While millions await a world without the coronavirus, author Scott Galloway’s latest book gives them much to ponder.
Laced with statistics, expectations and explanations about big tech, disruptors, business trends, harsh financial realities and a myriad of other subjects, “Post Corona: From Crisis to Opportunity” explores what has yet to be defined and how an increasing lack of empathy is killing capitalism. A serial entrepreneur and marketing professor at New York University’s Stern School of Business, Galloway has “The Prof G Show” podcast and an online education business called Section4 that offers classes with leading professors.
In a far-reaching interview Tuesday, he discussed the Portfolio/Penguin book and how the changes underfoot will alter the fashion, retail and luxury sectors.
WWD: How can you know what’s ahead? How do you approach your analysis?
Scott Galloway: Do you mean, “Am I Jesus Christ?” You’re right. You can’t. I view predictions the same way Eisenhower viewed plans — plans are useless. I think predictions are useless. But predicting is valuable because you hopefully build up to the prediction with some analysis that catalyzes a conversation. But you’re going to get a lot of them wrong. There is a certain “x” factor. If there’s some weird adverse effects from the vaccines, COVID-19 is going to go a lot longer than we anticipated. The wonderful thing about the world is there is a level of serendipity and “x” factor that renders all speculation, speculation.
WWD: Many can’t wait until things get back to normal. What would you say to people who think things will go back to normal?
S.G.: They should take a cruise on the River Denial. If back-to-normal is the new normal, then sure, welcome back. There’s going to be structural shifts. Movie theaters are not coming back. There’s not going to be a resurgence in department stores. We had 10 years of e-commerce growth in eight weeks, and we’re probably not going back. There will be a sugar high of business travel and people going into brick-and-mortar stores. People will return to the office in bigger numbers. But these things will be permanently changed.
WWD: What should fashion companies and retailers be planning for?
S.G.: I think you’ll see more deals like the one between Alibaba, Farfetch and Richemont. Unfortunately, what is happening here is the great consolidation. There are basically two Internets globally. There’s the Chinese Internet which Alibaba is unfortunately kind of becoming the Internet. Google, Facebook and Amazon are making the Western Internet. Those three players largely control the traffic, or at least the consumer traffic that ends up in a purchase. Every day it gets more expensive to peel off traffic from those three parts. All three of those entities, distribution channels or gatekeepers are bad for luxury. As big as they are, they [luxury groups and brands] need to bulk up and develop their own Internet, if you will. I think you’re going to see more deals of that nature.
WWD: Do you think there will be a consumer backlash to big tech?
S.G.: There will be a regulatory or government backlash. Everyone is waiting on a consumer backlash. There’s incredible consumer dissonance…at the end of the day, consumers want that little black dress for $9.99. Consumers talk a big game about sustainability and an ethical supply chain, and then they go buy fast fashion. If you’re waiting on consumer revolution, don’t hold your breath…there is a younger generation interested in resale. They take sustainability and environmentalism more seriously. That will be driven by the fact that for the first time in history, Americans at 30 aren’t doing as well as their parents [did] at 30. They’re just more comfortable wearing other people’s clothes. Resale is where that will manifest.
WWD: Your book notes as much as we try to humanize brands, they need to be monetized. How does that square with consumers’ preference for a more humanized tone?
S.G.: I would argue that the brand era is over. If you look at the primary means of creating stakeholder value in the consumer role from 1945 to the introduction of Google, it was come up with a mediocre product and then come up with amazing brand codes and use this incredibly efficient and inexpensive medium of broadcast media to pound away at those brand codes and create tangible associations. The Brand Age moved to the Innovation Age. There were new weapons of due diligence, mass diligence, new product innovation to the unlock of digital. Tesla can be tuned up over the airwaves now wirelessly…a brand or a company is an abstract. It’s a legal entity. It’s not going to take care of you when you’re older…we personify companies. Right now we’re bailing out companies when we should be bailing out people. I don’t think $750 billion should go to small business…the majority of small businesses are owned by millionaires.
WWD: What is the outlook for specialty retail?
S.G.: Name a multibrand specialty retailer that is working. The specialty retail that’s working is focused mono brand — Restoration Hardware, Lululemon. The multibrand specialty retail sector is under attack. You can see iconic brands like the Gap starting to struggle. Department stores are in the bottom of the ninth. They’re great retailers that are a shadow of themselves. Macy’s and Nordstrom, who have some of the most talented people in retail, are just barely holding on. The next ones that will see tremendous value destruction in specialty retail are multibrands. J. Crew is selling off its organs, right? The guys at the very bottom, the Walmarts, the fast fashions, are doing OK. The guys at the top, the LVMHs, are doing great. Everything in the middle is getting hollowed out.
WWD: How much of a dent will the ultra casualization of society cause post-pandemic?
S.G.: There will be winners and losers. Ath-leisure and shabby chic will do well. Suits will struggle. It’s not going to be easy to be Theory. Brooks Brothers and Men’s Wearhouse are gone. More than that, it’s really about channel disruption. Since April, Amazon has added more value to its market capitalization than all of European retail. Everyone talks about sales. So much of it is about shareholder value, because that’s how you pay your employees, attract venture capital and get gas in the tank to invest and try new innovation… The last five years the S&P is up something like 45 percent. Amazon’s up 700 percent. The retail ETF is at 5 percent but if you take out Amazon, it’s negative. Retail, for the most part, has been a terrible place to work or invest. Amazon added a trillion dollars in market capitalization over the last four years, that’s got to come from other places. The oxygen is leaving the room for the entire retail ecosystem. The other way to look at it is dispersion. Amazon dispersed retail from stores to our desktops and then to our phones, and from shelves to warehouses to our doorstep; that has just accelerated. It’s happening in grocery and across every other sector.
WWD: With travel expected to be curtailed after the pandemic, how will the lack of human interaction affect how business is done?
S.G.: If you’re a retail clerk, you have no leverage. Your income earning probably goes flat or down. The subway you take is now running every half hour instead of every 10 minutes, so your commute has gone up. If you’re an executive and can do most of your calls over Zoom, and now can fly to headquarters once every three months instead of once every week, you’re going to have more money, more time with your kids and with Netflix….We don’t like to admit this — the top 10 percent are living their best life. Quite frankly, they usually have access to good food, good health care and are usually white people. They have been disproportionately not affected…The other 90 percent is having a very difficult go of it, whether they are more susceptible, have to put themselves in situations where they might contract the virus, or don’t have the confidence or money to be proactive about their health care. They may have been furloughed, can’t work from home, have rent insecurities. Forty percent of people who make less than $40,000 annually have had some sort of job interruption. People who make over $100,000 a year have had no change in employment.
WWD: What about brands taking on societal issues in a corporate way?
S.G.: It’s situational. A lot of people are really genuine about wanting to have diverse workforces. A lot of ceo’s, leaders and managers really do want to be part of the solution. There is also a lot of virtue signaling. A black square on your LinkedIn page signaling Black Lives Matter really doesn’t mean a f—ing thing. This isn’t something that you call your comms department and ad agency in on. You call your HR person and say, “What percentage of our workforce is from each group and where are we wildly underrepresented?”…What is it, 34 companies on the S&P 500 have female ceo’s. OK, so we’re up to 7 percent. That feels pretty strange.
WWD: You wrote the economic anxiety was the soundtrack of your life. Does that remain?
S.G.: I’m always economic anxious because that’s what I grew up with. The reality is because more of luck, I was born a white heterosexual male in 1964, which meant I got an amazing education for free. I became a professional in the Nineties, when the Internet and processing power were taking off. I was able to raise hundreds of millions for my start-ups and I saved. Being white and male was key to that. Ninety-nine percent of capital for start-ups raised in the Nineties was raised by white males. None of that was my fault. The reason I bring up my sexuality is my roommate my freshman year at UCLA was exactly the same as me, arguably more talented. But he was born homosexual and he died alone of AIDS at the age of 34…I feel very blessed but I also recognize there’s a virus that infects America and innovators, and sometimes I’m subject to it, that sometimes we conflate luck with talent. Capitalism used to be that we have to create our own luck in investing in unremarkable kids. I worry we’re losing that. This goes to some of the dangers of the dispersion of e-commerce and the WFH movement. That is, we no longer see people who don’t look, smell or feel like us in movies or in malls. We’re not commuting. We don’t see the homeless vet panhandling on the ramp. We don’t see kids from different economic classes….There’s a lot of academic research showing that when you don’t have integrated communities, people resent. People become less empathetic to others. That is happening. The death of empathy here will be the death of capitalism. Everyone talks about competition and rugged individualism being the key components to capitalism. Yeah, but the foundation is empathy. Capitalism isn’t an organic state. At some point, if we let Amazon run unfettered, if we let every billionaire control the government, you are not going to see a redistribution of income. People will always come up with reasons for why even though they are in the point-one percent, they should pay a lower tax rate. We have to figure out a way to develop more empathy and to start thinking about the other 90 percent.
WWD: Do you not like to meet with people in person because it makes you empathetic?
S.G.: I don’t meet with rich white innovators. When the head of p.r. and comms at Goldman Sachs and Uber reach out and say David Solomon and Dara Khosrowshahi want to meet with you, I say no. I know what will happen. They are the fraternity rush chairmen. I’m 56. I’ve spent way too much of my life with white powerful guys. I want to spend more time with people who are trying to get rich — not already there…I know that sounds like I’m-so-important. Here’s the playbook, you write about a tech company critically, the first thing they do is [reach out to say] the ceo wants to catch up with you and update you on his or her thing. These people are some of the most likable people in the world. That’s how they got to be the ceo’s of these companies. They’re paid to be lipstick on cancer. They called me when I’ve said no, and have said, “You have an obligation to hear our side of the story. You’re writing about us.” I’m like, ‘I’m not a f—ing journalist. I don’t have an obligation to meet with anybody.”
WWD: Many companies say they are content creators and data companies. Are there any fashion ones that you think truly are?
S.G.: Guys like Stitch Fix or platforms like Zalando. Most are merchandising or creatively driven. The biggest head fake was Burberry. What they really had was a very talented communications department kind of spinning everything that they were the first Internet luxury brand. It depends what you mean by data. The Limited’s Les Wexner was kind of into data before it was cool. Mickey Drexler was kind of the merchant prince. Of course, there’s Amazon. The company that’s been the most innovative in the last 10 years and potentially in the world right now is Shopify. It’s kind of your DNA. Jeff Bezos is not a merchant, right? If you look at the first eight or 10 people who started a company, I’ll tell you if it’s a data-driven company or not.
Luxury over the last 30 years has been to a certain extent around the Internet cursed with record levels of business in that it never really had a burning platform…The demographics of the top 1 percent of the world’s population tripling their net worth over the last four years has kind of wallpapered over any other structural issues. I remember telling Johann Rupert that he needed to establish a d-to-c business 10 years ago, and he said to me, “Young man, I can’t find enough movements for my watches that are selling so fast. I don’t really need to do anything.” If Amazon becomes the only channel for distribution, they have to develop their own channel. None of them, as big as they are, have the heft, capital or brand equity, not even an LVMH. 24 Sèvres is great in theory, but it’s very difficult to develop a multibrand platform. Zolando has done it to a certain extent. They have invested hundreds of millions, and have operated at losses that most traditional investors won’t tolerate.
WWD: What changes do you envision?
S.G.: The biggest outcome is fairly boring — consolidation. You’re going to see alliances. If you’re in skin care and wellness, you do really well. If you’re in color cosmetics or hair and you appeal to women who work, the demographics are largely against you. The workforce has decreased by 2.5 percent because now that there is more stress at home or you can WFH, more women are opting out of the workforce. Not getting ready for work in the morning has an impact on fashion and beauty brands. The flip side is you’ll see real estate costs come down. For the first time, the tenant is going to have a lot of leverage over the landlord. The fastest-growing expense for a lot of these companies has been not just technology but real estate. Luxury continues to benefit from capitalism’s imploding in on itself. The biggest driver of luxury over the last 30 years has been the emerging middle class in developing markets and income inequality in mature markets. It’s been the perfect storm for luxury and I’m not sure it continues.