, that’s disruption.

RITHOLTZ:  So let me broaden the conversation.  Online retailing isn’t even double-digit chat, it’s not 10 percent of which Amazon is just under half.  Are we getting a little all worked up for five percent of the market or is the overall trend what’s scaring Jesus out of everybody?

KAHN:  You know, I don’t think it’s that online per se.  I think it’s changing the whole shopping experience.  People talk about it as omnichannel, but right now it’s just retail.  Retail is now become a seamless integration between online and offline.

The — the original online retailers are opening up stores.  Even Amazon is opening up stores, which is a kind of mind boggling that they’re opening up bookstores …

RITHOLTZ:  Right.

KAHN:  … you know, but …

RITHOLTZ:  Well, it’s been so successful for Apple or some of the other technology companies trying to imitate that.

KAHN:  Yeah, you see that also.  Microsoft and — you know, I mean, Sony, which is electronic, they’re opening up the direct store for them.  But when they open up these new stores, they’re different from all stores.  They are not the same thing at all.  They’re much more concentrated on customer experience.

Some of the news stores that open up are showrooms.  They don’t even carry inventory per se, and that’s part of the point.  You really can’t say what’s the percentage of shopping online anymore because some people will shop online, pick up in the store, then where do you — where do you code that?  You know, what — what is that?  Is that online shopping or offline shopping?

RITHOLTZ:  So I’ve experienced that with both Home Depot and Lowe’s.  You want something specific, they may not have this particular snow blower but you can buy it online.  They’re shipping stuff to the store anyway, you pick it up there.  There’s no additional shipping cost, yet you feel like you’re actually making this friction-free …

KAHN:  Right.

RITHOLTZ:  … as the usual online shopping.  Is that what’s meant by omnichannel?  Is …

KAHN:  Yeah.

RITHOLTZ:  … everything to everybody?

KAHN:  Omnichannel is thinking about not dividing up whether it’s online or offline, it’s all one big channel.  And that’s going to become a — not a real word anymore.  We’re just going to think of this as retail.  You know, when you buy retail, you can go online, you can go in the store, you can pick up there, you can buy there, whatever.  Pick — shop it on the phone.

RITHOLTZ:  So I’ve noticed at stores like — my wife calls this a retail therapy, but at stores like Macy’s or Lord & Taylor, if you’re looking at something and a salesperson — some of these stores still have sales assistants — if you’re looking for — at something and they don’t have it in the color, size, whatever you like, they’re very quick to say, “We can order it now and have it shipped your home for free.  Would you like to do that?”  And if it’s something you’re familiar with the size just like, yeah, sure, it’s one less package (inaudible) …

KAHN:  Right, yeah.

RITHOLTZ:  They don’t want to let any transaction slip away without converting it to an actual sale.  Has that been your experience?

KAHN:  Oh, for sure that’s the case, so there’s not — all the traditional retailers are doing that now I think.

RITHOLTZ:  So this is a purposeful approach not just one savvy salesperson.

KAHN:  Yeah, you know, but I wonder when you tell that story, one of things that’s interesting to me about is whether that salesperson is on commission or not because — and that’s what I think is interesting about say what I consider a very creative retailer like Sephora, where the salespeople are not on commission.  And the reason I bring up this point here is when you say “I’ll send it to your store — send it to your home,” is she really trying to — she or he, the sales associate, really trying to give something of value to you, which is the way you told the story or were they trying to upsell so they make a commission.  And that’s a subtle difference, but I think it’s an important difference.

RITHOLTZ:  Well, if you walk into a store and you find something you like, and I’m looking at three — let’s say we’re looking at shirts and there are three different colors and extra small up to double XL, and I want this color in this size and they don’t have it, it’s not so much an upsell as a lost opportunity.

KAHN:  Right, right.  In that case, it’s …

RITHOLTZ:  And that’s how I took it.

KAHN:  Okay.  In that case it’s positive.  But — but I want to make that point because I think this idea of retail — that retailers had in the past of do whatever they can to make the next sale backfired when Amazon came in because I think what Amazon was trying to do is really make the customer experience easier, you know, and they make you — so you can get in and out of the website very quickly.  What Amazon famous for is they patented in 1997 one-click shopping.

At the — and I — when I found out that that was patented, that was shocking to me.  It’s like why would that be patentable.

RITHOLTZ:  Right.

KAHN:  And then you had to go back to think, what was the way retailers thought in 1997?  And what they used to think when you’re online is keep people online as long as possible.  They would talk about web strategies where you have a landing page, and if it’s designed right, you go further and further into the website with the idea the longer people are on the website, the more they’re likely to buy.

RITHOLTZ:  Like it’s a store.

KAHN:  Right.  And that’s why I was saying with the salesperson, too.  If — if it’s a function of just trying to make sure you make a sale, like you said, anything I can do to make a sale, that’s not what Amazon does.  Amazon said, “Let’s make it as easy as possible for you.”  And that was the first time people really tried to do that, and that’s why they could patent one-click shopping.

So going back to your example, the way you told the story, it was easier, it was better.  But you can also imagine an alternative scenario where people are saying, “I don’t want you to walk out of the store without making a purchase and they start doing  a harder and harder sale.”  That’s really customer-focused anymore/  That’s, you know, sales-focused.

RITHOLTZ:  Quite fascinating.  Let’s talk a little bit about retail and, specifically, I have to discuss the Kahn retailing success matrix.

(LAUGHTER)

Tell us about those four quadrants and what they mean.

KAHN:  Yeah.  Well, I mean, I did name it that, but I — I think it’s interesting to me …

RITHOLTZ:  Well, what else we’re going to call it.  That’s what you have to …

KAHN:  Right, that’s what I — they said name it something.  I could think of nothing else. But anyway, the idea behind the success matrix is when I — I had — I recently stepped down as Director of the J.H. Baker Retailing Center.  I had been there — I had been the Director for the last six and a half, seven years.  And during that time, I ran into a lot of changes in the retail industry.  And being an academic, when I step down, I wanted to take a deep breath and try to organize everything into some kind of framework.  And so I went back and looked at traditional retailing matrices, and they focused on the product, and they focused on operations or logistics.

If you want …

RITHOLTZ:  That was it.

KAHN:  And that was it.  And if you want to talk about someone who’s a great retailer, let’s say Mickey Drexler, he was called the “merchant prince,” and that meant he knew how to merchandize, he knew how to assort product, he had a good eye.  And nowhere in any of these traditional retail matrices was the customer.

As a marketing professor, the first principle of marketing is the principal of customer value.  And what does customer value mean in retailing?  Give them a product they value from a retailer that they trust.  That idea of retailer that they trust, that was missing.

The second principle of marketing, which was not in any of these traditional retailing matrices, was the principle of competitive advantage.  If you’re in a very competitive market, you’ve got to be better than the competition.  That means either increased pleasure or take away pain.  So those two ideas form the underlying theory of the matrix.

The columns are the principle of customer value:  product benefits or customer experience.  The rows are the principle of differential advantage:  do it better by increasing pleasure or do it better by removing pain.  And that gives me the two by two matrix that I call my success matrix.

RITHOLTZ:  So I — I broke it down in your book, which — let me — is called The Shopping Revolution:  brands, experiential, frictionless and low-cost.

KAHN:  Right.

RITHOLTZ:  So each of those things either make it more fun or less painful …

KAHN:  Right.

RITHOLTZ:  … or what’s the second column?  How does that …

KAHN:  Or focus on making the product more fun or less painful or focusing on making the customer experience more fun or less painful.  And what’s really new in the matrix is that second column of customer experience.  And what Amazon redesigned, in my opinion, is making that customer experience frictionless., easy.

RITHOLTZ:  That’s interesting.  How much of this is driven by this millennial generation?  And I — I guess I was going to ask a dumb question, which is how much of it is technology, but how do you really peel apart millennials and technology …

KAHN:  Right.

RITHOLTZ:  … at second nature to them?

KAHN:  Right.

RITHOLTZ:  So the column — let me rephrase that question, the combination of millennial preferences and the various use of technology, is that what’s driving a lot of this?

KAHN:  Yeah, I think it is actually because when Amazon started in 1997 they started online.  You know, and they started with books and you have to think back why did they start with books?  And I would argue they started with books because the product and the shopping experience could be completely digitized.

Once it can be completely digitized, then what they did is have an endless assortment so they had more …

RITHOLTZ:  Right.

KAHN:  … assortment than any physical store, and they reduced prices by 10 to 30 percent.  That was a dominant solution that attracted customers.  But you’re right, it started with technology.

But the basic idea of removing pain from a customer experience does not have to be technology because think of what Wal-Mart is doing now, curbside pickup.  They could have done that a long time ago …

RITHOLTZ:  Right.

KAHN:  … and made shopping easier, but they didn’t.  They made you come into the store, walk up and down the aisles, stay in the store as much as possible …

RITHOLTZ:  Right.

KAHN:  … impulse shop.  You know, all the ideas, put the milk in the back, all of that was to keep you in the store as long as possible.  This new idea of you’re a very busy person and you don’t want to spend your whole time — whole day in a Wal-Mart so you should be able to pick it up as you drive home, that’s a new idea, but that’s not technology.

RITHOLTZ:  Coincidentally, we’re having this conversation the day after a “New York Times” column, front page “New York Times” column came out discussing some of your work amongst other things how Amazon has affected retail and how retailers have finally began to learn from their experiences with Amazon.  How far along in that process are we that retailers are finally waking up and saying, “Hey, we better do this and this or Amazon is going to eat our lunch.”

KAHN:  Yeah, I mean, I think they’re seeing the retail apocalypse.  People are talking about that.  If you don’t understand these two basic principles:  the principle of customer value and the principal differential advantage; you’re not going to succeed, RadioShack, Circuit City, Borders, you know, soon Sears and Kmart, who knows.  But these retailers that are not really not up to snuff on customer experience, they just can’t make it in a world that has an Amazon in it.

RITHOLTZ:  Sears, I think that has to be inevitable, I mean, that way.  The local Sears where I grew up has been there forever and finally it succumbed.  And yet, how are shops like Best Buy and Target seemingly thriving?  Target just announced their best quarter, I think, in something like — there was a 13 percent gain.  What is the drivers of the successful companies like Best Buy, Target and Home Depot and Lowe’s for that matter versus the Sears and the Circuit City.

KAHN:  Target is a very interesting example because it shows the importance of stores and this, quote-unquote, “omnichannel experience.”  So one of the things they’ve done that’s very successful is helping up this small urban stores, so they used to have these big boxes in suburbia and rural markets.

RITHOLTZ:  Giant, right.

KAHN:  Right?  But now they have these small urban stores where singles or young people are living in the cities more, they also open them close to campuses, and they’re getting a lot of people who like to have the physical store experience.  They’ve been — they’ve been tinkering with their product assortment.  They’ve come up with a lot new store brands.  They’re trying to get the cachet of Tarjay back …

RITHOLTZ:  Right.

KAHN:  … you know, that design kind of idea, fun shopping, and it seems to be working.  They’ve been doing a lot of things.

The biggest thing is changing that store, having a different assortment.  It requires rethinking your assortment when the store gets smaller.  And then these ideas of curbside pick-up and making shopping easier and making shopping fun.

RITHOLTZ:  So, how do firms differentiate on brands?

KAHN:  Well, you know, the luxury brands are still doing very well, so you’re looking at Louis Vuitton, Hermes.  Those — those are really doing very well.  They’re staying off of Amazon, but they understand the importance of online.  Also, they’re partnering with things like Farfetch or Net-a-Porter, which are some kinds of online marketplaces that are dealing.

But they — they understand if they’re going to charge a premium prices, they’ve got to give superior product, pleasurable product and a really good customer experience.  You have to feel pampered when you buy luxury, so that’s another piece of it.

RITHOLTZ:  So what’s the flip side. the every day low prices, the EDLP?  How important is that?  Is that a totally different market segment or is there any overlap?

KAHN:  I — well, you know, that’s the interesting thing because I think somebody might have a Louis Vuitton purse and then a Target t-shirt.  You know, that — that’s possible, but there’s always going to be a price-sensitive segment.  So every day low price, the Wal-Mart strategy, Costco strategy, T.J. Maxx, they’re all doing very well even though the — the luxury brands are doing well, too, because they’re going after being the best at something.  So luxury is the bested products, and everyday low price is the lowest price.

RITHOLTZ:  And it seems that’s a bit of a barbell, the middle where the middle-class used to shop, that’s become a bit of a void it’s either high-ends or low-ends.

KAHN:  Right, yeah.  It’s — yeah, something special, and that’s what I mean by differential advantage.  You got to be better.  You can’t just be good enough.  You got to be better at something.

RITHOLTZ:  Let’s talk a little bit about your academic career.  What motivated you to write a — a book on — on the shopping revolution?

KAHN:  Well, I mean, for the last seven years or six and a half years, I was the Director of the Baker Retailing Center at Wharton.  And the goal of that retailing center was actually to convince Wharton students to go into retailing.  Typically, the Wharton students didn’t go into retailing.  They went into investment banking or hedge funds or consulting.

But Jay Baker who had retired as the President of Kohl’s thought this was a missed opportunity.  And so he developed this center to encourage people to think about retailing, and I was the director of it.  So my goal was to really learn as much as I could about retail and what the excitement as to convince our students to go into the industry.

At the time I was doing this, retailing was changing radically.  You know, we had all sort — not only Amazon, but these digitally-native vertical brands started.  Those are the digitally-native vertical brands, the brands that start online and they go direct to the end-user.  Warby Parker was started by …

RITHOLTZ:  Sure.

KAHN:  … four Wharton students, so that was particularly, you know, something we were very proud of.  But there’s also Casper that did it more recently …

RITHOLTZ:  The mattress company.

KAHN:  Yeah, the mattress company, Bonobos, which was subsequently bought by Wal-Mart.  Allbirds is a new one that’s getting a lot of — you’re wearing Allbirds.

(LAUGHTER)

But these are digitally-native vertical brands that are going out.  And this big name, this — we were trying to make retail sexy, but retail was becoming sexy, you know, it was really the technology reference before really did change the way people think about retailing.

RITHOLTZ:  So — so when a student graduates Wharton and goes into retail, what aspect of this are they doing?  There’s — it seems as a universe of — of things that makes sense and are applicable in a modern technology world.  Where — where do you see them going into those …

(Crosstalk)

KAHN:  Well, you know, Amazon right now is a big hirer of Wharton students as Goldman was.

RITHOLTZ:  Really?

KAHN:  So — you know, so …

RITHOLTZ:  And we’re not talking warehouse workers, these are finance …

(Crosstalk)

KAHN:  And people — who knows what they’re — I think the working for AWS or whatever else.

RITHOLTZ:  Right.

KAHN:  I don’t know what their work, but Amazon is a huge company.

RITHOLTZ:  Giant.

KAHN:  Right?

RITHOLTZ:  Right.  They’ll eclipse Wal-Mart as the biggest employer if things continue …

KAHN:  Right, right.

RITHOLTZ:  … to extrapolate that out …

KAHN:  Probably they will.

RITHOLTZ:  … to infinity, which is never a good idea…

(Crosstalk)

KAHN:  But, you know, even some of our students are going to Wal-Mart now which was — you know, was in the past they weren’t so intrigued with going to Arkansas, you know, and working in, like you said, an operationally-efficient company.  But now walmart.com is in San Francisco, jet.com is — is in New Jersey.

RITHOLTZ:  That’s a big purchase of theirs a couple of years ago.

KAHN:  Yeah, yeah.  So now it’s a sexy interesting fun place to work.

RITHOLTZ:  So, do you recall there was a — I want to say a “New York Times” story?  You just made me think of this, where someone came into Target to complain that their daughter was getting …

KAHN:  Yes, yes.

RITHOLTZ:  … pregnancy stuff in the mail, she’s in high school, how dare you.  And then subsequently, he had to go back and apologize.  Target’s big data analytics figured out that if you buy this, this and this, hey, you’re probably pregnant and you’re going to want this.  Is that’s the sort of stuff that — that MBA students are doing?

KAHN:  Yeah, that’s one thing.  For sure, the Wharton School, our dean is advocating over and over and over again, data analytics, data analytics.  You really can’t go into marketing anymore if you don’t understand customer analytics and data analytics.  You know, in that story, I remember when it came maybe five years ago …

RITHOLTZ:  Right.

KAHN:  … was surprising but, you know, you really didn’t need data analytics to do that.  A smart sales person could’ve watched this girl come into the store …

RITHOLTZ:  Right.

KAHN:  … buy a pregnancy test and buy, you know, vitamins and prenatal vitamins or all these other things.  So what — really it wasn’t rocket science to figure that out.

RITHOLTZ:  So giving your vantage point, how has the curriculum for MBA students change relative to — to this industry?

KAHN:  You know, we’ve definitely included more analytics in our marketing, in everything.  Adam Grant is another professor at the Wharton School.

RITHOLTZ:  Sure.

KAHN:  He started up people analytics kind of program.

RITHOLTZ:  Originals, I think was his book.

KAHN:  Yeah, who are givers and takers and plan B and — he — but he’s really — you know, all of that stuff it’s even management, which may be used to think the management and marketing, quote-unquote, softer sciences.  We’re all using data analytics.  Of course, finance has always been data — heavily data-driven.

RITHOLTZ:  You’ll be surprised that’s a relatively recent phenomena.  By relatively recent, it’s a couple of decades.  It — it was not as endemic as you would suppose 20, 40, 60 years ago.

KAHN:  That’s interesting.

RITHOLTZ:  Quite fascinating stuff.  Let’s talk a little bit about some of the older brands who may not be quite as hit as the Warby Parkers or the Allbirds of the world.  How would you advise companies like Kellogg’s or Coca-Cola to appeal to the next generation?

KAHN:  You know, it’s really interesting to watch because I’ve been teaching marketing for a long time, and we would teach branding and we would talk about what are the biggest brands forever, the same biggest brands:  Coke, IBM, whatever, Toyota.  All of a sudden in the last five years, we all know who the biggest brands are now.

RITHOLTZ:  Apple, Amazon …

KAHN:  Right, right.

RITHOLTZ:  … Google, Netflix, right.

KAHN:  Right.  I mean, and that’s a change that happened very, very quickly in the last five years.  And if you look at their stock prices, Kellogg’s, Gillette, they’re hurting.  The CPG companies are hurting, and they do have to do something to wake up and smell the roses just like the retailers.

So Gillette, for example, has, you know, started subscription services to compete with Dollar Shave Club and Harry’s.  Coca-Cola just bought a coffee company.  Look what Nike is doing.  That’s pretty interesting what Nike did.

RITHOLTZ:  So let’s — let’s discuss that because I was just reaching for my phone to grab a data point that I wanted to ask you.  You’re here the day after it was announced that Colin Kaepernick is going to be — he received an extension of his contract with Nike.  And on the 30-year anniversary of their launch of the Just Do It campaign, they made — they made him part of that and there seems to be quite an interesting backlash.

However, and — and this is what’s so fascinating, a data point I read — it might have been in the Journal or the Times specifically said something like two-thirds of Nike’s customers are under 35.  So there, you know, Nike is not marketing to old fat white conservative dudes.  That’s not their target demographic …

KAHN:  Right.

RITHOLTZ:  … is it?  The people who are burning Nike socks and shoes, they really don’t care about that, do they?

KAHN:  No, I mean, I think that’s the calculated decision they made and they had to do some things because they also had been getting a lot of negative publicity on the women issue.  I mean, they support Serene and she’s a fantastic role model.

RITHOLTZ:  For sure.

KAHN:  But that’s not — that’s not where the news is about Nike in women.  The — the lawsuits and all these other things, and that’s been in the news and Nike has to face that.

And I think you asked me before about the difference in millennials and baby boomers.  One of things I see that’s different is that millennials seem to hold brands accountable.  And so it’s not just enough to brand a product.  You kind of have to take some positions.  You have to be responsible.  And I think Nike, you know, is — is taking that position now.  They are standing up to social issues that do concern their core market and they took a stand on it.

Look what happened at Starbucks.  You know, one incidence in one Starbucks restaurant in Philadelphia caused an incredible reaction around the world.  That was something I was talking to someone in Europe about, and I said, “I don’t suppose you heard about what happened in Philadelphia with Starbucks.”

RITHOLTZ:  And they did.

KAHN:  And they had.

RITHOLTZ:  It was — you know, it’s always amazing when you have such a diffuse company with tens of thousands stores, how hard that is to really get a consistent message and a consistent behavior across tens of thousands of employees.  It’s — it’s really quite astonishing.

All right.  So here’s the Times article, it’s not the Journal.  Nike turns to a familiar strategy with the Kaepernick ad campaign.  The Times suggested that Nike, as a brand, has courted controversy.  Charles Barkley, I’m not a role model.  Tiger Woods saying …

KAHN:  Right.

RITHOLTZ:  … “Hey, some of these golf courses wouldn’t let me play because I’m an African-American,” years ago.  So coming back to Colin Kaepernick, is this just tacking into that controversy?

Here’s the data point I want to define.  Nearly two-thirds of individual who wear Nike in United States are under 35 years old.  So — so this wasn’t a coincidence, this was a very conscious decision.

KAHN:  Oh, they had to know that they get — I mean, Trump made it clear they were going to get some backlash on this and he — through reform — responded yesterday although not as extremely as one might have thought, but he did respond.  And — and then the boycott Nike kind of hashtag, boycott Nike and the crazy videos that are coming up with people burning their expensive shoes, you know …

RITHOLTZ:  Which is kind of silly because, A, you already gave them your money.

KAHN:  Yeah.

(LAUGHTER)

RITHOLTZ:  And B, really shouldn’t — if you really think it’s a veterans issue then donate it to veterans.

By the way, yesterday, I’m doing this from my memory so I’m going to get the numbers wrong.  But it was something like Nike stock fell 2.7 percent, but a data stock fell 2.4 percent.

KAHN:  Yeah.

RITHOLTZ:  It was almost no difference there.  If their biggest rival fell the same amount, it might have just been, you know, the whole segment is — is going to suffer backlash for a couple of days, and then back to — back to usual.

KAHN:  But when you take some of these positions, you’re going to get polarization.  And they must have calculated, you know, we’ll lose some, but we’ll gain loyalty in other markets, and they thought it was worth it.

RITHOLTZ:  So let’s talk a little bit about the paradox of luxury.  You — you referenced it earlier people have to either have some very positive affiliation with the products or the brands or the experience.  What is the paradox of luxury?

KAHN:  Well, you know, usually in economics, which I’m sure you know very well, supply and demand says you lower price, make things more accessible then your market share is going to go up.  In luxury, that’s the paradox.  If you lower brands too much like Michael Kohrs — lower price too much like Michael Kohrs and Coach did inadvertently by having a lot of discounting and selling a lot of their products in outlets.  That diminishes the value of the brand.  So if the — and if you make it too accessible, it diminishes the value of a luxury brand.

Luxury is for elite.  Luxury is special.  Luxury is inaccessible.  So when you make it a little bit more affordable, the notion of affordable luxury is almost an oxymoron.  That’s the paradox of luxury.  It doesn’t follow the regular rules the supply and demand.

RITHOLTZ:  So — so this goes back to the old days of General Motors when they would sell essentially the same car.  The high-end was a Cadillac, the middle was a Buick, and the cheap car was a Chevy.  They were all essentially rebadged and — and upscaled versions of each other.  Is that the concept or …

KAHN:  Yeah, I mean, so maybe the guts of the car was similar, but the trappings or the …

RITHOLTZ:  Right.

KAHN:  … were really different.

RITHOLTZ:  And the dealerships were dealer …

(Crosstalk)

KAHN:  Right, and the service was different, the brand was different.  That materials in the car might have been different, higher value, so there was — I’m not saying it was silly, I think there was value to what’s going on.  But that’s the paradox of luxury.  And part of what makes it special is not everybody has it.

RITHOLTZ:  So it — it’s the — the scarcity creates …

KAHN:  Right.

RITHOLTZ:  … creates a specific value.  That’s kind of — that’s an interesting.

So, within the existing world of brands that are being disrupted, how can they jujitsu this?  How can the disrupted become the disruptor?

KAHN:  Well, that’s interesting to think of.  You know, you’re seeing a lot of pressure on these digitally-native vertical brands.  They are considered some of the disruptors.  A lot of what they have done by going direct without all these intermediary channels, they’ve been able to lower the price.  And so a Warby Parker is very high designed glass, but it’s — glasses but it’s sold at $95 rather than a $500.

RITHOLTZ:  Oh, really?

KAHN:  So that’s part of what the disruption is.  It goes back to that notion of your margin is my opportunity, so I’m giving you what you really want but I’m charging you a lower price.  So that’s one way that they’ve been disrupting.  And the other way of the disruptings have been — is making it more convenient.

I suppose there’s something lurking out there that we haven’t seen yet, but right now that’s what people are doing.  I can’t imagine what — what it will be, but maybe there’s another dimension in my matrix I haven’t thought about yet.

RITHOLTZ:  So — so you — you said you can’t imagine what — what they’ll do next.  How challenging is it to predict trends or even just extrapolate trends?  It seems that there’s a new meme and a hot new flavor every other day.  Are — are these things just passing fancies or is there really a bigger shift taking place in a lack of consistency in brands over time?

KAHN:  I mean, well, I think what you’re talking about is the way retail changed over time and got people to buy more, which was changed styles, changed trends.  So, in the old days, hems went up and down or colors went in and out.

RITHOLTZ:  But that was a long arch, wasn’t it?

KAHN:  That was what?

RITHOLTZ:  A long arch of time.  It didn’t change seemingly from day to day, was changed season to season.

KAHN:  Season to season, but it gave you a reason to buy more.  Same thing with electronics or innovations or cars, the technology just got better and better …

RITHOLTZ:  Sure.

KAHN:  … so you needed — so that you do need to see something new in order to get people to buy because products just don’t wear out that fast.  You know, if they wore out, then you’d have to replace.  But a lot of things don’t, so you need fashion, style, new technology.

What Amazon did and the digitally-native vertical brands did was I do think significant disruption, which is different than this changing in styles and trends, and they realized that the whole model of retail had gotten stale.  And that’s when I went back to that sales force commission kind of idea.  The idea that if you would go into a department store and try to run away from the perfume women, you know, that would kind of stray you.

RITHOLTZ:  Right.

KAHN:  Like what were they thinking, you know?

RITHOLTZ:  They were thinking they — these are commission people who are going to do anything to — to sell something.  So let’s talk about that.

We — we’ve been — other folks have been discussing the death of the mall for years and years and years.  Is that overblown or has that sort of post-war suburban shopping experience is that also circling the drain?

KAHN:  Yeah.  No, I think that that’s what happened, like it got stale.  So we have way too many stores in the U.S.  We’re over — let’s call it overstored.

RITHOLTZ:  Overbuilt, yeah.

KAHN:  Yeah, overbuilt.  U.K. …

RITHOLTZ:  I like substantial amount versus …

KAHN:  Significant, right.

RITHOLTZ:  … Japan and the U.K.  I remember …

KAHN:  So even — yeah, right, substantial.  So even if you didn’t see all this change, those stores are going to have to go out of business.

RITHOLTZ:  Right.

KAHN:  We had too many.  And if you look at the malls that are going out of business, they’re called the B and C malls …

RITHOLTZ:  Right.

KAHN:  … they were (inaudible) malls.  You know, when the Macy closed down is that — as the destination, all the stores in the middle had to go out.  There was no traffic.

RITHOLTZ:  Right, right.

KAHN:  So that’s what’s going down.  But just as those store — malls are going down, some exciting beautiful new flagship malls are being built.  Look what’s happening in New York City.  There’s some beautiful stores being built that should attract a lot of traffic.

RITHOLTZ:  Can you stick around a little bit?  I have a ton of questions for you.

KAHN:  Okay.

RITHOLTZ:  We have been speaking to Professor Barbara Kahn.  She teaches Marketing at Wharton.  If you enjoy this conversation, be sure and come back for the podcast extras where we keep the tape rolling and continue discussing all things retail.  You can  find that in iTunes, Overcast, Soundcloud, Stitcher and Bloomberg or wherever finer podcasts are sold.

We love your comments, feedback and suggestions.  Write to us at mibpodcast@bloomberg.net.  Check out my daily column on bloomberg.com.  You could follow me on Twitter @ritholtz.  I am Barry Ritholtz.  You’re listening to Masters in Business on Bloomberg Radio.

(BREAK)

Welcome to the podcast.  Barbara, thank you so much for doing this.  I find this subject absolutely fascinating, and I have a bunch of — of questions to — that we didn’t get to, but I have to come back to the luxury as a scarce good.  And I’ll share a quick funny story with you.

My wife teaches fashion illustration and design, so when I get dragged around to various stores it’s not so much retail therapy as it is research.  And — and where I am the reckless, “Oh, that’s nice, get one of those.”

(LAUGHTER)

She is the much more physically prudent of the two of us.  And one day where — I forgot where we were, but she sees this Prada bag and it’s ungodly expensive.  It’s this leather fringe bag.  I want to say it was like $12,000 or $14,000.

KAHN:  Oh, my God.

RITHOLTZ:  Something — that same number that I guessed, I’m like, you know, you could buy a small car …

(LAUGHTER)

… for the cost of that — that bag.

KAHN:  Yeah.

RITHOLTZ:  And — and speaking of cars, I troll around eBay all the time looking at old cars to occasionally tickle my fancy, and on a lark, I started searching for that bag.  And one day there it is.  It’s less than $1,000.  It’s — which to me is still a ridiculous price for bags, but you walk into the store in $300, $400, $600, $800 is pretty typical.  So for her birthday, I surprised her with an eBay-purchased Prada ungodly expensive bag.

What does the used market do to luxury?  And what are things like you mentioned that Net-a-Porter and — and some of the — is it pret-a-porter?  What is that …

KAHN:  Net-a-porter and Farfetch.

RITHOLTZ:  Okay.  So they sell, rent, repurpose.

KAHN:  Well, they do both.  Some of them are marketplaces, some of them have their own inventories, some of them concatenate a lot of little stores on their platform.  There are different models there.  But luxury is a really interesting business.  There’s catches on it.  One of them is this whole counterfeit market.

RITHOLTZ:  Oh, for sure.

KAHN:  So …

RITHOLTZ:  That was the concern with eBay.

KAHN:  Yeah.

RITHOLTZ:  I actually had to write the person and say, “Listen, I’m interested in this bag.  How do I know it’s real?”  And they sent me, I think, “Back here I sold 1,000 items.  I’ve been on eBay for, whatever, a decade.  I have all the paperwork with this.”  And — and to my wife’s eye, I — when I gave it to her, I said “Make sure this is real.”  And she looked at them, she goes, “If this is fake, it’s a fantastic one.”

(LAUGHTER)

All right.

KAHN:  Was she happy with …

RITHOLTZ:  Thrilled to death.  Can I tell you she — we — the reason I’m — even remember this is she just said to me, well, fall is coming up and I’m excited about that.  And I’m like why, jeans, sweaters.  She’s like, “No, I get to take the Prada bag out of the closet.”

(LAUGHTER)

It’s — it’s a leather fringe bag, so it’s her fall bag.  She’s very …

KAHN:  Oh, I see.

RITHOLTZ:  … she’s very excited about it.

KAHN:  But that’s a real big problem like in — it’s a big problem particularly in China where a lot of the things are manufactured.  And some of the luxury products would be — the branded products would be done during the day.  And after hours on the same manufacturing, some of the counterfeits would be done.

RITHOLTZ:  So what is the difference between the counterfeits?

KAHN:  So in that case, the counterfeit and the real product was actually the product was the same.  The brand was different.

RITHOLTZ:  It just wasn’t authorized.

KAHN:  It wasn’t — didn’t have the paperwork, the certificates and things like that.

RITHOLTZ:  So they were bringing in — they were using the same materials, the same …

KAHN:  In some.  Now those counterfeits are expensive.  There’s different levels of counterfeits also.

RITHOLTZ:  You want a good counterfeit.

KAHN:  Yeah, right.

RITHOLTZ:  You want a cheap counterfeit.

KAHN:  If that — the very best counterfeits are actually quite good, but you have to know what you’re doing. You have to have the eye to see the difference and some of the counterfeits are terrible.  But that’s a real — there’s been pressure now on Alibaba  on — and on Amazon because they hadn’t been policing whether …

RITHOLTZ:  Right.

KAHN:  … these resellers and third party sellers were selling real products or counterfeits or all of that.  And so luxury products never go on those platforms …

RITHOLTZ:  Sure.

KAHN:  … unless they could be assured that there were no counterfeits.

RITHOLTZ:  So if you — if you go now to Chinatown, you can buy a …

KAHN:  Yeah.

RITHOLTZ:  … a nice Rolex watch for about 50 bucks.

KAHN:  Yeah.

RITHOLTZ:  The problem is it’s Rolex with two Ls.

KAHN:  Yeah, exactly.

(LAUGHTER)

RITHOLTZ:  Other — other than that, it’s hard to tell the difference that …

KAHN:  Well …

RITHOLTZ:  … some of the fakes are pretty spectacular.

KAHN:  Yeah, I mean, in Rolex I doubt it’s real gold if its …

(LAUGHTER)

RITHOLTZ:  For sure.  So — so that’s the issue with — with luxury.  It’s really fascinating.  I know in China, they’ve had fake Apple stores …

KAHN:  Yeah.

RITHOLTZ:  … and all sorts of stuff.  What was a the — has there been a resolution with eBay or Amazon or is this still an ongoing issue …

KAHN:  It’s ongoing, but I think that they — Amazon has now acknowledged that they’re going to have to control their counterfeit issue or they’re not going to get the luxury brands to come on.  Look, you know, we’re talking about luxury was interesting this notion that accessibility makes luxury less desirable because, as I said …

RITHOLTZ:  Right.

KAHN:  … scarcity or exclusivity is what luxury is.  And yet people still want to buy online.

Now online makes it more accessible.

RITHOLTZ:  Sure.

KAHN:  So that’s another paradox.  Luxury had to figure out how can I have the luxury experience and to have the convenience of online.  And they’ve been doing all sorts of experimenting with how to keep the convenience of online but keep the exclusivity of luxury.

So, for example, they’ll have specialized buyers or personalized buyers s where you can talk to them online and do the business online, but it’s still a one-to-one luxury experience …

RITHOLTZ:  Like a personal shopper, sure.

KAHN:  … a personal shopper, something like that.  And so they’ve been trying to do things.  And then when they ship you the product, the packaging is beautiful.  You know, some of the luxury comes in the packaging that goes around the product.

RITHOLTZ:  Have you been reading about these unboxing videos on YouTube?

KAHN:  No.

RITHOLTZ:  So I just saw this weekend.  Apparently, there’s a little bit of a dopamine hit if you watch a video of someone unwrapping up a delivery whether it’s an Amazon box or something else.  They unwrap it, they unpack it and it’s like I don’t have to shop, I’ve gone through that experience.

KAHN:  Oh, that’s funny.

RITHOLTZ:  I don’t know how much I really buy into that …

KAHN:  Yeah.

(LAUGHTER)

RITHOLTZ:  … but it’s fascinating.

But what — what I do recall reading about earlier to your point about the experience, if you go into Tiffany’s and for whatever reason they think you’re a high-roller type shopper, you get brought up into the special …

KAHN:  Oh, yeah, yeah, yeah.

RITHOLTZ:  … secret private room that the public doesn’t get to see.  And it’s apparently a very different and much more expensive experience.

KAHN:  Oh, of course.  Tiffany’s is an interesting example.  They’re coming back up.  Tiffany, some people say, is the only true American luxury brand.  It started in, I think, 1857 or something, the same year Hermes started, so it’s been around for long enough.  Luxury really has to have history.  It has to have legacy to be a real luxury brand, and Tiffany is really the only American brand that can claim that credit.

But they kind of lost their way maybe 30 years ago when they had too much silver in their store and they had all these young adolescent teenage girls coming into the store right next to these very rich people buying diamonds in private rooms, and that was not a good juxtaposition.

RITHOLTZ:  Didn’t work?

KAHN:  Yeah.

RITHOLTZ:  That’s what should have been online, the silver.

KAHN:  Yeah, right.  So now they have — they still sell some silver, but it’s a very small part of it, and they’ve really tried to re-up the luxury vision of Tiffany’s, make it — you know, what Audrey Hepburn saw in it, nothing can go bad in a Tiffany store, you know.

RITHOLTZ:  So that’s an interesting point that Tiffany’s might be the only luxury store.  I am thinking of things like Ralph Lauren, but saying make everything from the low end to the purple label, which is crazy expensive.  And whatever you can find in even markets, but I assume half that stuff is coming from Europe anyway.

KAHN:  Europe, so the traditional luxury brands are French and Italian, you know, that’s where you made in Italy Guccis …

RITHOLTZ:  Sure.

KAHN:  … off the charts right now.  Gucci is crazy — doing crazy well.  Louis Vuitton, Hermes, those are French brands, you know, some of those, but Ralph Lauren had this what I call a branded house strategy, which is what you described.

Under the same brand name, from purple label or collection, all the way down to outlet, you could tell it was all Ralph or Polo, whereas the luxury houses in Europe or house of brands, and each house is a special brand.  They don’t have one brandname over all of their different offerings.

RITHOLTZ:  So when you look at Coach, which I recall back in the day at one point, Coach was pretty high-end.

KAHN:  Right.

RITHOLTZ:  I don’t know if that’s the case.  We were talking about Professor Scott Galloway at NYU Stern.  He has made the claim that Apple is the first technology luxury brands.

KAHN:  I agree to that.

RITHOLTZ:  You do.

KAHN:  Yeah.

RITHOLTZ:  It’s kind of when you look at the prices, they’re certainly premium prices.

KAHN:  And their counterfeit it also just the way luxury is.

RITHOLTZ:  Which is …

KAHN:  It’s almost a badge of honor to be counterfeited, you know.

RITHOLTZ:  And nobody is counterfeiting Androids, Samsung phones.

KAHN:  Yeah, you’re right, yeah.

RITHOLTZ:  So — so …

KAHN:  But, you know, Coach that you mentioned that was an American brand, but they’re now starting to copy the European strategy, so they changed their name to the holding company Tapestry, and now they have a house of brands.  So they have Coach, they have Stuart Weitzman, they have Kate Spade, all under the house Tapestry.  And so they are moving and they’re trying to take back too much outlet selling and trying to resurrect the grandeur that Coach used to have.  And they’re doing well.  Their stock prices went up.  Their — their sales are going up.  They’re doing very well with that strategy.

RITHOLTZ:  My wife taught me a shocking data point way back when.  The stuff you see in the outlet centers, that’s not the same stuff …

KAHN:  Yeah.

RITHOLTZ:  … that you can get in stores, although occasionally there are leftovers and end runs and they do get dumped there.  But a lot of stores, specifically, manufacturer …

KAHN:  For the outlet.

RITHOLTZ:  Right, which — which …

KAHN:  But that was what Coach did wrong.  See, what your wife said is the right strategy, you want — you have to keep it separate because why would anybody pay full price if you get the same product in an outlet.

RITHOLTZ:  Right.

KAHN:  But Coach had some of the same product in their outlets.  And what that did was under — undermine the value of the brand.  If you’re paying a high price and someone else got the same product, the exact same product in an outlet price, why would you want to pay the higher price?  And — and — and Coach was hurt by that.

RITHOLTZ:  So let me push back on that.  I notice — all right, I’m wearing Brooks Brothers is probably the wrong example.  This is a Brooks Brothers shirt.  But I noticed that a lot of products, the same exact products, are sold at multiple times at different prices.  So I could walk into a Lord & Taylor, so we’re recording is in September, all the new fall stuff has already been out for a month.

If I went shopping last month for fall stuff, its fall price is not discounted, it’s not coupons, it’s not on sale.  And then by the time, I don’t know November rolls around, the coupon start.  And then as we get closer to Christmas, the big discounts start.  And then by the time we hit January, the same product, you could pay it — buy a shirt for $120, $85, $60.  Now you may not get the right color, you may not get the right size, you may not get exactly what you want, but if you’re price-sensitive, there seems to be a range you can buy the same product across six months at all these crazy different price points.

KAHN:  When that …

RITHOLTZ:  Is that — is that a purposeful strategy?

KAHN:  Yeah, when that started it made sense, you know, because you would target people at different willingness to pain, so you get the people willing to pay at the beginning of season to pay high.  People who couldn’t afford it or didn’t want to would wait until the end of season and pay low.  Unfortunately, people got addicted to those price promotions.

RITHOLTZ:  Right.

KAHN:  They could predict those price promotions.

RITHOLTZ:  Sure.

KAHN:  And consequently, they were very reluctant to pay full price.  And it got really bad around holiday seasons which big — you know, that’s the big bonanza for retail …

RITHOLTZ:  Sure.

KAHN:  … where it said if you waited long enough, you know, you’re going to get the discount or Black Friday and all these other things.  People got addicted to the discounts.  And that was very bad, undermine the value of the brand.  It is what hurt Michael Kohrs for a while, and Michael Kohrs is pulled back on that so they can be seen as more luxury now.

And part of — the reason for it was the price sensitivity or price discrimination.  Another reason was if they didn’t forecast demand correctly and it’s hard to forecast demand for fashion product because you don’t know what the consumers are going to like or not like so you overorder certain things and then you’ve got extra inventory that you’ve got a discount at the end of the season.

RITHOLTZ:  And — and you’re doing that years in advance.  It’s not like they’re making …

KAHN:  Eighteen months in advance typically.

RITHOLTZ:  Crazy, so how you’re going to …

KAHN:  So that’s — now that’s changed.  And this is another thing, it’s not just Amazon has done that.  Zara has changed this a lot.  Zara has changed.  They do like not a lot of turnovers in the store.  They don’t have this 18-month lead time or anything like that.

RITHOLTZ:  Right.

KAHN:  And there’s all this pressure.  The part of the disruption is to give customers a better experience so they have to be better at forecasting demand.  They have to get the right product in the store so they don’t have leftover inventory at the end because what the process you describe, you could see, you know, long-term is not going to work.

RITHOLTZ:  Right.

KAHN:  People understand it and, you know, everybody knows that happens, why wouldn’t they wait for the discount price?

RITHOLTZ:  Especially given — I would make an argument that there has been a whole lot of wage growth and the real wage growth after inflation for the middle class over the past 20, 30 years, that has to have an impact on the selling strategies of retailers.

KAHN:  Yeah.

RITHOLTZ:  So …

KAHN:  I agree but that’s what you’re saying like with all — with Macy’s and stuff, when you talk about what their new strategy they’re announcing, one of them is much more meticulous forecasting and product assortment, having a better idea before you put, you know, excess inventory in the store.

RITHOLTZ:  And is that just big data?  I mean, I would imagine that if they — they don’t just get to turn a dial and say, Okay, now we’re better forecasters.  Couldn’t they have been a better forecaster five or 10 years ago?

Computer technology has improved, but not so much over a decade that — is it the algorithms?  Is it just the — the …

(Crosstalk)

KAHN:  It’s also the changing the system so you can see what sells and reproducing faster.  You know, that …

RITHOLTZ:  So business intelligence?

KAHN:  Yeah.  Well, that’s the data, but also the operations like don’t order things, see what’s selling and then order it rather than — and the other thing that Zara did, they also were customer-focused where the design luxury houses are product-focused.  So the luxury houses say, “I’m the designer …

RITHOLTZ:  Right.

KAHN:  … this is what you like.”  What Zara says is, “I’m going to look and see what the customers like.”

RITHOLTZ:  Right.

KAHN:  And then I’m going to put what the fashionistas like in my store.  So they have their sales associates at the end of every single day report back to headquarters what they’ve observed their customers are coming and wearing.

RITHOLTZ:  Really?

KAHN:  What they observed their customers ask for.  And they use that customer data in addition to what the fashion houses are doing to try to better predict what customers are going to like or what they’re not going to like.

RITHOLTZ:  How unique is that what — what Zara is doing?

KAHN:  Well, Zara was one of the first ones to do it and then they do a very good job and they’re doing very, very well.  But again this gets back to like this shouldn’t have been rocket science that you should — that you should ask the customers what they actually like before you just load up an inventory in your store.

RITHOLTZ:  Right.

KAHN:  You know, but that just didn’t happen until recently?

RITHOLTZ:  What — what about — and I know I’m going to mangle this term, what about the knock-offs and the fast fashion?  How significant is that to — to stores like that?

KAHN:  Well, I mean, they’re sometimes called fast fashion, but it’s a higher — a little bit higher price point fashion.  But that is the idea.  Instead of like you said waiting the 18 months for luxury to come in, let’s get — people now want to buy in season, that’s a very big difference.

RITHOLTZ:  In-season.

KAHN:  Yeah, so like if it’s fall I want to buy fall now …

RITHOLTZ:  Right.

KAHN:  … where they — the luxury houses were treated — teaching you to buy fall, you know, before it was fall.

RITHOLTZ:  Right.  Who wants to go shopping in July and August for a winter coat?  It makes no sense at all.

KAHN:  Again, you see I mean, it’s like that should have been obvious to people, but they looked at it from the product and operations side.  I mean, obviously, there was a logic to doing it, getting at the manufacturer, you have to get the supply, you have to do all these things.  It took a long time to get the product to the store.  But guess what, Zara figured out they had to do it in a way that took a lot less time.

RITHOLTZ:  I will admit to one — so I — I had this Descente ski coat for years, and I made a mistake of buying a light colored coat, which is a terrible idea in New York City.  It just gets filthy.  And I tried on this black and sort of neon yellow one, and Descente is an exorbitant French luxury brand or wherever it comes from, and I couldn’t pull the trigger on it, it was too expensive.  That September, I just happened to stop into a ski shop at a giant preseason sale and literally found the same exact coat for 30 — not 30 percent off — for a third of what I would have paid last year, and I couldn’t — couldn’t resist that.

With that said, really how — how did we ever get trained to buy winter clothes in August?  That doesn’t make any sense.

KAHN:  No, and that now we have customers pushing back.  That’s again what the millennials are doing.  One of our young designers Rebecca Minkoff, which is — she’s considered a millennial designer, she is one of the one on that New York Fashion Week saying, you know, “I’m going to start showing during fashion week what people want to buy now.”  And that was considered revolutionary, yeah.

RITHOLTZ:  Right.  It — it makes — it makes so much sense.  What else is — you have a bird’s eye view of what’s going on in — in retail and fashion and — and related areas.  What do you think is really interesting?  What is something that you’re kind of intrigued about these days?

KAHN:  Well, one of the things I think is interesting is how important in-store tech is.  I’m thinking, yeah …

RITHOLTZ:  Tech.

KAHN:  … yeah, you know, like the beacons in there or the smart boards and the magic mirrors.  I mentioned …

RITHOLTZ:  What’s a magic mirror?

KAHN:  Mentioning Rebecca Minkoff, she does that in her own stores.  If you go to the SoHo store you’ll see it, which is where all the items in the store coated with RFID codes.  And when you walk into the dressing room, on the mirror in front of you, they show the items you’re bringing into the dressing room.  It’s right there on the mirror.

And then if you want a different size you can push on the mirror, and it — the salesperson bring you a different size.

RITHOLTZ:  They’ll just show up with …

KAHN:  They’ll also give you suggestions if you bring in a, you know, a pencil black skirt, they’ll say this blouse will go with it, this purse will go with it, all of that sitting there.

RITHOLTZ:  That makes perfect sense.  How has no one ever thought of that before?

KAHN:  Now, the thing about that that’s interesting is it makes perfect sense and apparently has increased sales, you know, will upsell.

RITHOLTZ:  It’s got to be expense.

KAHN:  It is expensive, but apparently the upsell — upsell has worked very well in that, but more importantly is collecting the data.

Online, if you go online and you put something into your car and you don’t buy it, you know, you get all these ads for the next two months, right …

RITHOLTZ:  Right.

KAHN:  … because they figure if you went all the way through what’s called the “purchase funnel” to put something in your car …

RITHOLTZ:  Right.

KAHN:  … you must have really liked it and maybe we can get the price tweaked right or maybe — and we’ll will get you to buy.  So they’d spend a lot of time on that last mile so to speak of the car.

Well, in the physical store, if you went to the trouble of bringing something into the dressing room, you must have liked it.

RITHOLTZ:  Right.

KAHN:  And then if you didn’t buy it, why did you not buy it?  What was wrong with those items?  That data was never collected in the physical store.  Now that we’re taking this into the dressing room, I can see what you bring into the dressing room and  what you purchased or what you don’t purchase.  And that’s very useful information.

RITHOLTZ:  So now you’re capturing all the data that you previously were at a disadvantage versus online retailers.

KAHN:  Right.  Now you can do that in the store.

RITHOLTZ:  And what are they actually using that data for?

KAHN:  Well …

RITHOLTZ:  Is it productive for them?

KAHN:  Yeah, you can figure out like why is this item not selling?  Maybe it’s not sized right, maybe it’s too much money for this.  You know, you can figure out reasons why people are choosing not to sell.  I mean, so one of the things that things aren’t making it into the dressing room, maybe they don’t look good on the rack, maybe they’re in the wrong place in the store.  All of a sudden you can fine-tune your merchandise to — to be what customers want.  You’re getting customer input right there at the store, which they didn’t used to get.

RITHOLTZ:  That — that’s quite fascinating.  So I know I only have you for a finite amount of time.  Let’s jump to my favorite questions that I ask all of my guests.  Tell us the most important thing that your students don’t know about you.

KAHN:  Well, I don’t know with my students, but one of the things that’s happened recently to me is that I can’t drive over bridges anymore.  I’m really …

RITHOLTZ:  Why not?

KAHN:  … I’m scared of driving over bridges.

RITHOLTZ:  Because what happened in — in Italy or just …

KAHN:  It just — it seemed crazy to me to drive home for a bridge, I don’t know.

RITHOLTZ:  Right.

KAHN:  I can walk over bridges, but I don’t like to drive over bridges.  And as a result, it’s limited how much I drive now.

RITHOLTZ:  Really?

KAHN:  That’s not …

RITHOLTZ:  You’re Okay with tunnels?

KAHN:  I’m Okay with tunnels.

RITHOLTZ:  The crushing weight of hundreds of tons of rock over you.

KAHN:  Don’t tell me, don’t tell me you are going to make it …

(LAUGHTER)

RITHOLTZ:  I will tell you that, as a kid, driving over the Williamsburg bridge in the outer roadway where it was just the sort of metal framework like a mesh framework where you can look down through the road at the water and it made this horrible humming sound on the tires …

KAHN:  Yeah.

RITHOLTZ:  … I was never thrilled with that particular bridge.

KAHN:  It’s funny.  I can be a passenger in a car driving over a bridge, I just don’t want to drive it myself.  I don’t trust myself even though I don’t know whether I can do it.

RITHOLTZ:  You’re just going to …

KAHN:  I’m afraid I’d freak out.  But, you know, if you have to have that fear now I didn’t have it when I was younger I have it now.  If you have to have it now, with the land of Uber and driverless cars …

RITHOLTZ:  Right, thank goodness.

KAHN:  … you know, I’m happy.

RITHOLTZ:  So how easy, right.

KAHN:  I’m Okay, it’s not as bad as it could be.

RITHOLTZ:  Who — who are your early mentors?  Who guarded your career in academia and who led you into the world of marketing and retail?

KAHN:  Well, you know, if you’re a doctoral student and you get a Ph.D., which I did, a lot of times your — your dissertation adviser is a big mentor.  And my — I got my Ph.D. at Columbia and my dissertation adviser was Don Morrison who just recently retired.  And he was — he called himself a full-service adviser.  He advised …

RITHOLTZ:  Right.

KAHN:  … everything in my academic life and my personal life, so he made a really big difference.

More recently, I left Wharton for a few years to go down the University of Miami to be the Dean of the Business School there.  And when I was there Donna Shalala was the President of the University of Miami.

RITHOLTZ:  Oh, sure.  Clinton administration, right?

KAHN:  Yeah, she was the Secretary of Health and Human Services under Clinton for the longest-serving Health and Human Services.  And then she also had a big career in academia.  She was President of Hunter College, and she was President of University of  Miami.  More recently, she headed the Clinton Foundation when Hillary was running, which was kind of an interesting place to be.

RITHOLTZ:  I would imagine.

KAHN:  And now she went back to Miami and she just won the Democratic seat for Congress for, you know, House …

RITHOLTZ:  Oh, really?

KAHN:  Yeah, so she’s …

RITHOLTZ:  That was very recently, right?

KAHN:  Very recenlty she won the Democratic primary for that seat, which I think was held by a Republican, so hopefully she can still win it.  And she’s 77.  And I got to say she’s an amazing role model.  She really taught me what it was like to be a leader, taught me, you know, how to face adversary — adversity, you know, to figure out what you should do.  She taught me the importance of low-hanging fruit, visible signs and long-term strategy.  She was really amazing.

RITHOLTZ:  I had no idea she had — she was running or had won that.  And just last night, I think it was Massachusetts.  There was a woman challenger to the sitting Democrat in the House, and she beat him and there’s no Republican running against them.  This year very much looks like the year of the women for politics.

KAHN:  Yeah, it’s pretty exciting.

RITHOLTZ:  That’s a giant — giant shift.  It’s quite fascinating.  Donna Shalala, that’s really interesting.  So, tell us about the retailers who influenced the way you look at the world of — of retail.

KAHN:  Well, you know, that was one of the things I tried to do in my book also to look at who’s winning and — and that’s what I focused on.  Who’s losing and what’s I’m most interested in?  And so the retailers, I think, are doing a great job.  Of course, Amazon, I’m really impressed with Wal-Mart.

Costco is a very interesting retailer.

RITHOLTZ:  They’ve been — them and BJ’s have both been enormously successful.

KAHN:  They’ve been doing really well.  And there’s a data point I saw that said 60 percent of Costco members are Amazon Prime, which means they’re holding  …

RITHOLTZ:  Wow.

KAHN:  … two memberships.  And that means — and Amazon sells the same thing Costco sells, so Costco is doing something right.

RITHOLTZ:  We get the giant — if you have like five kids and you want those giant — like I personally don’t need two gallons of salsa, but if you walk into a Costco and you want those giant packages, I love the idea of shopping less.

KAHN:  Yeah, and small businesses like it, but it’s also, you know, they sell gas so you have to drive there anyway.

RITHOLTZ:  Right.

KAHN:  They have the in-store sampling.  There’s a bit of a treasure hunt feeling in Costco.

RITHOLTZ:  Yeah.

KAHN:  So the point is that there’s something they’re doing right in the physical store to make people have two memberships.  That’s — I’m really impressed with them.  I visited Costco in Seattle and I just love their — I love their philosophy, I love the way they think.

RITHOLTZ:  You mentioned Mickey Drexler and the GAP previously.  Any other retailers, Starbucks, anybody else come to mind as — as doing anything innovative?

KAHN:  Well, obviously, Starbucks invented customer experience.  You know, they are the third place in all of that stuff.  I can’t tell you how many Harvard cases are written in that Starbucks, you know.

RITHOLTZ:  Really?

KAHN:  Yeah, so that whole idea of — when they described experiences different the way — than the way Amazon described it, but they understood that also, so I also like T.J. Maxx in Burlington.  You have the notion of the treasure hunt in those stores and how they keep the prices way down and still understand scarcity and exclusivity, you know, that’s kind of interesting.  You don’t want to go into a store and see 20 different of these dresses on special price, you want to find one that’s just for you.  You know, that’s interesting idea.

RITHOLTZ:  So let’s talk about books.  This is everybody’s favorite question.  Tell us about some of your favorite books be they fiction, nonfiction, retail-related or not.

KAHN:  You know, I was an English lit major, so I read lots of fiction for a really long time.  And my best — my favorite books would be the classics or some of the best-selling fiction.  But most recently, I have been reading more non-fiction so I really like, you know, Malcolm Gladwell, Michael Lewis.  I also like to read female comedians, so I like Sarah Silverman and I like Tina Fey’s book.  I like …

(Crosstalk)

RITHOLTZ:  I read both of those books …

KAHN:  Yeah, they’re …

RITHOLTZ:  … and they’re both very amusing.

KAHN:  Yeah, they’re very amusing and I like their take, you know.

RITHOLTZ:  So the Sarah Silverman’s book was “The Bedwetter’s Dilemma “…

KAHN:  Bedwetter, yeah.

RITHOLTZ:  … or something like that.

KAHN:  Yeah.

RITHOLTZ:  And “Bossypants.”  Is that right ?

KAHN:  Yeah, yeah, yeah.

RITHOLTZ:  They — they were both absolutely — I mean, any other female comedian books you would recommend because those are the only two I have read?

KAHN:  Those are the two ones I read.  I don’t — I have to read so much academic stuff that I — it’s sometimes hard to read books.

RITHOLTZ:  So, what — what has you excited about retail today?  What do you really jazzed about?

KAHN:  Well, one of the things I’m starting to — I’m thinking of developing working with a partner and develop a new course on visual marketing …

RITHOLTZ:  Visual marketing.

KAHN:  … so what we can learn by i-tracking (ph) and what people are attracted to, what event …

RITHOLTZ:  On a website or in a physical store?

KAHN:  Both, you can wear goggles and see what people look at the store.

RITHOLTZ:  Sure.

KAHN:  You can see what they look at online.  We start to see what is the automatic reaction to visual.  You know, you said your wife is a designer.  It’s kind of interesting to see what people are struck by, how they scan a product.

RITHOLTZ:  Right.

KAHN:  So this new neuro marketing idea, the idea of new ways to collect data, new ways to get in people’s heads or to see what they automatically and can’t tell you they appreciate, when you start to care about what customers want in retail, these different ways of measuring it is pretty exciting.

RITHOLTZ:  That — that’s quite interesting.  What do you think is the most significant change we’re going to see in retail over the next couple of years?

KAHN:  I think we’re going to continue to see retailers that just don’t cut it, go out of business.  And I think that’s Okay, you know.  And I think Amazon’s going to keep pushing.  They’re going to — they’re going to go into other businesses.  I’m really interested to see what happens.  They’re talking about the retailization of healthcare, talk about a situation that is so not customer-focused …

RITHOLTZ:  Right.

KAHN:  … with health care.  I mean, you can’t get worse service than in health — you know, in a health facility.

RITHOLTZ:  Well, cable is — is probably your closest bet.

(LAUGHTER)

KAHN:  You’re right.  So I think you’re going to see changes in all of that, and the idea that this retail model has legs that is should buy lots of different ways of thinking, I think that’s — we’re going to big changes there.

RITHOLTZ:  You know, as I mentioned earlier, I — I am a car guy.  The car shopping experience is horrific.  Any chance we’re ever going to see that improved?

Tesla seems to be making some headway to that.

KAHN:  Yeah, he’s an interesting guy, a Wharton grad.

RITHOLTZ:  Oh, is he?  I think (inaudible) to — to say the least that he’s an interesting guy.  Of all the retail experiences there is, there is none more entrenched in the past than going out and trying to shop for a car.

KAHN:  Oh, my god, I can’t stand it.  I just …

RITHOLTZ:  So why has nobody disrupted that yet?

KAHN:  Well, some people have tried to do it.  I guess some people like the game of that, I don’t know.

RITHOLTZ:  Very few.

KAHN:  Yeah, very — yeah, it should be disruptive. And that’s what you’re looking for, things that are not pleasant that people don’t want to do, somebody is going to come in and do it right.

RITHOLTZ:  You — your Wharton students get busy on that.  So tell us about a time you failed and what you learned from the experience.

KAHN:  Well, you know, there’s a couple times that are difficult to talk about, so — but what characterized the times in several points during my life that I failed where something came as a surprise to me, that’s what I would say.  It’s — it’s a function of mine not being a very good self monitor.  And what I mean by that is I — I think I have a lot of empathy and I can see what’s going on and I look around and I see a lot — I can feel people’s emotional reactions and things.  But what I am not good at is understanding how I come off to other people.  So that’s called self monitoring.

I don’t anticipate maybe if I get angry how people will — what people will feel about that or if I, you know, short temp, you know, or say something very — in a quick way, I don’t appreciate that.  And that’s gotten me into trouble to not like understand, it’s not just what I see, but it’s how people see me.

RITHOLTZ:  That — that’s intriguing.  I will plead guilty to that as well.

(LAUGHTER)

What do you do for fun when you’re not in the classroom?  What — what do you do to — to kick back and relax?

KAHN:  You know, the more — the older I get it’s interesting, but the more important I find running, working out, being outdoors, walking.  I could spend, when I was younger, long times at a desk.  Now if I do that, I go crazy.  I just …

RITHOLTZ:  Right.

KAHN:  … can’t stand it.  I’ve — that’s why I’m glad I teach because you walk around the classroom, but I really like the outdoors.  I like running, I like working out, I really …

RITHOLTZ:  So you have a Fitbit and an Apple watch on the same hand.

KAHN:  Yes, yeah, right.

RITHOLTZ:   At least I have things on two different hands.  Why both?

KAHN:  I like — I like when I’m working out to — you know, self-quantify.  So they measure different things.  They — I have social networks that are connected in different ways.

RITHOLTZ:  Really?

KAHN:  I compete on all of the stuff.  I love it.  I love to see how my heartrate was today, how well I slept, all of that stuff.

RITHOLTZ:  My wife wears it when she sleeps.  I hate having something on my wrist while I’m — I’m sleeping.  It’s a distraction.  So, is it an accurate monitor of your sleep pattern?

KAHN:  Apparently, you know, I guess, I take it — it works for me.

RITHOLTZ:  So you work with millennials and young people.  If someone were to come to you and say they were interested in exploring career in marketing or digital brands or retail, what sort of advice would you give them?

KAHN:  Well, one of the things, you know, when I was the Dean of the Miami, I talk to a lot of successful deans.  I always talk to successful alums.  And I asked around like what advice would you give students.  And from talking to all of those people, I came up with three things that they said really made a difference.  The first one — and they seem obvious but sometimes people don’t know this.

RITHOLTZ:  Right.

KAHN:  The first thing is work hard.  You know, don’t take it for granted.  You’re given a job, a job that maybe you like, work hard of it.  The second one is be nice to people, be nice to everyone, you know, from the receptionist all the way up to the CEO.

RITHOLTZ:  Right.

KAHN:  Pay attention because people watch that behavior, you know, going back to this notion of self-monitoring, understand how you come off to all these other people, and that matters.  And the third piece of advice that people said over and over was don’t just learn what you do, learn what your people on both sides if you do also.  So, learn other skills and then when you do that you’re in the right place at the right time for potential promotion because a lot of movement in firms are not so systematic.  It really is an accident or somebody got hurt and someone needs to step in and do something.  These things — these opportunities come up and, you know, they say luck is, you know, hard work or however they say that.  You know, someone’s lucky, was working hard for that lucky opportunity.

RITHOLTZ:  Hard work meets opportunity or something like that.

KAHN:  Something like that, yeah.

RITHOLTZ:  I know I’m been doing that.

KAHN:  Yeah, I’ve been doing it, too, but that’s the idea.

RITHOLTZ:  Interesting.  And our final question, what is it that you know about the world of retail and marketing today that you wish you knew 20 plus years ago when you first started your career?

KAHN:  You know, like I said, when I was writing this book, it was shocking to me that I have been teaching marketing for 100 million years, and we always teach these principles of customer value, differential advantage, and the third one is selectivity and concentration, which has to do with segmentation.  And that I did not realize until I sat down and wrote this book and thought about what Amazon did that retail was not customer-focused.  That is like so amazing to me because then retail is a ballot selling to the consumer.

RITHOLTZ:  Right.

KAHN:  How could they not understand that the consumer input is important, and it shouldn’t just be a push strategy?  It’s amazing to me.

RITHOLTZ:  Well, first, how long did that strategy work before it suddenly stopped working?

KAHN:  It’s — yeah, the market gets competitive enough.  If you don’t have enough competition, and that’s why whenever I give a talk in any of this stuff, I ask the room is Amazon a good guy or a bad guy?  And it’s always 50-50.  If your customer …

RITHOLTZ:  Really?

KAHN:  … if you’re a customer, you say Amazon is a good guy.

RITHOLTZ:  Right.

KAHN:   If you’re a competitor, you — your face gets red and, you know, you just hate Amazon because competing against Amazon is so difficult.  But most people will agree what Amazon has done is raise the bar.

RITHOLTZ:  For everybody across the board.

KAHN:  Everyone, across lots of different industries.

RITHOLTZ:  Quite fascinating.

We have been speaking with Professor Barbara Kahn of the Wharton School of Business.  If you enjoyed this conversation, well, be sure look up an inch or down an inch on Apple iTunes and you can see any of the past 200 plus conversations we’ve had previously.  We love your comments, feedback and suggestions.  Write to us at mibpodcast@bloomberg.net.

I would be remiss if I did not thank the crack staff that helps me put together these conversations each week.  Atika Valbrun is our project manager.  Madena Parwana is my producer/audio engineer par excellence.  Taylor Riggs is our booker/producer.  Michael Batnick is our Head of Research.

I’m Barry Ritholtz.  You’ve been listening to Masters in Business on Bloomberg Radio.

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