Workday Podcast: The New Consumer Industry

Jeremiah Barba: Consumer expectations have never been higher. If you're like me, you expect speed, convenience, and personalization. And if you don't get exactly what you want, you'll quickly go elsewhere. Keeping shoppers happy is just one of the pressures bearing down on retailers today. Consumers themselves are changing, technology is advancing, and disruption must be met with innovative solutions. So what is next? On this episode of the Workday Podcast, it's all about the future of the consumer industry. And I'm joined by Derrick Jenkins. He's a principal at Deloitte. Derrick, thank you so much for joining me today.

Derrick Jenkins: Thank you for having me.

Barba: So first off, could you tell us a little bit about yourself and your background and work with Deloitte?

Jenkins: Yeah, absolutely. So I'm a father and a husband. I've been married almost 11 years. We got married on New Year's Eve, so my wife and I always have a fun time around, around New Year's. Our friends and family look forward to whatever party we're throwing, but it gets expensive. So we're scaling back as we get older, if you will.

Barba: Right, right.

Jenkins: I've been living in Atlanta for 16 years, and that's the entire duration I've been with Deloitte as well. And the last 11 years, I've actually been focused on our HR transformation practice, so all with Workday. And then the last six specifically have been focused on the retail industry, I've been helping my clients not only through their Workday journeys, things like the future of work, or frontline workers, the return to work, tightening talent pools, and helping clients navigate that space. So yeah, I've been really busy these days.

Barba: For sure. So many changes over the last few years So let's jump right in. So Deloitte came out with some research recently around the consumer industry called Buying Into Better, and that'll provide a nice framework for our conversation today. So I'll let you set the stage and tell us a little bit about that research and the methodology.

Jenkins: Yeah, absolutely. You know, there's a lot of studies out there that, you know, frame everything, or they have catchy headlines, "the future of," and insert your--

Barba: Right.

Jenkins: ---word behind it. And it draws, readers in to think that it's going to predict something. We're not in the, the future predicting business. That's not what we aim to do.

Barba: It's usually wrong. Right?

Jenkins: Yeah. Well, to that point, 2015, Scott Galloway said, "The future of retail looks more like Macy's and not Amazon." So again, we didn't want to be caught with any headlines like that going forward. What we do subscribe to is the future is not meant to be predicted. It's meant to be created. So that's our thinking. So and then the question becomes, well, how do you create the future? So we interviewed over 800 individuals, in 20 different countries. We talked to economists, luminaries, folks in academia, policymakers, and an array of individuals, different backgrounds. And what we found was no one individual had the full view of what the consumer industry, you know, looks like or what the future is. And instead, we gathered over 100 distinct things that they all talked about. And we took a step back. And when we looked at the landscape, we were able to categorize those 100 or so things into six nice categories. And those categories, is what we focused our research on. And that's what we call the six forces that are shaping, the consumer industry.

Barba: Right. So let's dig into that a little bit. The six forces will be an interesting framework for our discussion today. I know the first one is the changing consumer. Why don't we start there? How is the typical consumer changing?

Jenkins: Well, the study we conducted, when you look at the baby boomer population, 75% of baby boomers identify as white or Caucasian. And then if you go to Gen Z, you see that 50% identify as white or Caucasian. That same population with baby boomers, 84% heterosexual. And then you look at Gen Z, about 52% identify as heterosexual. And so what you're seeing across any demographic, race, ethnicity, socioeconomic status, geolocation preferences, the consumer themselves are becoming more and more diverse. And what that creates is a more diverse sets of wants and needs that the consumer industry needs to then respond to. And the industry itself is having to keep pace with the change. Again, generationally, we all have different preferences. And so that creates this influx of goods and services, and companies trying to respond and trying to hit the nail on the head. But it's becoming more and more challenging. Our industry was built for mass production, mass marketing. You aimed for the 75%. You aimed for the 84%. And now if you apply that same strategy, you're going to miss half, if not more, of the consumer base. So you have to shift from mass production, I like to call mass personalization. So shift from mass to micro, essentially.

Barba: Right, that expectation that retailers should know me, should know my preferences, should know, where I like to shop and what I like to shop for and where I wanted to get it delivered. Interesting how that all plays into what it's like to be a consumer today. And I think connected to what you mentioned a moment ago is the evolution of society and culture. So how is that affecting consumer industry as well?

Jenkins: Yeah, I like to bring this one to life just with a personal reflection. So I have two brothers. I am Gen X. I'm 10 years older than my middle brother. And my youngest brother, he's 12 years younger than I am. And it's a known fact in my family that my middle brother is the favorite. And so for the duration of this podcast, we're not going to talk about him. He has enough shine already. The fact that we're mentioning him on this podcast is too much credit already.

Barba: Well, we're not going to tell him. It'll be fine.

Jenkins: Exactly. We're focused on my youngest brother, right? So by all accounts, I'm a traditionalist. You know, married. I have two kids, a dog, two-car garage. My spending habits are pretty traditional. They're pretty predictable, in that sense, the stability of the household, if you will, right? My youngest brother, however, no desire to have kids, no desire to own a house. He has three roommates right now, as a matter of fact. No desire to be in a relationship or get married. And a-actually, he says he's not in a relationship. He's in a situationship.

Barba: Right, right.

Jenkins: So he lives 15 minutes from my house, and I never know where he is, what he's doing. And so when he does show up, or when I do see him, he looks completely different. Different hairstyles, different clothes styles. You know, he's influenced by influencers. And this is just an example where you see two of the forces. And we talk about two right now, converging, where the individual preferences and then the society changes just in terms of what's accepted as a norm, shows up. So for example, houses are being built smaller today, because one, they're too expensive to own because they're bigger, and they're too big for one individual, right? The family dynamic is shifting. So when you have a person living in a house, or you have one person just with three roommates going to an apartment, if the house is smaller, how is the consumer industry now changing how they construct and build things to fit that smaller house? We have tiny houses now, as an example, right? That's accepted. So just with our societal changes and differences, preferences, all these things are just creating more and more fragmentation that the consumer industry needs to respond to.

Barba: Oh, interesting, right? Like you mentioned, even houses getting smaller, right? From what we may have seen in the past, like Kevin's house in Home Alone to what is more common now. Interesting how that affects the retail industry. Like what type of furniture are they selling and that type of thing?

Jenkins: Exactly.

Barba: That's a really interesting point. So let's talk about technology. There's a phrase you use in the research called exponential X tech, I'm interested in that term. So why don't we dive into that a little bit,  and then what does that phrase exponential X tech mean?

Jenkins: Yeah. Exponential X tech, because we're living in this digital world, there's no one thing that you can call technology these days. It's exponentially changing, exponentially growing. There's a convergence of technologies that's happening also. So if you think about infotech and biotech, how many people have an Oura ring, and a Apple Watch or a smartwatch? And then you might have an app tracking, what you eat, your sleep patterns. You have another app that tracks all of your exercises, and you want to close all your rings, and then you jump on the Peloton because you want that little blue dot to show up for the week.

You're collecting all this data about yourself, and then you start to make life decisions and spending decisions in how you live your life so you can be healthier. Right? The healthcare industry is built on treating the sick, right? That's an insurance game. With exponential X tech and the convergence of, let's say, biotech and infotech, that becomes a consumer game, right? You're buying the Peloton. You're buying different things because you want to be healthier. You're subscribing to different services because you want more and more data about yourself to show up differently, to live that healthier lifestyle that you're seeking. That's just one example. We also see things like digital goods and services. A new spending segment that we've called out. All of your subscriptions, Hulu, Netflix, YouTube TV, but also, like Peloton. So Peloton has, in a traditional sense, they sell a bike, but then they sell a digital service, the service you subscribe to, so that you can ride the bike. You can ride it on your own, but a digital service is wrapped around that good that they sell. So digital goods and services, it's on the rise. You know, you have things like the metaverse and cryptocurrencies.

All these things are contributing to the spend of the consumer. In a traditional sense, the average consumer spends about 3% on apparel. Digital goods and services, when you look at the Gen Z wallet, that same 3%. So it's a material category that companies are going to look to spend or create services for going forward.

Barba: It sounds like this whole ecosystem requires a lot of innovation, right? And that's a segue into our next question, which is about innovation and why it's so important. In the research, you call it radical industry upheaval. Could you expand a little bit on that? Why is it so important for retailers right now to constantly be innovating?

Jenkins: Yeah. The average consumer spend of the last 10 years has grown at about a 4% compounded annual growth rate. Most of the consumer companies in the industry have not grown at that same rate over the last 10 years, top or bottom line. And it is because, you know, we'll go back to my brother. Let's blame him for this, for this---

Barba: Sure. That's fine. We won't tell him again.

Jenkins: ---lack of growth. He's very savvy, very, very snappy comebacks, and he's creative. So he draws. And he wants all of his stuff printed on clothes, hats, mugs, whatever. And he sells them. One day, he hopes an influencer picks them up and, and his stuff goes viral. That's really going to take off his brand.

But overnight, he had a website. He had a storefront. He found a manufacturer overseas that was willing to produce his things, make his stuff, and then ship directly to his customers. He carries zero inventory. He has Apple Pay and PayPal to collect the funds. And all he does is create, put it up online, and he's off and running. So the barriers of entry into the industry in and of itself have been lowered. And that's creating that upheaval in the industry.

Barba: For sure. And now you've got me wanting to start my own online store. Sounds amazing.

Jenkins: I'll buy your shirt from you.

Barba: Exactly. Perfect. I just need to inherit the artistic talent that I don't have. So let's shift gears a little bit. We know that retail production definitely affects the environment. Retailers are doing a lot of things to minimize that impact, but let's talk about that a little bit. What effect does retail production have on the environment? And on a more positive note, what are retailers doing to minimize that impact?

Jenkins: The consumer industry generates---the estimates are about 60% of the greenhouse gases that are emitted. So it's a lot. If you look at the data, 1980, the average number of days that would elapse between a billion-dollar weather-related catastrophe was 82 days. And if you looked at last year, 2022, the average number of days that would elapse, 18.

So we went from a billion-dollar event happening once every two and a half months to now almost twice a month. So when stuff like that happens, insurance companies, they raise premiums to collect for that disaster. So the consumers, whether you realize it or not, everyone is paying for climate change, the impacts on it. If you look at what happened in Maui, that entire island, the entire tourism area within Maui, right, completely burned to the ground. So flights are no longer taking passengers to Maui. Hotels are no longer booking rooms in that location. So what does that do to the cost of flights for everyone else? They have to capture that revenue. They raise rates. They raise prices for everyone else. Hotels have to raise rates on all the other rooms in their portfolio to make up for that lost revenue.

So we are paying for the impacts of climate change today. Companies, their sustainability practices, everyone's wanting to be carbon neutral, capturing carbon, figuring out how they can do things to offset their footprint. ESG has been on the rise. Everyone has a score. Deloitte actually does audits. We can produce an ESG audit. So companies who are serious in this space are taking a hard look at, how their governance and social and economic practices and policies, what is in place, what are they doing? And, you have an ESG score. So companies look to raise those, but other things that individuals can do themselves just to, to be mindful of how they show up and what they buy. You spend with companies who have a commitment to the planet. You spend with companies that have a sustainability pledge.

Barba: So the last force you mentioned is shifting economics, policy, and power. What role does that play in the strategy of consumer companies?

Jenkins: Yeah, you can feel it and see it today. We have rising interest rates globally as a matter of fact. And that's driving the borrowing cost up. So, determines what type of house you can buy? For companies, how much can they invest in their goods and services? So that's one example. You have, shifting supply chains from China to now India, you know, tariffs being placed on goods that are coming in, and the disruptions that are happening on that front. We have wars, Ukraine and Russia. You know, that's disrupting food supplies and then, you know, shipping lanes. So all these things are at play. And then, to bring it close to home, you have Apple, right? The iPhone 15. Now it's coming out with the USB-C port, right? That was a policy decision by the European Union, imposing that mandate. And now everyone's iPhone is going to change from a port perspective. They changed their port once, and that was a whole fiasco. The hotels had the alarm clocks with one port. They had to switch over to another. Now they're going to have to do it again. These policies, this last force, it has a big impact on the industry and how goods and services are manufactured, how they can be consumed, where they can be consumed. And even I think the latest will be interesting to see is with AI. The writer's union was able to strike a deal, and they have some provisions. So that may lay a blueprint for how, governments potentially could leverage that as a way to mandate or govern AI, the use of it, how individuals get paid for content or not, when it comes to AI. So, yet to be determined on that front.

Barba: Retailers have a few things to think about--

Jenkins: They do.

Barba: --for sure. So we've talked about all these forces affecting the industry, goes without saying that retailers have a lot on their minds. So what are they doing to adapt to all these changes and navigate their way to a great future?

Jenkins: We actually help companies think through this. And what we'll do is we'll go in and we'll talk about the six forces. We will dissect them specifically related to their business. And we've helped them think about the implications of the six forces, right? And we break them down into three categories. We talk about the markets, the models, and the mechanics, right? So when we talk about markets, we help them focus on their goods and services. What are they selling? Who are they selling to? Who is their customer segment? How are they creating value for that individual, right? And really, what is their strategy for how they shift from mass to micro or mass production to mass personalization?

So that's one example of how we help companies focus on that implication when it comes to the markets. The model is truly the business model. How do they operate their ecosystem, right? So we talk about Peloton. What goods and services do they sell? They sell the bike. Do they need to reconfigure their supply chain? When you look at their ESG score, are they sustainable in their practices? Are they responsible, to the planet in terms of how they manufacture, and how they distribute their goods? So we can reconfigure their supply chain and focus on aspects of that. And then the last one, with the mechanics, that is, that's Workday. That's helping them run their business. How do they operate their business? How do they upskill and reskill the frontline workforce to respond to the changing consumer, right? How do you use data? If you have a full platform between finance and HR, how is a CFO and a CHRO working together, tearing down silos to make better decisions within the organization to propel that organization forward, where the investments are coming from, or how do they spend within the organization? So, those are the three implications that we focus on, or we recommend companies focus on when they think about these six forces and how they can apply it to their business.

Barba: Again, thank you, Derrick, for being with us today. I've learned a ton about this. Very interesting. I've also learned about your brother a lot, which has been great. Retailers have a lot on their mind, but it sounds like they've got a good future if they put their focus in the right place.

Jenkins: Absolutely. Thanks for having me. I'm happy to be here and, and share. I'll just say the, the consumer industry, it thrives on a healthy middle class. The middle class is what propels this industry forward. So as companies really focus on the future of the industry, the six forces as we describe them, as they're making their business decisions, if they focus on maintaining and sustaining a healthy middle class, they focus on the planet, we'll all come out ahead. And that's why we call our study Buying into Better because we want to make sure companies make better decisions and consumers make better buying decisions because of it.

Barba: That’s great. So well said. Again, thanks for being here today.

Jenkins: Thank you.

Barba: We've been talking about the consumer industry with Derrick Jenkins from Deloitte. If you enjoyed what you heard today, be sure to follow us wherever you listen to your favorite podcasts. And remember, you can find our entire catalog at Workday dot com slash podcasts. I'm your host, Jeremiah Barba, and I hope you have a great workday.