Masterspeak 2015

"Consumption is still driven by convenience because we are more time poor than money poor"

Envirosell founder Paco Underhill is the insight seller whose New York office has a working fireplace

Published 9 years ago on Sep 04, 2015 11 minutes Read

He is one of the very few in New York City to work out of an office built in 1891 that has a real working fireplace. Envirosell, the behavioural research and consultancy firm that Paco Underhill founded in 1977, is housed at 907 Broadway in the Flatiron District. But Underhill doesn’t spend too much time by the fireplace for he is on the road most of the time. Last year, Underhill spent 179 nights travelling — that’s more than half the year. Typically, he goes around the world three or four times in a year. An American raised in Asia, he has lived in a multitude of cities as his father was a diplomat. Underhill confesses, “If I am in New York for too long, I feel like a sailor on the beach. I just need to move.” At 63, Underhill enjoys every bit of what he does including his travel and would like this to go on for as many more years as possible. As a retail consultancy specialist, Underhill is better known for his two books, Why We Buy: The Science of Shopping and What Women Want, which focuses on how the changing status of women affects the physical world we live in.  

When you look at the retail landscape, what are the big changes you see?

There are a number of things that govern what has changed in retail. First of all, globally, the status of women is changing. There are now many more women with money in their pockets who are spending on a broader cross section of goods. We have lived in a world that has historically been owned by men, designed by men, managed by men, yet women are our most important customers. That changing status of women is changing how we sell what we sell and the recalibration of who we sell what to. Historically, we sold women apparel and cosmetics and now we are selling them cars and electronics and houses etc. 

The second factor is what we call changes in visual acuity meaning that our visual language is changing faster than our spoken or written word. Thanks to the internet and movies, the basic connection between our eyes and brains has never been better. Part of what that has translated to is a much more comprehensive relationship between art and science and it relates to design. Whether you are designing a store or a package or a website, understanding how we see and process visually is a very important part of making design work. 

The third factor is that the driving force behind consumption is still convenience, because across the world we are more time poor than we are money poor. Also, globally it takes two incomes to support middle class lifestyles, which means we are looking at women who are mothers and wives and also bread earners.

Part of what this means is that it presents people with a challenge of time versus money. Meaning; is it worth it for me to drive 30 minutes in Mumbai traffic? So whether this is the kirana store incorporating the mobile phone into their marketing efforts or it is the potential use of drones to deliver internet purchases in a more timely fashion than they are being delivered now, it is recognizing that all of us want to use our time better. 

In what way is consumer behavior on the internet different than the brick and mortar world?
One of the things we are watching happen in terms of online behavior is the migration of shopping therapy from the physical world to the cyber world. If you think of it, you could meet your friend, go shopping the entire day, have a wonderful time and buy nothing. That is shopping therapy. Now you can go through that shopping therapy in the privacy of your bedroom without having to dress up. You don’t have to worry about arrogant shop assistants turning up their nose at you because they are not sure you can afford what they are selling. In the internet world, access to brands is much easier and is less socially stratified. So if you are at your first job, it is intimidating for you to walk into Tiffany, whereas if you are browsing through Tiffany’s website, it is really easy. So part of what we are seeing is a kind of democratisation of the consumers visiting you.

What has been ironic is that what e-commerce has been frantically trying to change for the past 10 years — the conversion ratio — has almost largely failed. What they haven’t understood is that just because you are going to a fashion site and spending eight hours a month at it doesn’t mean that you are necessarily there to buy. I would call online “shopping” as the “visitation” of online. One of the things that online retailers don’t understand is that some of it is just a form of mobile entertainment. So people are often there to educate themselves rather than increase your online sales. 

That said, I can look at it from a different point of view. When we reach age 40 we have decided on many things we like. We like the same kind of yogurt, the same kind of dal, the same kind of hot sauce. We drink the same kind of milk. We have decided on the same laundry soap, tea, beer… Why should we have to go to a store if 80% of our purchases are routine? I think what we are looking at is the bifurcation of things that we purchase on an ongoing basis. Those may very well migrate online. I just came back from a tour from one of the world’s largest technology companies talking about the future of digital or the internet of things where I am using my mobile phone or smart kitchen to govern what my purchases are. So I never have to go to a grocery store again if I really don’t want to. 

Today, the thinking is that 15-40 crowd spends the most. As a brand, are you better off targeting the 40+ customers because they demonstrate greater brand loyalty by virtue of being a repeat customer? 

No. I am just telling you that here in North America the overwhelming majority of wealth is in the hands of people who are 50. If I am in India, the overwhelming majority of wealth is in the hands of people who are 40 and under. So part of what we are looking is a dichotomy of place. But I am still saying that for a segment of our population base, 80% of what they buy is a repeat purchase. For a younger segment, they are getting to their first home and having their first children. They are juggling time in a way that is different than they have had to juggle it before and yet is more similar. Will some of them fall into that 80%? The answer is, absolutely yes. Because after a certain point you realise that there are very few purchases that are transformational. 

Does price trump brand loyalty in the internet and mobile space? 

If I go to Britain, France or Germany, an increasing proportion of the consumer products are store brands. Sainsbury, Metro, Carrefour are the leading stores. In Canada, there are some grocery stores that sell only house brands. Part of what this gets to is that many of the factories that are producing branded products are also producing the house brands. Many of us are looking at the consumer magazine ratings of goods where house brands compete very powerfully with branded products and yet are often a third or half the price. 

My wife has cosmetics that she bought at a department store and at a supermarket, both happily coexist. If you go to my kitchen cabinet there are branded products and there are generic products. It isn’t because I can’t afford to buy the branded products but that one of the celebrations of modern living isn’t how much you spend but how little you spend. A lot of the purchasing decisions about branded products particularly as we grow older are more based on rationale than aspiration. 

So companies with a branded product from the 21st century have to find a way to justify why they are priced more than something else. Therefore, the ubiquity that by branding something people are willing to pay a premium is a lot less true today than it was 25 years ago. That is the challenge for a Unilever and a P&G. It is the challenge to almost every fast food and consumer product goods company, which is to justify yourself. I think one of the ways the brick and mortar world can compete with online is by giving you an experience. Experience is all about engaging as many of your senses as possible. So the way disruption will happen is, all the mundane will move online, and stuff that is more sensory in nature will continue to be in the real world.

How do you see e-commerce evolving?

In the world of e-commerce, unless you build major scale very quickly, your concept can be knocked off over and over again. So five years ago there were 10 sites that sold discounted fashion, today there are probably more than 300. So if we look at the curve of where people are going, there are more and more choices. Almost everybody in the online world has been caught napping by the migration from tablets and laptops to mobile phones for e-commerce. Once they move, the Google search engines don’t have the same value. Right now, there is a certain amount of chaos and that chaos is likely to increase. The other problem of e-commerce is having an absolute flood of venture capital. 

Historically, we in the capitalist world burned our money periodically through major wars. Now we have not had a major war for a while. So there is a tremendous amount of cash that is desperately looking for a place to go. Some of that has been sucked up into the world of technology or what you might call 21st century gambling. Everyone is looking to buy the lottery ticket that will make them obscenely wealthy. Maybe a few will make it but mostly they won’t.

You said search engines are not effective when consumers switch devices. Why do you say that? And what are the other challenges in online retail? 

The reason is that almost all websites are designed to be Google friendly and they are designed to be accessed from the standpoint of a fairly good sized screen. We know that increasingly people’s access to the web is now through apps as opposed to phones. That is changing how things worked traditionally. 

So if you are going to shop for durable goods, refrigerator for example, the smart consumer does some of this shopping online. Part of the challenge therefore is being able to integrate the access to information to the actual point of sale. Another very interesting thing is that the world of e-commerce is just coming to grips with the fact that a significant amount of their traffic is female and yet the management and design of online shopping, until very recently, has historically been male-driven. 

Give us some elements of what is a successful strategy to be addressing this whole transition that you are talking about?

I think there are several issues here. First is from the standpoint of the merchant community. Evangelical brands have taken money out of print and broadcast and put it into physical assets. So if I look at Victoria’s Secret in Herald Square it is designed as a cathedral of sensuality. And they are looking to inoculate women with the power of their brand and the empowerment of sensuality. Whether you go to that store and buy or not is really not the issue. Lots of people do buy.

But that is a place where the religion of sensuality is being perpetrated. Now many technology companies are also opening their own stores. They are trying to find ways to make love to their customers without having to go through the interpreter of a retailer. They are also looking to change the basic paradigm of where they go and how they perpetrate their brands. 

I have a friend whose name is Asiye, she runs an evening wear business in a suburb of New York. She has a showroom and she has maybe 6,000 dresses. What makes her different is that there is a phone app where if you buy a dress from her, you register the dress that you bought, and you register the event that you’re wearing the dress to, she guarantees no one else will wear the same dress to the same function. It means that her trade area is probably 200 miles. People will drive past a Macy’s or a Saks Fifth Avenue to get to Asiye’s in Madison Avenue. She registers about 300 events right from high school proms to charity balls.

That is someone who has been very clever. It isn’t a huge business. But she has used internet technology to be able to create her own unique selling opportunity. Part of what this means is that she runs a store that has a wonderful franchise on Instagram, Pinterest and Facebook as the women who buy from her post pictures of themselves at their events and celebrate the uniqueness of that specific occasion. So her marketing budget has dropped to almost nothing because it is all focused on social media. I think this is one of the modern models of success. It isn’t that she is selling at a discount. Her dresses aren’t cheap but she has figured out a way to attract women to her store. 

But is her business really scalable?

I don’t care if they become large or not because scale does not matter here. I want somebody to be smart enough to be able to figure out how to play by the rules. What are the things that matter the most? 

I remember visiting Beymen, the Turkish department store in Cairo, which is owned and operated by women. One of the things I noticed was that in the furniture and bedding section they were cross merchandising lingerie. There is a bed, there are sheets and then there is a mannequin wearing an alluring night gown. Is that something that a man would do? No. But it is something he recognises maybe if someone is there looking at bedding they are also thinking about themselves in the context of bedding. I think one of the things that is really wonderful is people are doing things differently now — some of them are imminently creative and highly functional.

You mentioned that a whole bunch of technology companies, are now looking at the real world. When you retail through a multichannel, what are the most important things to bear in mind? 

What is very important is that consumers don’t see brands as silos. They see the brand as an integrated whole. Therefore, the success of being able to sync what happens online, in catalogue and at the store is a critical factor in our existence. 

For overall success, probably, one of the first things we are looking at is the triumph of creativity over money. Second, particularly if I am a physical merchant, is finding ways to engage all five senses. Third, if I want to reach out to women, I have to be very cognisant of two things — safety and hygiene. When working on a prototype store, we ask virtually every client very early in the design process: “How will you keep it clean?” Because the easier it is to keep it clean the more likely it is to stay clean. Hygiene is one of the driving factors of female loyalty.