Sally Beauty Holdings, Inc. (SBH) Earnings Call Transcript & Summary

Welcome to our presentation and conversation, Modernizing Your Fulfillment Operations with Forrester, Sally Beauty and Perficient. I'm your host, Jennifer Clark. I'm a product marketing manager with IBM Sterling Order Management Solution, and I'm excited to introduce our guests today. First, Brendan from Forrester, he's a VP Analyst serving e-business and channel strategy professionals. His research covers such consumer-oriented cross-vertical topics as e-commerce, personalization, omnichannel, customer experience, best practice, engagement strategies and conversion optimization. Welcome, Brendan. Thanks for being here. Vanathy is Vice President in Digital Product at Sally Beauty. She's responsible for the digital guest experience and product road map across all of Sally Beauty. She brings more than 10 years of experience with retailers -- working with retailers like Walmart, Pier 1, Academy Sports and Frontgate. Thank you so much, Vanathy, for joining us today. Pawan is an Executive Consultant with Perficient. He has over 8 years experience in supply chain management. He's been recognized as a thought leader and trusted adviser with significant experience in order management and supply chain excellence. Thank you for being here, Pawan. What we thought we'd do is have Brendan bring some of his great research to us with about a 20- to 30-minute presentation, and then we'd all come back on for a conversation with regards to that presentation material and sort of what's going on in the marketplace today. And that conversation will be another 20 to 30 minutes. So please join us. Please stay tuned. Without further ado, let me introduce Brendan.

Thank you so much. It is so great to talk to everybody today. It is a real pleasure to be here. In this environment, it is just so wonderful that we have technology that allows us to keep connected, stay connected. And I just -- I'm so thankful that I get to be on this panel with these wonderful individuals to talk to you today about what's going on in the retail space. So let's take a look here at what's going on, the idea of what matters in retail or what happens in retail. I've been in this business for an extremely long time. I mean I'm an analyst about 6 years. I was in retail before that. It was at Guitar Center and Harry & David before that. And some of the things that we used to talk about are the customer adoption rates, and you got to make customers happy. You need to be customer-obsessed. And you do all these things, right, and that we need to follow what the customer is doing and align with that. This is a customer nowadays. Does this person look happy to you? This person does not look happy to me. This person looks like they do not enjoy what they are doing. Although she does have what seems like a little smile under that mask there. But the reality is that this is not normal by any stretch. A lot of people talk about the new normal. There's nothing normal about what we're doing because, for the first time in our history of retail, well, prior to -- or since the Spanish flu, I would say, we are in a forced behavior state. Like we really don't have a choice about what we do. I'm sure this woman, after the pandemic is over, is not going to be wearing surgical gloves and a mask. And the guy won't be wearing a mask. There won't be plexiglass there, right? So we are just in this weird state. And it's happening everywhere in different ways. But what's really going on and what's really interesting is thinking about how retail has changed and how retail has shifted because of some of these things that are going on. Let's take a look at some of the important things that are going to make omnichannel such a big part of that future retail, not saying that it wasn't before, but how that's accelerated some of the things that we're doing. Let's take a look at a few -- just a few problem things that happened -- probably the biggest problem things that happened in the pandemic of Q2 and now a little bit in Q3 and when we have to prepare for a little bit in Q4 but also what customers will expect beyond that. So first of all, let's take a look at this. So as you can see here, when we ask companies about what they struggled with, supply chain was huge. Supply chain was massive. When I say supply chain, I'm not just talking about raw materials, the supplier, the procurement, the shipping to the store. I'm talking about the whole end, right, all the way from the store to the customer, to the return to everything, right? There was just so much of it that broke. And the thing about supply chain which is really interesting is that they are designed to weather breakage, like that's the way good supply chains are worked -- are organized. The reality is they're not designed to manage multiple points of failure, which is exactly what we had. So you can see that when we ask somebody that struggled, what were the biggest things, what was the biggest things. You can see that suppliers were an issue. Physical infrastructure was an issue. Being understaffed and even delivery partners were an issue. That's kind of on the front end. A little bit on the understaffed is in the middle range there. But what we see on the other side of the equation is how much of that impacts your customer experiences. So you can see here in the red that 1 out 4 -- over 1 out of 4, 28% said we were challenged, and it was evident to the customers. You got some people that said 29%, they were challenged, and it was largely unnoticed. I might question whether that was unnoticed or not, but at least they couldn't tell it was noticed. So this was a huge problem. I mean when you say that 1 out of 4 companies -- theoretically then 1 out of 4 orders were a challenge, then we obviously have a problem, and it's a problem with supply chain. That is why omnichannel is primarily one of the things that we're doing to address that. Just in the past period here, we saw Walmart and Target announcing very interesting earnings. But if you listen to those earnings calls, which you don't have to -- I will Cliff-note for you, they are very much focused on the omni-channel solutions to get them through this. Walmart came out and literally said the word omnichannel probably 6 to 7 times in reference to their strategy. And then Target went over and above and beyond in sharing information about what's going on with them from an omni-channel perspective. And so therefore, when you are thinking about this, you can see that even the big players are recognizing this is what's getting us through this. Now what did companies do during this period? Now we have taken you from the front end to the back end. And then here's the actions companies that were in this took. You can see that 63% launched curbside during the pandemic. Like we were forced to put into place a lot of things, duct taping things together, making it happen, making it work. Why? Because we had to. The thing is, though, customers are getting used to these experiences now, starting to understand how they work and how they don't. You'd also see touchless payments options, in-store pickup of online orders being launched, new home delivery using a delivery vendor and even some doing home delivery using their own employees, keeping them employed so that they can weather through this as well. So there's lots going on. The question becomes, though, what are the expectations of customers now. What is curbside going to look like? What are -- is buy online, pick up at store going to look like? It's fairly complicated. It's difficult to say what is good, what is great, what is not, but consumers are going to tell you pretty quickly because, at the end of the day, every time that a consumer's exposed to an improved digital experience, their expectations are all experiences reset to new higher level. The -- this is that alignment that I'm talking about. This is really important to understand and to realize and to think about is how does this happen. How do we create better alignment with the customer experience, with what they're expecting? Because the truth of the matter is, no matter if you're Starbucks or Walmart or DICK'S Sporting Goods or even Sally Beauty Supply, the reality is that our customers are going to compare those experiences to every experience. They're not going to go to Kohl's and have an experience, then go over to DICK'S Sporting Goods and go, "Oh, well, that's okay." They don't have to have the same experience because they're in sporting goods. And Kohl's isn't in sporting goods. They don't talk like that, right? They also don't think, to some degree, "Oh, well, I can do this at Starbucks. I don't have to do this everywhere else." No. When my mom can order Starbucks and get it ready in 10 minutes, that's kind of setting her expectations for what buy online, pick up in store looks like. And she's going to expect it from all those retailers that I mentioned. It's the ability to do that, that really matters. Now the question that I get and I have been getting for years as I've covered this for the last 5 years is what is omnichannel. What exactly is it? It's a good question. Most people think it's just about fulfillment. It is actually the move from multichannel to omni-channel retailing really looks like this. You have to do omni-channel view of the customer, omni-channel fulfillment, omni-channel engagement and omni-channel, what I call, product price promotion of the 3 Ps, okay? Now why are these 4 areas different? Because they do require different technologies, different strategies. They're also all very difficult to do and require different stakeholders in the organization in order to execute them. This is something that a lot of companies don't realize, which is why a lot of companies, when they launch omnichannel, tell me, "Customers use this far more than we ever thought they would." That's number one. But then I always hear afterwards, "And this was a lot harder than we thought it would be." The area we're going to focus on primarily today is omnichannel fulfillment. That's a big area for retailers. But as I said, if you're going to do the whole movement and you have to think about all these areas equally as something that you're going to be needing to work on in order to enable many parts and pieces of that omni-channel journey. Now customers are being trained to use omnichannel everywhere and by everyone and by everyone. Now this is an important point because I have people tell me this all time. They're saying, "Well, we don't really compete against Walmart." Well, it doesn't really matter if you compete against Walmart. While I'm sitting there on my television watching commercials and Walmart comes on and says, "Order online, pick up in store." I don't have to shop with them. Now that's my expectation. I'm going, "Oh, that's nice. I really hope the retailers I shop would do that." Right? And so it doesn't matter who you're competing against because consumers don't care who you compete against. That's not how consumers think. They think about what's going on out there and what provide value. So they're thinking themselves, "This would be great." And then they don't see it, that's where expectations are missed. And so you kind of have to keep up with what's going on out there. And a little bit of this is already behind us, in fact. When we ask companies, retailers specifically, what kinds of capabilities and technologies do you currently have, you can see that many already had before 2019, things like buy online, pick up in store, endless aisle, ship from store, ship to store. These are all omni-channel capabilities that we call Tier 1. Why are they Tier 1? Because most retailers are doing some form or fashion of it. Aside from ship from store, they're very obvious to the customer whether or not you have them. Ship from store isn't overtly something that the customers see. They're kind of transparent to it. The way they see it is in faster shipping times or lower shipping costs. They may not know it's because it's coming from store that, that happens, but it does have an impact on the customer experience. Tier 2 capabilities are more along these lines, buy online, return to store, ship from store to another store, ship to locker, et cetera, and even same-day delivery. Now why do we call these Tier 2? And the reason we do is because the truth of the matter is that customers may not expect these things. So what we'd say is you got to get the first ones buttoned up before you try to do the second part. Before you try to do these, you got to do the other ones first because those are probably what customers expect more. The buy online return to store one is an interesting one. Why would we not include in Tier 1? Well, the reality is that most companies already do it. The reason it's a Tier 2 and the reason that so many companies, I would say this is a misleading sort of stat because lots of companies say they do it, but they don't do it in a system. A lot of companies are like, "Oh, yes, we just tell the associates to take it back." I'm like, "All right, that's a nightmare." Right? Like what you need to do is put it into the system, right? Because otherwise, you're just upsetting the applecart. The minute you start taking returns back in stores and don't have a system to do it, then trust me, it's a mess. And it's causing a lot of problems at the store level. And so while we say this is really a Tier 2, it is a Tier 1, but a lot of companies say it's kind of confusing. But the point is this is important as well. It's just something you need to think about. And it needs to be right for your business. If you're a high-return business, this is even more important to get in the system than a lower-return business. So when I always get the question of, "Well, what's the one thing we should be doing now," it's a good question, and it makes sense why you might ask that sort of question. And I know that everybody wishes Forrester would get on webinars and say, "Here's a silver bullet." Well, in this case, I got to tell you, there is no silver bullet. And I'm sorry to say that, and I wish I could tell you that. But the truth of the matter is, is that it doesn't make any sense because of 2 reasons. One is your business may be unique. For example, let's say that you have a lot of items online that you also carry in store. In fact, you have parity basically between the offerings. Well, then it doesn't make a whole lot of sense they have something called endless aisle, where I'm in the store, and I can get something online that's an online-only item. You don't have a lot of online-only items. And so that doesn't make any sense, right? Maybe in the reverse is the idea that you don't have a lot of people coming to your website, right? You just don't use your website very often. And so not a lot of people go there. So maybe endless aisle makes more sense when you're in store to find things that are online that are not easily available rather than having something like buy online, pick up in store because people aren't going to your website anyway, typically, right? So -- and you may say, "Well, who is that?" Companies like -- that have reported lower numbers like Burlington, I would say, it was very public about the fact that their e-commerce number was extremely low. We see that a lot with the off-price models of the clearance companies. They can't really manage that very well. So not a lot of people go to the website. So again, it's situational. But I said there are 2 points. The second point being is that it's situational for the customer. Just take me for example. Like say that I'm -- we're past this pandemic and now I'm going to a dinner party, right? It makes sense for me to want buy online, pick up in store to grab, for example, a bag of chips or whatever. I need to get on my way there. But if I have, for example, a sick child at home and I need aspirin, maybe instead of those bag of chips, what I need is some children's TYLENOL, right? But I need that to be same-day delivery because I can't leave the house. You'll notice that those experiences could happen with the same retailer and the same customer. In other words, it's situational. Sometimes they need endless aisles. Sometimes I need buy online, pick up in store. Sometimes I need ship to store. Like let's say I'm going to buy a big item like a desk or something like that from a company, I don't want to have it shipped to home because I don't want to deal with this big heavy item trying to return it. I want to ship it to the store, take a look at it. Go, "Yes. Okay. That's exactly what I want. Take it home." Or say, "No, that's not what I want." And give it right back to you. Every situation is different. So there isn't one thing. Anybody thinking there's one thing, it's not true. Not only that, there's never one thing for every customer. They're going to need it depending on the situation that they're in. So omni-channel fulfillment. The big question is, Brendan, you just said earlier you've been covering this for 5 years. Yes. We've been doing it for 5 years. In fact, Sears started doing it about 14 years ago, right? Now that's a sad story we won't get into today. But I think that this has been around a long time. And the big question becomes, why are we still working on this. The reality is, as I said earlier, this is harder than people think. Really, it really is. This is actually an image taken from a backroom area at Target, right? And it shows kind of what the mess can be. I'm not going to call out or link to the Business Insider story about them because they did that very successfully this quarter, but they were having some challenges leading up to that, where employees were saying that they're trying to modernize and all that. But operationally, it's just -- it's becoming [indiscernible]. So when you take a look at things like inventory accuracy, this kind of makes sense, right? So ensuring the product ordered online is available in stores over customer pickup, increasing in-store inventory levels, also important. As you can see, there's lots and parts and pieces to this that make operations a huge challenge. It's a huge challenge for organizations. But then we also look at things like managing staff, managing the incentive programs for staff, the cultural change, right? When you start to look at some of these parts and pieces that go, "Wow, okay. I guess it's more than just putting in tech and setting an order to a store." Yes, absolutely. And then we get into things like the processes. Lots of people start to realize this is about flow. This is about work streams. This is about how things happen from order taking all the way to engaging the customer. And that seems like something that happens in a day, but it doesn't because many customers will wait a few days to pick up an item or to doing that. So what ends up happening is you get these long tails of things. So the situations and the parts and pieces are all moving. There's lots of more COGS for this particular machine that you might think. Now what are some omni-channel retail best practices? Like I've talked about the challenges, people, processes. And there's no question in my mind we're going to have that topic come up later in the Q&A session. So I'm going to leave that to the side for just a second. Let's talk about some best practices here, okay? Now there's tactical best practices and there's strategic best practices. Here are the tactical best practices that I recommend. So if you just went into these 5 things, okay, deliver on customer service level agreements, such as time between order place and pickup, creating new website experiences to make omni-channel fulfillment easy to use, marketing and advertising support for omni-channel fulfillment, you can read through the rest of the last 2 there, but I just want to say, what is this percentage that I'm showing? These are the percentages of companies that struggle with it. So again, I'm not saying this is easy by any stretch of the imagination. It's very difficult. And lots of companies out there are trying really hard to make it work and to make it happen, but they forget to see like how these things will have impact on the customer. If you take a look at the right, I've highlighted Home Depot here. This is an image I actually took in an actual store, right, connecting the mobile device to the store location, right? So I can find things. They also show the inventory that's available of those things. It's a very interesting omni-channel story. So let's continue on the Home Depot view, see some of the other things they do as very interesting and best practices to address that. So one of the things I really like that Home Depot has done as an example is they have really presented the buy online, pick up in store option equal to the ship-to-home option. A lot of companies will put things like a little link that says, "You could pick up in the store." They kind of whisper it rather than state it. The other thing that I really like is they show how many are in stock because maybe I need 20 of these things. Who knows why? But I do, right? There's one time I needed window fasteners, and I needed like 30 of them. The store only had 10, right? So I need to kind of understand. And some other companies, what Home Depot doesn't do is kind of saying when more will be coming in. I have seen that on some experiences, too, which is, again, a wonderful best practice because I can plan my life. I can order the 10 you have now knowing they're going to come in a week. I'll get the next 20. But if I don't know they're going to come in for another 3 months, let me move on. I don't want to wait 3 months to do the rest of them, right? I want to do them in a relatively short period of time. The other thing that they do is, if they don't have the item in the store, they present equally, again, the ship-to-store option, right? Now why would they do this? Why would Home Depot do this? In a normal environment, you want customers coming into your stores. Why? Because if I ship something to somebody's home, that's about as big as that order is going to get, right? UPS isn't going to add to the order, right? So it's going to be as big as it is. But if I get people to come in the store, 30% to 40% of consumers are going to add on to that original order, 30% to 40%. And so you want people coming in your stores because they will do those impulse purchases, right? Another thing that they do is letting you know, if you are going to ship it to stores, you can see there at the bottom, when will it arrive, when do we expect it to arrive. So again, you can plan your life. They also do this in a cross-channel way. They enable this not only on websites. They enable it on their app. And so you can't just create a service in one spot and the other -- the average consumer doesn't understand why this is happening. Like, wait a minute, why can't I do buy online, pick up in store, and I can't do it here on the app? It's a digital -- they don't even talk like that. They go, "Well, it's the same brand, right?" So they expect it. So you kind of have to think about multichannel launch as you do these things and create those same experiences. And even in the checkout process, like understanding like how this really works. Again, it's about flow all the way through the customer. The customer may say, just like in my household, my wife orders everything and I pick up everything, right? So this is a good example of understanding what customers need and want. Sometimes, I want to pick it up right away. Sometimes I want to schedule a time. This is particularly true of companies that have things like perishable items or large items like kayaks, right? Like I don't -- if I'm DICK'S Sporting Goods, I certainly do not want a customer to tell me, "Hey, I want to order a kayak." Buy it, and then I let it sit there for 7 days in the pickup area, right? If they want to schedule a time, I would love for them to schedule a time. In fact, I've seen some companies do it where, depending on the items, they may even only offer [ a time ] because of the nature of the item. And that's pretty smart. We see that in grocery a lot, in particular. So here are some things that you can see our best practices around operations that we see. With buy online, pick up in store, it's about inventory accuracy at 98%. Some of you may be scratching your head going how we ever going to achieve that. I'm not sure how you're going to achieve it, but that's what companies are targeting. Why? Because at 98% inventory accuracy, that means on average or statistically speaking, about 1 in 50 orders is going to be a customer service issue. That's probably about the maximum you want to go to. Anything higher than that is going to get very difficult. If you're at about 80% inventory accuracy, then theoretically, about 1 in 5 orders is going to have a problem. So you can imagine that's not a good thing to do, right? You want to target under 30 minutes for letting customers know about their order being ready. Most companies are hitting about an hour. So you're probably okay there. About half of customers expect that. So that's where you're at. Ship from store, well-trained staff on logistics. This I cannot stress enough. We do not hire employees to be pick pack and shippers, right? Like they are just -- it's not what our job descriptions typically say, right? But that's their job now. That's part of what they do. And so they need to have that organizational skill. They need to be able to think that way. And so this is part of the process, is hiring the right people that have the right skill sets for this new world we live in and efficient and well-managed algorithms for making sure that you're not shipping from store all over the country that you're doing this in a profitable way. As you can see, there's multiple best practices to ship to stores such as process for receiving and 3-day SLA agreements for getting to the store for the customer to pick up, structure staff and training for endless aisle, ease of use, preferably the same point-of-sale for that, that you would use so that you don't have learn 2 systems. As you know, your associates are often transient. And so you don't want to keep training and training and training. You want something that's fairly easy to use. And then buy online, return to store. Again, putting it in the system really does matter. And assigning online-only items through ship from store can be a very -- a practical way of doing that. Now here is something that I see all the time companies forgetting is that the primary stakeholders in your omni-channel program is often store associates, just really so critical. And while 68% say our stores now receive credit for online sales that are fulfilled through store, one of the things they fail to do is give credit for all the orders that come with it. And you may say, "Oh, why would we do that, Brendan?" Well, the reason you would do that because I will tell you, if you don't already know, your stores are giant billboards for your company. And you can look at the numbers, and I guarantee you that everywhere that you have a store, you have higher sales online than you do in every other region where you don't have a store. And there's a reason for that. Because people know your name, and they understand you, right? It's pretty much true across the entire industry. So they do drive online sales, okay? And we'll just admit that. But more importantly, when you start to give them credit for online sales, here's the beauty of it, not only do they appreciate it more because, let me tell you, if there's one group of people that's going to form a union, complain about you on Glassdoor and do all these things, it's not going to be your website or your web team. It's going to be your store employees, right? And so you want to keep them happy. But more importantly, when you start to do comping, right, when you start to say, "Well, next year, you have to do 3% more than you did last year.", you include that web number and you say, "You're going to go up 3% there, too." Right? And so now they're incentivized to grow both channels, which means they're incentivized to actually support both programs because many companies do not get that support from stores, and their programs create problems for customers ultimately. The thing that I find organizations doing as well is they're not transforming some of the softer parts of their business. For example, they're not addressing culture. They're not addressing their organizational challenges. They're not addressing metrics. The data that shows this is this. So as you can see, 92% of companies say our C-suite is aligned with the needs for our omni-channel strategy. 81% say our CEO has a clear vision. But take a look at the last 3 here. Do we have the right processes? No. Do we have the right technology? No. Do we have the right metrics? No. So that's a problem, right? These are the things that really matter because your business isn't going to live and die off the vision, right, or an understanding or belief. So this is why we're also so behind and still working on so many things now. Don't forget about metrics. You have to have omni-channel metrics. Multichannel metrics do not work in an omni-channel world. Yes, you'll still have your typical KPIs. You can see there's plenty of upside from omnichannel. Just look at some of these numbers, right? 80% saying it increased revenue for us by having an omni-channel program. I mean, that's huge, right? That's a huge percent of the company saying that. So as you could see, there's many KPIs that are traditional that will be affected. But there's also additional work in cost to getting those results, right? So you're going to see things like increased demand for stores to multitask. More customers brought in the store means you got to manage differently. You've got more security and things like that, more staff. As you can see, increased store labor costs are right there at the bottom, 58%. You cannot do omnichannel and expect store staff to stay the same. Period. End of story. Isn't going to work, right? So you got to be able to staff it properly. Otherwise, what ends up happening is poor customer experiences and they stop using your programs. So you also have to be able to measure things. As you can see, lots of companies -- we don't measure things like in-store, add-on sales, repeat customer rates of programs, things like that. So that's a challenge as well. So what are the strategic things you need to do? As I said, I would tell you about the tactical things. Here are the strategic things that are just so important, okay? Number one, build a 3-phase omni-channel road map, what you can do now, what to do in the near term and identify what you need to do next. This is a bullet point that I've never put into my presentations prior to the pandemic, but it is the case now. As an analyst, I would never say duct-taping together. It's really not my strategy or my style to do that. But in this era, you kind of have to do that. You have to deal with the now and what you can do right now in order to meet the needs of customers and the way they have to shop. But in the near term -- and really, what's the near-term people ask me. Well, it's about -- right at this point to about September -- late -- end of September, mid-October because that's about as much time as you've got before a few things happen. One, we start Black Friday buying. Target just announced that they would start -- in their earnings call, a little while back there, that they would be doing Black Friday starts sales in October as an example, right? We're going to see that pull forward. So you don't have a lot of time before then. You also don't have a lot of time before what you have is code freeze, right? Like you don't want to be messing with technology during the highest point of the season. Everybody goes through it. Everyone locks down everything. There's some tweaks you need to make, but you don't want to do major improvements. So you really don't have a lot of that near-term window left. So un-duct-tape things, get things done into systems, get digital tools in place before that period, get what you can. That basically means what I'm saying is un-duct-tape some things but not all things, just the critical things that you need to have digitized. And then the next is what you do post Q4. You do what you need to get through Q4, but into 2021, then you start to un-duct-tape everything and actually get those things in place. Number two, don't check the box too soon on an omni-channel capability. Poor experiences are usually rewarded with customer attrition. And what I mean by that is don't check the box because you don't have people and processes done. Again, I'm an analyst. This is what I do all day long. I just talk to people, listen to their problems, right? And so here's what I would say. People and process is why your omni-channel programs will fail. It will not be because of technology, okay? The technology is awesome, right? A lot of it works great, and it's right there for you. But more and more often, I see companies trying to check the box because they've sent an order to store, and they try to move on. You cannot move on yet. So important. Invest in new robust systems and processes. The only thing we know about the future is going to be more complex. As I said, when we start ordering from things like Amazon devices or smart cars or our television sets, right, we're not getting less channels. We're getting more. And as pick-up locations expand from dedicated pick-up areas to dark stores or whatever, this is not going to get easier. So now is the time to get in place good practices so as those touch points expand from both fulfillment and ordering, you're able to address them. Four, get your metrics going. You can't improve what you can't measure and manage. I see so many companies out there with what I would say are pretty decent omni-channel programs, but they have no idea what's going on. They have no idea if customers are unhappy in line. They have no idea if their employees are being able to pick things on time. The visibility in the omnichannel is often horrible. So an exercise I go through the executives all the time is this, is we sit down and we go through this process of writing down, and I literally have them do this, if we knew X, we could do Y. In other words, if we knew how long people were standing in line, if we knew how many. Times people got the wrong order, if we knew how many times people were canceling and the reasons they were canceling or abandoning, then we could address those things, right? Do you -- sure, you probably capture abandon rates or cancel rates, but do you actually know why the customer did? Did you know that 14% of consumers who do buy online, pick up in store forgot they even place the order, right? There's a solution for that, right? We're not going to get into it here, but there is. And so if you go through this exercise, that's kind of what you need to do, is you need to think about it that way. And finally, solve customer pain points with omnichannel before trying to do surprise and delight, okay? Why do I say this? Why do I say this almost every speech that I give? It's because here's things about human beings. We don't respond very well to surprise and delight, but we respond negatively to poor experiences all the time. For example, many of you probably drive cars, right? Just think about the last time you drove your car. Did you get out of your car, turn around and say, "Thank you, car. I love you so much. You're such a wonderful car. Really appreciate you getting me where I need to go." No, we don't do that, right? We expect things to work, right? That's how our lives operate, okay? But if that car broke down where you needed to go, right, and you were late for that meeting or whatever you need to do, would you have some choice words for that car? Yes, you would. Would you remember that experience? Oh, boy, you would, right? Because we respond far more to pain than to pleasure, okay? That's not me. That's every study ever done about us. And so don't try to create robots, blockchain, AI, blah, blah, blah, right? Just try to create the experience that customers want. Don't try to surprise and delight. Remove the pain points, right? If I can't see all the items you have in store, that's a pain point for me, right? If you can't enable me to buy through an app and you can only online through buy online, pick up in store, that's a pain point for me. This is what I'm talking about. Solve those points. So these are the 5 that I say you got to go through and think about and address. I encourage all of you to take these as strategic initiatives and work forward towards great omni-channel experiences. So we're going to go into Q&A now. Really appreciate your time.

Thank you so much, Brendan. That was wonderful. I love listening to your stories, and I had to laugh off camera on the car and the loving the car. Pretty funny stuff, but so true. I want to welcome back Pawan and Vanathy. If you guys are -- can unmute yourself. I'd love to welcome also the audience to enter any questions you'd like. I will start with a couple of questions that we have preprepared, and then we'll take audience questions as well. So starting off with an omni-channel question. One of the things that we know is that there -- retailers really closed their stores in Q2. And there's a hyper focus on cash. So how do you do omnichannel right knowing that it's a customer satisfaction attribute, but you'll drive net incremental revenue as well given the sensitivity on cash right now? So I wanted to maybe pose that to Vanathy as a start, as an opener.

Yes, sure. Thank you, Jennifer. Yes, Q2 was a very interesting quarter. We had to close stores. We had to what my leaders call it the bob and weave to the situation of the market, right? We had to understand how the pandemic is going to evolve, and we have to switch ourselves up to the situation. But I'll tell you what, it's all about the supply and demand. The equation just changed a little bit, right? As we had to close our stores for public, the demand was still very high in most of the areas for what we sell. So we utilized that opportunity, and we turned our stores into fulfillment channels. We still saved cash by essentially bringing in more inventory, but then we extended our stores to be those fulfillment channels, and we essentially utilized them and utilized the inventory that was sitting at the stores. That way, we -- I would not say we did it super gracefully. We had our moments. We still have our moments. We are evolving, but we were able to take advantage of the situation. Look, it also gave our stores a great opportunity to be open, make a living and still be part of the great business, and our stores did a great job of reacting to that.

Nice. I have another question for Pawan. We've had a number of retailers who have seen in Q2 significant volumes, mean more than they saw in 2019 holiday season. So you've heard the Joann Fabric story. They did more in the month of April than they usually do in 1 year. We have another large grocery store whose volumes were just unprecedented. It was like Thanksgiving every day at that grocery store. When you -- when we look at these experiences, you work -- or how do you work with clients on helping them prepare for that next potential disruption?

Thank you, Jennifer. First of all, thank you for -- to be on this call with this esteemed panel of people. To answer your question, yes, of course, this disruption has caused a lot of pain immediately and I would say, to a lot of retailers. But then I think the main -- important to focus here is, and Brendan kind of talked about, it's just not the technology. It's the process as well. But the way we handled -- and this retailer has handled was, from a technology perspective, was making sure that they have global view into their inventory, meaning -- and Brendan kind of mentioned about it's not just about how much on hand do you have, how soon can you serve the customer, right? The SLA becomes super, super important because, at the end of the day, the customer is spending time on your website only if he knows what he can get, how fast he can get and when it can be delivered to your home, right? So a lot of the time, it's about the inventory visibility and to enable the omni-channel experience, which is not only ship from store or buy online, pick up in store, but other fulfillment ways, curbside pickup or delivery options through crowdfunding like Lyft and Ubers of the world and all that has become super important as well in this world, right? Many of our customers, including Sally Beauty, they were well prepared in 2019 to take on the -- to cater -- or to divert the kind of the disruption that happened to COVID. So before the COVID hit, we were very prepared especially with Sally Beauty, making sure that they have the split shipment functionality, they're well integrated with their online channel, their marketplace channel and stores, right? But then on top of it, as soon as the COVID hit, as Vanathy said, everybody was learning, right? All retailers were learning as well. Things that we were learning, we could do better. We actually took the challenge and executed on those capabilities within a matter of a couple of weeks, 2, 3 weeks at a time, making sure that we tighten stuff that we need to put together, somewhat tactical in nature. Brendan kind of talked about there's only limited time. Yes, I totally agree that we don't want to do anything like duct taping stuff, but we want to also react to the market disruption and situation as well, right? So with the order management implementations we did at Sally Beauty as well, we not only -- because the foundation was already there in place, it took us only a few weeks to kind of go and implement some of the other things that was needed to sustain the high demand that we were seeing from an order perspective. The demands were really big demands, and we had to do something, very reactive, very fast, right? One last thing I want to also mention is make sure that your systems are capable of handling the demand, meaning it's scalable, right? For example, for Sally Beauty and other clients like JOANN's and all, we ran actually the supply chain and order management on the cloud for them. So it was very easy for us to handle the demand and scale it to the capacity of the cloud. Hope that helps.

That's awesome. As for me, because I am really technology focused, I find it fascinating that the 3 of you talked about this kind of soft implications of the other side of executing these tactics. And one of the things, Brendan, that you said, and we all are fascinated by returns because there really isn't a great solution, per se, from a technology perspective. So to hear about -- and I forget what you said during the presentation, but it's kind of like we started on returns because it is duct tape. And I don't know if you have any good thoughts on -- aside from what you presented on how to do that better.

Yes. I think one of the things that is something that is so critical for organizations to do is to make sure that when somebody has something that they're going to return to store that is an online-only item, for example, or even if it's not, maybe it's an item that comes in, and it's discontinued or what have you or it's broken or it's not broken, right -- there's one retailer that I spoke to, gave me the insights and said that, when someone returns an item to a store that was bought online, there are 21 different possible dispositions for that item, right? 21. So the store associate's holding this item going, "What do I do with it." Right? If the system doesn't tell me what to do with it, here's what's going to happen to it. I'm going to take it in the backroom, on a pallet, right, with every other item that gets returned. I'm going to shrink wrap them all and I'm going to send them back to the warehouse and the warehouse can sort it out, right? That is not cost-effective. That is not efficient way of doing it. I did a whole paper on turning pain into profits through returns and how you do things like when something is still available online and the item is in, it's in resellable condition, you put it in a special area and you have the order orchestration, for example, route the very next order from that item to the store so that it ships from store to the customers and get it out of that store, right? There's lots of different ways of addressing each unique way of doing it. But the most important thing that I said, and I think this continues to be true, is the idea that you need a system in place. You need this to be digitized. You need the system to tell the associate. Here's what you do with it, right? Because otherwise, it's not going to work. And don't expect them to memorize a bunch of disposition codes, right? You almost have to say -- you almost have to -- I've seen one company testing real language processing, right, where they -- it's not real language. It's more like drop-down menus, but it's like, is it this, is it that, is it this, is it that, who is the vendor, blah, blah, blah, right? There's some input fields there. But that combination of things actually results in like what to do with it. And so that way you avoid the messy pallet in the backroom and you avoid the labor costs associated with that because that -- once it's said and done, you do it that way, basically, you've lost all margin in the labor to manage those things and you might as well just throw them in the garbage.

Great. I find it interesting because I think that's probably more and more prevalent. We talk about it often in IBM because online shopping is more prevalent in today's marketplace and that, coupled with a beach season and you're buying bathing suits and you're buying 20 because you don't want to try them on in front of everyone and returning 19. But I want to get on to something that I think is -- it will be pretty interesting from Vanathy to talk about curbside pickup. So we know that it's a must-have for retailers. Brendan said 63% of retailers have rolled this out, rolled it out post COVID, but we know there -- it's fraught with execution elements, and you don't really hear that. And I wondered if you -- and I know you will because we've talked about this. We've talked about how Sally is addressing this curbside pickup.

Yes. To really talk about curbside, I want to first touch on how Brendan talked about the importance of the people, process and technology, right? And technology is specifically put at the end. People and process are put at the beginning of it for a very specific reason, right? Let's just say you have the perfect inventory system out there that records every single thing and is able to keep track of every single thing. There is still so much of people and processes in front of it, right? And during these COVID times, while I have attended a lot of talks, given a lot of these, the question that always comes up is, "Hey, what are you innovating?" Right? What are you going off and innovating? And curbside is a question that always comes up. I think innovation really means very, very foundational in today's world. It's just doing the things, the basics really, really well, right? And in our world today, the way we have done curbside is definitely a duct-tape solution, and we are working on the better approach as we speak. And here are a few reasons why that became a duct-tape solution. It's the people, process and technology aspect of bringing curbside alive, right? We have to have good inventory. Our websites have to understand what we can promise. We have to make sure that the promised inventory on the website is actually available when she walks into the store. We have to ensure that our customers are getting a very reliable service out of us. Sort of like Brendan's car analogy, right? You don't go say, "I love you, car." But you want it to sort of work, right? And when it doesn't work, it's going to look very, very ugly. And so BOPIS, buy online, pick up in store, curbside, however you want to call it, is sort of like that. We want to get our foundations right. One thing I remember Brendan called out is -- and I don't know if he mentioned it today, but he has called it out several times before. Even if you're 98% well, doing well, there is 1 customer out of every 10 customers that have a very unhappy service, right? And one of the KPI or metric that we are starting to measure is something called the perfect order percentage, which essentially means what -- how many orders out of what we fulfilled did we actually do a good job of. Did we send her what she order? Did we actually fulfill it without any kind of cancels, even though we are splitting across 2,000 nodes? Or are we actually sending it to her without any damage or any kind of misplaced items, right? It becomes such an important metric to measure before we start doing some things like BOPIS. Now we are actively working on a better solution, and I'm very restless to get it out to the more of the omni-channel way. I think the customers don't care about the word of omnichannel, right? It's not a thing to them. It's really how we treat our foundational service really well, right? She needs something. We understand what she needs, and we are able to provide it to her the way she wants to buy from us, right? So getting that to the right place is going to be key for us as we are working on the omni-channel solution for BOPIS. So we are trying to figure out what is a great way to get ourselves to a better place on this one. Is it a set of products that we know we have depth of inventory and we know that we can reliably promise to her? Is it a certain region? Is it a combination of store region that we can go after, right? These are all the way we are thinking through to make sure that we are not causing further customer friction points, but we are actually solving for what she is looking for. And it becomes very important to have a very clear problem statement and then having a really good metric to go after and measure.

I love the way you said that, too. We just started calling it the customer channel. It really doesn't matter. It's just how the customer wants to get it so that you have all the options. Let them pick what's right for them.

Yes. And I'd say it's very good for us, right? I love the fact that we are a smaller retailer. We have a focused area. We have a focused segment. Having worked at Walmart, I'll tell you that it's sometimes a big, hairy problem for everyone, but it is actually a manageable problem for a midsized retailer like us. Not underplaying what we do, but it actually gives us a better opportunity to move with agility, have a really good business-led technology road map to be able to execute on some of these, right? Even the people in process areas become easier for us to manage because of our size, right? And our customers come to us for a very specific reason, and the problem set is much more tangible in terms of how we look at it.

We've actually run out of time, so I can't take any more questions, but I want everyone to know that we answer all questions. So if you look at your question-and-answer today, we will actually respond to you via e-mail and answer your question. I would like to thank Vanathy, Pawan and Brendan for your time for joining IBM to discuss marketplace challenges that our retailers are facing and also solutions and your insights. I've enjoyed this so much just learning from you, from the 3 of you. So thank you for that. Finally, I'd like to thank...

Thank you.

Thank you. I'd like to thank all of you that are viewing today for joining us.