We are eleven retailers into earnings season, which feels like a good enough reason to celebrate the great Rob Reiner and one of the 10 (11?) funniest scenes in the history of the movies.

It’s also a reason to take a first look at what management teams are saying on retailer Q2 earnings calls - what the core themes are that retailers are exploring. It’s also a good time to evaluate what we have observed for years is a correlation between the clarity, candor and direction displayed in an earnings call and the retailer’s performance and growth prospects.

The 11 retailers so far are a mix of categories, channels and countries:

• US based: Amazon, Tractor Supply, Kroger, Albertsons CVS Health, Sprouts and O’Reiily Automotive

• International with US Operations: Ahold Delhaize and Chedraui

• Major International: Carrefour and Loblaw

Each call was scored against “Retail Cities Seven Habits of Highly Effective Earnings Calls”. This is not a score of whether the quarter was good. It is a score of whether management made the business more understandable.

The Seven Habits, Briefly

A few guiding principles:

• Detail is not automatically candor, thought they tend to correlate.

• In talking tech, solutions matter. Talking about tech investments ls less good than being specific

• Saying you need more customers is not a customer-acquisition strategy.

• A digital growth rate followed by a store-opening number does not automatically add up to omnichannel.

• There’s a fine line between dimensionalizing external factors and blaming them – blaming in this model scores less well.

The market reaction

Unsurprisingly, but also revealingly, there’s a pretty strong correlation between the quality of the call and the short-term response (this chart captures the release trading day and the following day) of the equities market to the call.

However, it’s important to note the score and the quality of the outcome don’t have to correlate – Kroger was a good example of a retailer posting a challenging quarter but with a relatively strong conversation behind it. Sprouts is an example of a retailer that outperforms the clarity they provide investors with – this quadrant is called “the model speaks for itself”. Wall Street analysts are paid and socially pressured to ask “tough questions” and this sometimes translates into a simple business model having a challenging time repeatedly explaining some core principles without the granularity and precision analysts enjoy.

The first eleven calls at a glance

Habit 1: Granular and Candid Business Understanding

The question: Does management explain the business, including the parts it would rather not discuss?

What it tells us: Tractor Supply (along with Costco) is a perennial leader here and their breakdown was both candid and revealing as their core rural shopper is showing real softness. Kroger under Greg Foran we expect will be a repeat winner here, and they addressed their operational issues with specificity and directness – Foran . Albertsons wasn’t evasive (a 3.5 is not bad) but apart from some very specific commentary on low-income shoppers leaking offered little perspective on causes or drivers beyond price.

Key Success Factor: Accountability And A Plan.

Habit 2: Technology as an Enabler, Not the Strategy

The question: What does the technology actually change?

What it tells us: Well, this isn’t a fair fight – according to Allume Group Amazon spent 64% of their call discussing AWS, which would probably be a trillion dollar market cap company if it weren’t part of Amazon. Amazon’s growth in both revenue and free cash flow are astronomical given their size, and today retail is to Amazon in sales % what front-end sales were to a drugstore in the late ‘00s/early teens.

In traditional retail, Albertsons did a terrific job outlining specific applications that make sense for their AI initiatives. As for Sprouts, suffice it to say you don’t dial into a Sprouts call for a tech briefing…their business runs on simple systems they seem content with beyond the expansion of their loyalty program to vendors.

Key Success Factor: Showing where technology is changing the work and (ideally) the specific impact of that change.

Habit 3: Customer and Trip Acquisition

The question: Which customers and trips are being won, lost or deliberately pursued?

What it tells us: From north of the border, Loblaw did a very good job of developing strong narratives in format design, footprint conversion and expansion, store remodels and loyalty. Ahold Delhaize gave a very detailed breakout on this for their efforts to right the ship at Stop & Shop (again, we measure communication effectiveness here, not whether the strategy itself is working). Albertsons did a good job of diagnosing their traffic problem but were light on solutions.

Key Success Factor: Specific understanding of the trip being captured or lost, and specific solutions beyond price to achieve it.

Habit 4: A Balanced Physical and Digital Narrative

The question: Are stores and digital being managed as one business?

What it tells us: Both the quantity and nature of the conversation – Kroger did a very good job linking their stores, digital and advertising business into a coherent strategic whole. Ahold continues to make strides in improving their ecommerce strategy and offer. On the flip side O’Reilly (whose business is growing just fine, especially in their B2B segment) spent very little time on eCommerce or digital in their conversation.

Key Success Factor: Breaking down the silo of this conversation – being able to discuss eCommerce and stores in the same sentence, not in different paragraphs.

Habit 5: Exogenous Shocks Addressed Rationally

The question: Can management explain the weather without simply blaming the weather?

What it tells us: Tractor Supply and Chedraui are dealing with remarkably complicated environments – Tractor Supply with the difficulties from their core shopper facing fuel, fertilizer and weather issues bringing real softening to their business. Chedraui is navigating both the odd slowdown in the Mexican economy from the World Cup (which has been attributed to some degree to a marked increase in gambling during the tournament) and the impact of immigration enforcement changes on their core shoppers in the US. CVS spent too much of their call avoiding specific answers to questions about changes in the economics of their healthcare business.

Key Success Factor: Every retailer has at some point leaned on an non-controllable to explain underperformance. Success here is in not whitewashing – specifics, candor, detail and resolution.

Habit 6: Adjacencies, Brand Extensions and Private Label

The question: How far can the existing proposition stretch, and what job is the extension supposed to do?

What it tells us: Here is where we evaluate the expansion of the retailers brand – either through private label or proposition expansion. Kroger’s discussion of private label was hyperspecific and illuminating, and Sprouts continues to expand their footprint here. As befits a home market with relatively low private label penetration Chedraui did not spend any time on this conversation.

Key Success Factor: Combination of strategy and specificity, as well as a coherent explanation for how the brand extension fits with the core strategy.

Habit 7: A White-Space Mindset

The question: Where does genuinely new growth come from?

What it tells us: Again, Amazon is pivoting away from being a retailer altogether, so their whole business model has evolved in a “white space” direction. Loblaw is one of the most consistently interesting brand extenders in North America – and bringing T&T Mart to the US with a culturally rooted proposition that has broader appeal than just its target market is similar to what Mexican retailer Chedraui has done acquiring Fiesta Mart, El Norte and Smart and Final. O’Reilly is in the midst of a roll-up, competing with less capable businesses and gaining share – they didn’t mention white space but don’t need it right now.

Key Success Factor: A competency for testing – having good ideas

The 7 Habits: What Is A Call That’s “One Louder”? Why Does It Matter?

Quarterly earnings are just a snapshot of a business, and the ability to talk to investors in a clear and compelling way is not necessarily a competency that ties out to running a successful business. However we’ve discovered that retailers that score high on these 7 key criteria:

1) Tend to outperform their competitors over time

2) Tend to bring these attributes to their operating business

So, following Amazon’s white spaces, Loblaw’s format explorations, Albertsons AI initiatives and Kroger’s aggressive focus on driving better stores (among the many other strategies detailed above) is critical to success, but following the retailer’s need for granular, specific accountability will be essential as well.

Tariffs Today and Tomorrow: The Sequel

Like many unwanted sequels, the latest chapter in US tariff policy feels a little like Gremlins 2…a movie I moderately dreaded (I saw NO reason to try and improve on the original - a near perfect work of art!) and did not enjoy. It is a little scarier than the first one, not as fun, missing the novelty and a movie that made me wonder why it was made.

But here we are.

In this piece we break out what’s actually happening and how tariffs change the mindset of the shopper

The latest series of tariff changes creates a challenge that we think of as a three-layer cake.

The first layer is the actual economic impact.

The second is consumer perception.

The third is business planning uncertainty.

Each layer matters. But they do not matter in the same way, and the combination of the three is potentially more disruptive than any one of them on its own.

So let’s take them in order.

First, what has actually changed?

There are four broad elements in the current tariff picture.

The first and most significant is the return of something resembling a 12.5% global tariff rate through a tariff mechanism tied to forced labor. In effect, countries are being tariffed as a punitive measure for the forced labor used in the production of goods. Quantitatively, that has roughly the same impact as the earlier tariffs that the Supreme Court found unconstitutional.

The second issue is Canada. There are a variety of Canadian categories scheduled to face tariffs of 50% beginning August 19. For purposes of our model, we have included those tariffs as though they happen, simply to understand what the forecast might look like.

There is a decent chance that some or all of them do not happen. With the exception of dairy, many of the categories involved are not imported from Canada at enormous scale. But they are included in the model.

Third, Brazil has received a 25% tariff.

The fourth, and potentially most consequential over time, is the broader issue surrounding the USMCA and the trading relationship among the United States, Mexico and Canada.

We will come back to that, because it is central to the planning uncertainty layer.

Layer One: The New Tariff Math

Retail Cities has built a model that attempts to estimate the overall tariff rate by weighting tariffs by both country and import category.

Different categories of products come from different countries. A tariff on a country from which we import relatively little has a different economic impact from a tariff on China, Mexico or Canada. A tariff on a heavily imported category has a different impact from a tariff on something primarily made in the United States.

This is a model, not an exact number.

But it gives us an order of magnitude.

Across roughly $3.3 trillion in US imports, our estimate is that the effective tariff rate is now approximately 19.8%. That does not mean anyone is literally paying 19.8% on everything. The rate is different for every combination of country and category. But if you blended all the tariffs together into one weighted average, that is approximately where you would land.

That is a 42.2% increase from where tariffs stood before the Supreme Court overturned the earlier series of tariffs. Put another way, the effective rate is roughly 600 basis points higher.

But the impact on the overall US economy is probably not as large as the headline number initially makes it sound.

Why a 20% tariff does not create 20% inflation

When someone sees an average tariff rate approaching 20%, the immediate reaction is understandably: “Does this mean everything is about to become 20% more expensive?”

No.

The first reason is that not everything we buy in the United States is imported.

Approximately 40% of the physical goods purchased in the US are imported. If the effective tariff rate is 19.8%, that implies the cost of “stuff” is approximately 7.9% higher than it would have been without the tariffs, assuming full pass-through.

That is meaningful. But the second issue is that most of the US economy is not stuff.

Approximately 70% of what Americans consume is services. Housing, healthcare, education, financial services, restaurants, entertainment and a wide range of other activities are not immediately subject to tariffs in the way that imported furniture or electronics are.

That means only about 30% of the overall economy is directly tariff-susceptible in the short term.

When you discount the 7.9% goods impact by the share of the economy that consists of goods, you get a potential CPI impact of roughly 2.4 percentage points, assuming every dollar of tariff cost is passed through to the consumer. That assumption is also unlikely. Based on what we have seen since the original Liberation Day tariffs, approximately half of the tariff increase appears to filter through into the consumer economy.

That produces an estimated CPI impact closer to 1.2 percentage points.

Is that a lot? Not exactly.

Is it the end of the world? No.

But it is approximately the gap between where inflation is in the United States and where the Federal Reserve would like it to be.

Without tariffs, there is a reasonable argument that US inflation would be much closer to 2% than to 4%. That would affect the Fed’s attitude toward monetary policy, capital investment and a wide range of other economic decisions.

The simplest way to think about this is that tariffs are functioning like a national sales tax of approximately 2% to 2.5%. Nobody wants to call it that because national sales taxes are unpopular. But functionally, a 2.5% sales tax, or a 2.5% VAT, is pretty close to what we are describing.

Layer Two: Consumers Hear “Tariffs” and Think “Inflation”

Now we move to the second layer of the cake - consumer perception. Consumer tracking data cited in the presentation shows that approximately 75% of consumers believe tariffs will raise prices.

Approximately 73% believe tariffs will produce higher prices on food, electronics and other goods.

That question really should have been broken into separate categories.

It would be useful to know how many consumers correctly expect tariffs to meaningfully increase the price of electronics (which is happening), and how many expect the same impact on food, where the direct tariff effect is likely to be much more limited and other factors are driving inflation.

Simply put - when consumers hear the word “tariffs,” they think “inflation.”

And encouraging consumers to think about inflation may not be what the American economy needs at this particular moment.

Perception can become economically consequential even when it is not perfectly aligned with the underlying cost structure.

Consumers who expect prices to rise may change where they shop, what they buy, how much inventory they hold at home, which brands they trust and how they interpret every subsequent price increase.

That is where the tariff story becomes much more complicated than the mathematical CPI impact, especially when other factors such as oil prices, trucking costs and crop yields are making groceries actually more expensive.

3 Key Implications:

1) We need to be faster and smarter around understanding shopper price and value perception, and how the inflation narrative is shifting it. This is a tremendous use case for AI to either partner with great AI-powered analytic tools or use AI to triangulate real-time sentiment with pre-existing data sets to extrapolate predicted changes. Perception > reality, and reality > data - if your share drops by more than your “models” say it should based on the price gap that’s a problem with your model…reality isn’t wrong!

2) Inflation appears to be semi-permanent rather than transient and our category plans need to account for that. Particularly given how much pushback retailers are going to put on the next wave of pricing brands are trying to take (some have alreaddy put a VERY firm stake in the ground here) we need to understand where we have value gaps to close or value opportunities created by a competitor whose pricing has gone up more than ours.

3) Certain Volatility - most companies have “VUCA” kicking around in a slide deck somewhere - “Volatile, Uncertain, Complex, Ambiguous” - the world isn’t uncertain - it’s Certainly Volatile. Which of your work processes is worst designed for volatility? Fix it.

It is time to bring back one of our classic Retail Cities exercises, which we call a Tale of Two Cities. The basic idea is pretty simple. Take two relatively similar retailers, listen to what they tell the investor community, and compare not just the results, but the quality of the explanation.

Kroger and Albertsons make a particularly useful comparison. They are America’s two largest pure-play conventional supermarket companies. They are dealing with many of the same issues: inflation, pharmacy economics, transportation costs, e-commerce profitability, private-label growth, retail media, and shoppers who come in for the deal and take the rest of the basket somewhere else.

They are also both competing with what we might call the four horsemen of conventional grocery disruption:

Walmart. Amazon. Aldi. Costco.

Same industry. Similar problems. Very different calls.

A quick word on the Seven Habits

We evaluate the calls using the Retail Cities Seven Habits of Highly Effective Retail Earnings Calls:

1. Granular and candid business understanding: Does management seem to understand how the black box actually works?

2. Technology as an enabler, not a strategy: Is technology appropriately centered, without being ignored or turned into theater?

3. Customer and trip acquisition: Is there a specific view of how the retailer will win new trips or win back lost ones?

4. A balanced physical and digital narrative: Does the company have a coherent view of how stores and e-commerce fit together?

5. Exogenous forces addressed rationally: Are the uncontrollable factors explained precisely and managed sensibly?

6. Adjacencies and private label: Is the retailer expanding its proposition in specific, credible ways?

7. A white-space mindset: Where can the business grow beyond simply running the current model a little more efficiently?

This is not really a score of the quarter. It is a score of the quality of management’s understanding and communication of the quarter.

It is not entirely scientific, obviously. But there is usually a fairly strong relationship between how clearly a retailer explains its business and how well that retailer is being run.

With that, let’s start with Kroger. We evaluate the clarity of communication on a 1-5 scale

• Greg Foran used his first call to say the quiet part out loud. Kroger’s costs have been growing faster than its sales, and roughly 60% of its stores are not performing at the level he expects. You can hear that as an enormous store-performance problem, or as an enormous pool of improvement that does not require Kroger to invent a completely new business. I suspect Foran wants the organization to hear both.

• The promotional trip is not the shopper. Kroger knows it is getting too many promotional trips and not enough of the full basket. Someone who comes to Kroger because chicken breasts are on sale may still do the large basket at Walmart, buy stock-up items at Costco, pick up cheap basics at Aldi, and order what they forgot from Amazon. That is not loyalty. That is logistics.

• The diagnosis on price is sharper than the prescription. Kroger knows it needs to narrow some price gaps and give shoppers more reasons to consolidate the basket. What we do not yet know is how broad that investment will be, which items will matter most, or how much margin Kroger is willing to reinvest. The company has promised a broader pricing conversation in October. Fair enough, but for now the problem is clearer than the fix.

• The Ocado wind-down is strategy, not capitulation. Closing three fulfillment centers and converting the volume to store-based delivery is part of the unwind of Kroger’s original automated-fulfillment vision. It does not mean Kroger is abandoning e-commerce. It means e-commerce is no longer allowed to live in a special strategic category where growth matters and the economics can be discussed later. We have arrived at later.

• Kroger understands the relationship between e-commerce and retail media unusually well. The economics of digital grocery are not just the margin on the basket. Digital transactions also create audiences, data, advertising inventory, and measurable outcomes for brands. Kroger’s data ecosystem is a real advantage, and the company was much more coherent than most retailers about how those pieces fit together.

• The private-label conversation happened at the level where retail is actually won: the item. Foran’s observation that customers do not buy assortments, they buy items, is a very Walmart-influenced way of looking at the business. Retailers can spend a lot of time discussing category strategy in the abstract. Eventually, someone has to put an actual item on an actual shelf at an actual price and persuade the shopper to pick it up.

• Brands should expect a more challenging Kroger. The question is going to become less, “How are you helping grow the category?” and more, “What is this item doing for Kroger?” Does it drive a trip? Does it build the basket? Is the promotion incremental? Does the national brand justify its premium over Kroger’s own product? Those are harder questions, especially for brands whose answer has historically been a very attractive PowerPoint chart about category growth.

• A 4.1 feels about right. Kroger does not have every answer, particularly on price. But the call offered a brass-tacks look at underperforming assets, a clear willingness to change course on e-commerce infrastructure, strong and concrete private-label aspirations, and a realistic view of where the business needs to reinvest. Foran will bring urgency to Kroger. The question is whether Kroger is ready for the amount of urgency he is likely to bring

• Albertsons was candid, but a little superficial. Management understood several of the things that affected the quarter, including pharmacy pressure and commodity deflation. It acknowledged that performance was below expectations and said it was taking decisive action. Apart from the internal reorganization, it was not 100% clear what that decisive action was going to be.

• Albertsons was particularly good on AI. The company outlined four specific priorities: digital customer experience, merchandising intelligence, labor optimization, and supply chain optimization. Some of the latter two may be existing machine-learning work that has acquired a more fashionable label, which is fine. Everyone is doing that. But AI-powered assortment, planogramming, localization, and category management could be genuinely useful for a complicated multi-banner retailer.

• The leakage of lower-income shoppers is the right problem. Albertsons knows it is losing trips among value-conscious and lower-income households. The challenge is that its Western businesses have faced versions of this problem for a very long time. The call named the leakage, but did not offer a particularly convincing mechanism for stop ping it.

• The shopper does not experience the organizational chart. Moving from 11 divisions to four regions may reduce costs, simplify decisions, and create consistency. It may be an entirely sensible thing to do. But the shopper experiences the item, the price, the promotion, the store, the app, and the checkout. Albertsons still has to explain how moving the boxes on the org chart changes any of those things.

• Albertsons’ digital story raises a scale question. Like Kroger, Albertsons said e-commerce has moved toward profitability when retail media is included. Increasingly, that is the right way to look at the model. But if a retailer does not generate enough traffic to its owned digital properties, how much is its owned retail media inventory actually worth?

• Retail media requires retail, not just media. Albertsons has been a leader in retail media experimentation but today it is becoming obvious that without a strong stand-alone eCommerce proposition retailer media networks will struggle to scale and be relevant.

• The private-label discussion was much less concrete than Kroger’s. Albertsons talked about own brands as part of the value proposition and price investment, but the relationship among private-label growth, volume, comparable sales, and margin was not particularly clear. Kroger talked about the item. Albertsons talked more about the general opportunity.

• ACE may be necessary, but ACE is not white space. Consolidating divisions, centralizing merchandising, cutting costs, and buying back shares may improve the economics of the company. They are not, by themselves, an explanation of where Albertsons can win that it is not winning today. That is why the 3.2 score also feels right. The company understands that it has a problem, but the competitive repositioning remains much less clear than the internal restructuring.

Same Market, Different Transformations

Kroger and Albertsons have more in common than the scores might suggest.

Both know conventional grocery is losing trips to a much broader set of competitors. Both are trying to make e-commerce work by combining commerce economics with retail media economics. Both plan to push back against supplier cost increases. Both understand that the value proposition needs work, particularly for shoppers who can no longer afford to be casual about where they buy each part of the basket.

Neither company has fully explained how it will win those trips back.

But the center of gravity in the two calls was different.

Kroger’s transformation is focused outward and downward into the business. Stores. Items. Costs. Prices. Baskets. Execution.

Albertsons’ transformation is focused inward and upward into the organization. Regions. Structures. Cost reduction. Capital allocation.

Albertsons was stronger on one important topic: it articulated a more specific and potentially useful set of AI priorities, while Kroger was stronger on most of the basic mechanics of retail. It had a clearer understanding of the store problem, the trip problem, the item, and the connection between physical and digital economics.

That also creates two different challenges for brands.

At Kroger, brands should prepare for a more granular conversation and bring the item-level answer.

At Albertsons, brands should keep bringing the conversation back outside the building. How does the idea win back a value-conscious trip? How does it improve the store or assortment? How does it make Albertsons more competitive with Walmart, Amazon, Aldi, and Costco?

Kroger appears to be confronting its competitive problem.

Albertsons appears to be reorganizing around its competitive problem.

The best transformations eventually do both. But Walmart, Amazon, Aldi, and Costco are not waiting for Albertsons to finish the org chart.

The reason I know all of this is Picolette, her new baby collection at Target.

Picolette is another in the long line of Target designer and celebrity collaborations, which on its own would not make it especially interesting. Target has done almost 200 of these since the original Michael Graves collab back in 1999. They have helped the retailer stay connected to fashion and culture and, ultimately, bring the “Expect More” part of “Expect More. Pay Less.” to life.

What makes this one interesting is what it may reveal about Target’s competitive positioning going forward - in particular a glance at what “Expect More, Pay Less” in the 2020s commerce landscape needs to look like. That makes it relevant not only to people who manufacture baby clothes, but to anyone who cares about where Target goes next.

The apparel market moved on Target

Apparel is one of the biggest reasons Target is facing as many challenges as it is. It is an important source of margin, but it also plays an outsized role in Target’s “Tar-jay” traditional differentiation. Apparel, along with home, is where much of Target’s design credibility lives.

The difficulty is that the “Expect More. Pay Less.” equation in apparel has changed fundamentally over the last ten years, and I am not sure Target has responded particularly well.

-Premium has become more premium. The brands at the top of the market are better at product, storytelling, direct relationships with consumers and creating a reason to pay more. “Expect More” is a harder role to fill in a marketplace where “More” has been amplified beyond measure.

-At the other end, Walmart’s basics have improved considerably. Baby clothes are fashion, but they are also very solidly basics. Unless something goes badly wrong, your child is going to grow out of them fairly quickly. Walmart has become better at serving that need with credible products at competitive prices.

-Amazon, through a combination of first-party and third-party sellers, has brought the output of the world’s apparel factories directly to your phone. Shoppers can choose among an almost limitless series of price, design and quality trade-offs, although it is not always clear what will show up when the package arrives.

-I continue to believe, however, that the single biggest change in the US apparel market has been TJX and Ross.

Look at how much larger that business is than it was ten years ago and how thoroughly it has reframed “Expect More. Pay Less.” for the female shopper who has historically been at the heart of the Target guest base. TJ Maxx/Marshalls and Ross offer recognizable brands, discovery and a treasure hunt, generally at an extremely compelling price. TJX (given their footprint in home goodss as well) may be as significant a competitive problem as Target has in the United States.

-More recently, Quince has accelerated as a meaningful player, while secondhand apparel continues to expand. Target is being squeezed by better basics, infinite online choice, off-price retail, factory-direct premium alternatives, resale and a premium market that has become better at justifying its prices.

If Target cannot get apparel right, it will be difficult for the company to get the broader Target proposition right.

A different type of Target collaborator

Olivia Culpo is also a somewhat different archetype for Target.

Historically, many of Target’s best-known collaborations have involved people whose primary authority came from design. Think Isaac Mizrahi, Diane von Furstenberg, Missoni or, more recently, Rosie Assoulin.

Culpo sits in a different place on that continuum. She has built a persona and lifestyle platform after winning Miss Universe in 2012. As a new mother, she also has immediate credibility with her followers in the baby category.

This collection is an influencer using a moment in her life, and her relationship with an audience, to help build a product platform around a category where she now has relevance.

That is a fairly contemporary way to think about a Target collaboration.

The premium source code

Picolette is not exactly a dupe collection, although it kind of is.

The products appear to draw from what we called the premium source code of brands such as Janie and Jack, Ralph Lauren Baby, LoveShackFancy, Quincy Mae, Magnolia Baby, La Coqueta and Rachel Riley.

These are relatively high-end baby apparel brands with recognizable fashion details, including embroidery, intarsia sweaters, bows, nostalgic designs and clothing created as much for the family photograph/social media feed as for the basic task of dressing a baby.

We went through the collection, identified some of the closest premium comparisons and added a Quince equivalent where one existed. The consistent pattern was interesting.

The Picolette product generally came in dramatically below the premium brand, which is what you would expect. More surprisingly, it was frequently priced at or below Quince while retaining more of the fashion detail from the premium product both appeared to be interpreting.

Quince’s model often involves identifying the central signal of a premium product, simplifying the design and delivering a credible version at a lower price. That simplification is an important part of how the economics work.

Picolette seems to be making a different trade-off. The collection retains more of the style and design language of the premium inspiration while still landing at a mass-market price.

The cleanest example is the Oliver dog sweater.

The Janie and Jack version had an original price of $52. The Picolette sweater is $18. The products are not identical, and the Picolette design incorporates Culpo’s own dog, Oliver, so “inspired by” is probably more accurate than calling it a straight dupe. But the fashion connection is easy to see.

Quince also offers a version at around $25, but it is more simplified. In this example, Target has produced the more fashionable interpretation and still managed to come in below Quince on price - this seems like the “EM/PL” sweetspot - Quince price point with Target’s ability to read and translate specific style.

Dupe Process Requires Speed…Will Target Have Enough?

The complication is that premium reference prices do not stand still.

The Janie and Jack dog sweater may have had a $52 original price, but by the time we looked at it, the product had been closed out at $12.97 and was sold out.

That creates a challenge for anyone building a premium-inspired value proposition. If the development process takes too long, the original brand may mark the product down below the price of the dupe. Alternatively, it may move into the TJX or Ross ecosystem, where the branded original can appear at a price that is extremely difficult for a mass retailer to compete against.

The economics may make sense when the item is conceived and much less sense by the time it reaches the shelf.

Speed is therefore critical. Target needs to identify the premium design codes that matter, translate them, source them and get them in front of the consumer while the original product still has enough cultural and economic value for the comparison to work.

Target has a right to win in fashion in a way that Quince may not. The question is whether its development process is fast enough to take advantage of that right to win.

A competitive position that makes sense

The collection gives Target a reasonable point of difference from its major competitors. TJX is often offering last year’s look at a terrific price. Amazon has enormous range, but less certainty around quality and execution. Walmart is strong on basics. Quince is strong on simplified premium.

Target has the potential to occupy the space around current, recognizable, design-forward fashion at an accessible and trusted price.

I may be reading too much into one collection of baby clothes, but Target developing a proposition whose product and price make sense in the context of the external market is genuinely reassuring. Target has an unfortunate history of developing propositions rooted deeply in Target’s own view of Target, and somewhat less rooted in the market in which the company is actually competing. The fact that this collection appears to have a clear view of the alternatives available to the guest is meaningful.

Target as a series of events

There is also an important implication here for brands.

We have talked to brands for years about managing Target as a series of events rather than treating it exclusively as an ongoing category-management exercise where the objective is to grind out another 2% of growth every year.

Target is particularly good at creating moments. Collaborations, launches, seasonal stories and culturally relevant merchandising events play to the retailer’s strengths and give the guest a reason to reconsider the assortment.

Picolette is a good example of the best of Target. It brings together product, personality, content, design, value and a sense of occasion. It creates something Target can present and promote, rather than simply another set of products it can stock.

For brands with relationships across the influencer or content ecosystem, the opportunity is to connect those relationships much more directly to Target commercial planning. Product strategy, influencer strategy, Roundel investment and the broader customer plan should be developed together, rather than as separate conversations happening at different points in the process.

Target’s upper-funnel connectivity remains excellent. When the retailer combines that connectivity with products that are distinctive and competitively priced, the results can be well above normal.

Reinventing “Expect More. Pay Less.”

Target’s journey over the next couple of years will require the company to reinvent what “Expect More. Pay Less.” means in the current retail market.

The territory Target occupied for many years has become crowded. Walmart is better. Amazon provides unlimited choice. TJX has reshaped branded value. Quince has created a compelling premium-for-less proposition. Resale has become mainstream, and premium brands are better at creating demand and defending their prices.

Picolette suggests one part of an answer.

Target can use its design capabilities to create products that are more fashionable than the simplified premium alternatives, more current than off-price, more dependable than much of the Amazon marketplace and considerably less expensive than the premium brands providing the original source code.

That feels like a version of “Expect More. Pay Less.” that belongs in the market Target is competing in today.

Part 1: Oil and Gas Market Mechanics

The obvious and much publicized disruption to the global oil and gas industry is rooted not in gasoline or other by-products, but the core products themselves.

Crude Oil: Roughly 20% of the world’s crude oil is delivered via oil tanker from the Persian Gulf, and as a result needs to pass through the Strait of Hormuz. The key point - crude oil is a globally traded commodity: it moves on tankers worldwide, and prices are set by global benchmarks.

“Extra credit” – when the news talks about “the price of oil” they are usually referring to a short-term futures contract on Brent Crude.

· WTI vs. Brent – WTI is the West Texas oil price (i.e. price of oil extracted in the US). US oil today is cheaper than Brent oil, but global arbitrage will almost always prevent those two prices from getting too far apart. This is the reason why US gas prices go up even though the US does not import a lot of Persian Gulf oil.

Natural gas, by contrast, has historically been regional – it relies on pipelines and local hubs. Liquefied Natural Gas (LNG) has begun to globalize gas by allowing seaborne trade, but LNG infrastructure is still limited, meaning gas markets remain partly constrained by regional logistics. About 70% of the global gas industry is pipeline dependent, with only 30% or so transported in liquified form via tankers. It is (mostly) this type of LNG that is most disrupted today.

Disruption Mechanisms: Three main disruption mechanisms underscore how physical events translate to market turmoil:

• Maritime chokepoints: Blocked or perilous shipping lanes (like the Strait of Hormuz) can delay or strand oil shipments which today is driving pricing challenges and over an extended period might lead to actual shortages of oil in key geographies.

• Facility outages: Damage to extraction, processing, or export facilities (e.g. an LNG terminal accident or attack) directly removes supply from the market. Today this is most pronounced due to an Iranian attack on the Ras Laffan gas processing facility in Qatar which has hindered almost 20% of that facility’s natural gas output.

• Restart lag: When production is forcibly shut in (due to full storage, pipeline outages, etc.), bringing wells and plants back online isn’t instantaneous. Even after an acute crisis passes, it can take weeks or months to ramp up output and restock supply lines.

These factors mean physical supply can diverge sharply from financial market pricing during a crisis. It also yields a time-lag insight: prices might spike immediately on fear, but true normalization may take months as ships reposition and infrastructure is rebuilt. Businesses should plan for multi-month disruption after news headlines quiet down.

Key Findings:

• Oil vs. Gas Infrastructure: Oil moves on a global network, while natural gas is still tied to regional pipeline networks (with LNG bridging some gaps). This makes gas prices more prone to local shortages even if oil markets are well-supplied.

  • KEY US Implication – energy independence for the US is pricing independence for natural gas but not for oil.

• U.S. Exposure:

  • WTI Oil Pricing – rising in parallel with Brent crude as the global oil market adjusts this will have an impact on US oil products (more on this in part 2)

  • Gas Processing Outputs – drive markets as diverse as semiconductor manufacturing and agriculture (more on this in Part 3)

• Physical vs. Financial Market: During acute disruptions, physical delivery constraints (ships, storage, pipelines) can cause local scarcity and price dislocations even if futures markets anticipate a rebound. In particular, if the next two weeks or so do not see a resolution to relatively normal tanker traffic moving through the Strait of Hormuz key non-US geographies could be facing not just an increase in oil prices but a shortage of oil supply. (More on this in our global view later this week/early next).

Open Letter to Greg Penner, Chairman of Walmart Inc.

From: Bryan Gildenberg, Managing Director, JP Suisseman Sachs
Subject: The Time Is Now: “Discover” A Global Commerce/Media Transformation

Dear Greg,

Over the last decade, Walmart has done what most incumbents never do — it’s stayed relevant by reinventing its own scale. You’ve built a world-class digital advertising business, one of the country’s fastest-growing e-commerce operations, and a trusted ecosystem that serves 150 million weekly shoppers.

But the next frontier isn’t digital commerce — it’s commerce-anchored media. The lines between entertainment, advertising, and shopping are collapsing. Amazon has built a streaming media business and dominates “retail media” today – three dollars in 4 in the US retail media market go to Amazon. Only half of the rest to you.

Amazon today has real media properties they leverage to bring shoppers into their ecosystem that are standalone valuable advertising platforms on their own.

At the same time, media is about to undergo an epochal shift – one dollar in 3 in global media spend goes to a search bar, and search is being increasingly being disrupted by GenAI – the same way your business was by Amazon 25 years ago. That’s $330 BILLION in media dollars that may be up for grabs – looking for provable media ROI.

The time is now for Walmart to make a transformational media play – by acquiring the WBD linear cable assets in partnership with Netflix (who wants the streaming and studio assets).

The Opportunity: WBD’s Linear Network Portfolio

Warner Bros. Discovery’s cable assets — CNN, TNT, TBS, Food Network, HGTV, TLC, Animal Planet, Cartoon Network, and Eurosport among others — reach more than 70 million U.S. households and hundreds of millions globally. They command enduring trust, cultural presence, and attention, even in a streaming-heavy world. These are still the screens where America shops, eats, decorates, and argues.

Under Discovery’s current structure, these networks are financially constrained and strategically orphaned. They lack the capital and first-party data needed to compete in a media landscape defined by commerce and identity.

Walmart, by contrast, has data, distribution, and dollars — but lacks cultural reach and advertising inventory. Pairing the two creates a platform no other player can match.

Strategic Fit

1. Retail Media Synergy
   Roundel, Walmart Connect, and Amazon Ads are racing to turn shopping data into media currency. Imagine HGTV and Food Network powered by Walmart Connect data — ad targeting grounded in real SKU-level purchase behavior, not cookies or proxies.

2. Content-Commerce Flywheel
   “Watch → Want → Buy” becomes frictionless. HGTV episodes link to shoppable décor, Food Network recipes sync to online grocery carts, and TNT broadcasts embed instant retail-media opportunities for partners.

3. Category and In-Store Synergy
   These networks don’t just entertain; they sit directly atop Walmart’s core categories. Animal Planet can drive toy, pet, and outdoor engagement for kids and families. Cartoon Network aligns with licensed character products and back-to-school assortments. Food Network and HGTV bring kitchen, décor, and home improvement to life. TLC’s lifestyle and transformation franchises — from 90 Day Fiancé to Sister Wives — connect to weddings, family milestones, and fashion. And Eurosport extends the platform into global sports, health, and active-lifestyle retail categories.

   
   In short, every network becomes a store aisle in motion — turning content into context and context into conversion.

4. Connected TV Integration: The Vizio Advantage
   With Walmart’s acquisition of Vizio, you already own one of the largest television manufacturers in the U.S. and this deal would build an asset that could rival Amazon’s in CTV (Amazon already sells Roku and Disney + ad inventory through their DSP) . Integrating WBD’s cable networks and their streaming rights with Vizio’s SmartCast platform would instantly give Walmart an end-to-end ecosystem:

   • Hardware: millions of connected TVs on American walls

   • Software: a Walmart-controlled content discovery and ad interface

   • Content: a portfolio of linear and digital networks with built-in audiences

   • For the first time in a media “battle” vs. Amazon Walmart would have the superior owned assets and would be strongly positioned to be a partner of choice to other key players in the CTV ecosystem.

5. Commerce: seamless purchasing pathways linked to Walmart Connect and e-commerce inventory. The result is a closed attention loop — from broadcast to living room to basket. Walmart would become the only player that controls the entire chain from ad impression to retail transaction, owning both the device and the destination.

6. Global Brand Amplification
   Discovery’s cable portfolio still delivers global signal strength. Channels like Discovery, CNN International, and Eurosport maintain distribution across Asia, Latin America, and Europe, giving Walmart a global upper-funnel media solution that is stronger than Amazon’s, and reinforces its physical footprint in China, India, and Mexico in particular.

7. Valuation Arbitrage
   WBD’s linear portfolio is undervalued, trading at distressed multiples relative to cash flow. Acquiring those assets at a disciplined multiple would be accretive and create immediate advertising and data-monetization upside. And at an approximately 40% EBITDA and $20B in revenue, this acquisition would be immediately and significantly accretive to Walmart’s P&L.

8. Financial Capacity
   Walmart’s free cash flow exceeds $25 billion annually. Even a $15–20 billion transaction could be comfortably financed with a mix of debt, equity, and joint-venture structures — preserving balance-sheet flexibility while signaling long-term intent.

The Broader Message

This move would redefine Walmart not as a “retailer with media,” but as a media company that monetizes retail — a subtle but crucial shift. It would position Walmart as the first major commerce platform to truly own both the transaction and the attention that precedes it.

It would also give you the cultural stage to compete not just with Amazon’s algorithms, but with its storytelling — in the U.S. and around the world.

And in a world where every retailer is becoming a media company, Walmart would become the one that actually is one.

Closing Thought

The retail future won’t be won on shelves or websites — it will be won in the spaces where attention turns into intention and purchase.

Greg, Walmart already owns the checkout. It’s time to own the channel that leads to it — on the screens, in the homes, and across the world where people watch, decide, and buy.

The Setup

Last week we debuted our framework The Seven Habits of Highly Effective Retail Earnings Calls.

This week offered a perfect double feature to explore it!

Two of America’s most consequential “retailers-that-aren’t-entirely-retailers,” Amazon and CVS, reported their Q3 results. Both sit at the intersection of commerce, data, and daily life—and both run businesses where retail is less than half of the profits of the enterprise.

Think of it this way: AWS is to Amazon what healthcare is to CVS.

The market reacted quite differently to each of these two calls:

With Amazon share’s escalating and CVS’s declining. Obviously scoring the “quality” of the call overlooks that the news these two companies were delivering was quite different – Amazon’s outperformance in cloud/AI let them tie their sleigh to the horses pulling the market forward, and CVS is facing significant headwind in some business units and in key aspects of their healthcare business. But I have been doing this a long time and truly believe in the correlation between the ability to communicate clearly and effectively about the business correlates extremely highly with a management team that can run a successful business.

Yesterday’s piece looked at Amazon while today’s evaluates CVS.

The Seven Habits Scorecard

1. Granular and Candid Business Understanding

CVS earns a 3 / 5.
A much higher ratio of generalized statements about the model and markedly fewer specifics about exactly what is happening on the ground. Retail is a smaller business for CVS than it is for Amazon, but this call left the listener orders of magnitude less informed about specific strategies in that BU in particular. Just a lot of repetition of core themes and management buzzwords –

· the word “Focus” was used 21 times on 14 different topics.

· “Progress” was used 14 times – only once was it followed by a specific example of where that progress was taking place

They also did not spend any time detailing a massive shift in their business as GLP-1s (as well as file acquisitions in existing pharmacies) are driving a 17% comp sales result in the pharmacy. GLP-1s are margin dilutive to the pharmacy even though they are sold at very high price points due to the weirdness of pharmacy economics. Long-time observers of CVS understand this basic dynamic but it was not explained very well.

2. Technology as an Enabler, Not a Narrative

CVS 2 / 5.
To be fair to CVS many of the technology initiatives they are working on are highly specific to an opaque and difficult to understand industry but there was very little conversation about how technology was specifically driving business results.

3. Customer Acquisition at the Heart

Here CVS scores a 4 / 5.
CVS has a strong story to tell here, particularly with the expansion into both existing Rite Aid real estate and the acquisition of a number of Rite Aid files pushing their US Rx share to 28.9%. They also did a good job of explaining how their PBM business is establishing specific competitive advantage.

4. Balancing Physical and Digital

CVS earned a 2 / 5.
eCommerce is a small part of CVS’s business and was a small part of the call. That being said they did not address things that would seem obvious to engage such as the increasing share that DTC providers have in the pharmacy space.

5. Acknowledging Exogenous Forces

A relatively strong 4 / 5.
One of the strongest parts of CVS’s investor presentation was their ability to try and frame up the variety of choppy waters and headwinds the regulatory and political environment pose to them. A specific look at their IVF initiative with the Trump administration and aligning with their goal of lowering prescription prices was illuminating and Prem Shah’s breakdown on PBM cost-savings were the closest this call got to an Amazon/Coscto/Tractor Supply level of clarity.

6. Adjacencies and Brand Extension

A 3 / 5.
High marks for difficulty, given the number of challenges CVS has in core business units like Oak Street and the write downs they were faced with in some of them.

7. White-Space Mindset (2 Percent Thinking)

3 / 5.
The chaos in the US healthcare ecosystem should be a massive growth opportunity for CVS but there was a lot of discussion that was more internal and constrained – this to me is the single biggest difference between great companies and good/average ones - the inability to frame opportunities in consistent, engaging and scalable ways. The one area CVS did this well was in their discussion about the opportunity for biosimilar growth. The idea that the 1-2% of the population that use these drive 50-60% of all healthcare expenditures, and that CVS was well positioned to win with them, was a great example of this type of “white space” mindset.

Summary chart below:

Total Score: 3 / 5

An average score here. Generalities sprinkled with specifics and a lot of allusion to more information to come. This is where CVS is in their stage of the strategic journey and their upcoming analyst day promised to share more specific information.

Obviously the difference in communication quality as assessed here is not the only reason the CVS call had a different reception from investors than Amazon’s did. But more granularity, more specifics on technological innovation and digital commerce and a better mapping of the opportunities presented to CVS would be helpful in future communications.

Four Implications For Brands

1. Margin Pressure Will Continue In The Retail Business (oddly driven by the PBM ecosystem)

As mentioned earlier the rapid growth of branded Rx vs. generic puts real pressure on the margins of the retail business and will, in turn, put pressure on the non-Rx side to drive profit. Drugstores have long preferred profitability to rapid growth in the “Front-End” (non-Rx) business at retail and an emphasis on category profit strategy will be critical to success.

2. The complexity is a feature, not a bug, for the retail business

Rite Aid’s bankruptcy and Walgreens’ continued financial struggles reveal that a large chain pharmacy business model as a standalone operation is a challenge. The ability to combine the difficult economics of drugstores into a larger entity has clear strategic benefit. I look forward to CVS engaging in the specifics of those advantages more clearly in future communications.

3. Leveraging them as a healthcare provider for brands is still challenging

AS CVS’s healthcare journey continues to evolve, partnering with them on broader healthcare strategies will be an interesting opportunity. They do interesting work with a range of partners on the retail side – including Medable for clinical trials access and Uber Health to broaden healthcare access. Major healthcare brands in the non-Rx space should have more opportunity for this going forward.

4. Retail Media: CVS’s Massive Opportunity

Drugstores are extraordinarily well positioned to capitalize on a massive non-endemic retail media opportunity give the amount of advertising and marketing budgets in the Rx and healthcare space.

Retail Cities Solutions

• The blurring between retail and healthcare is a key theme we can explore in a Retail Cities “Retail 2030 Futurecast” session- and how this blurring will impact mass, drug, grocery and eCommerce

• The structural challenges of the drug channel create a profit gap in the channel landscape – A Retail Cities Commerce2028 session is designed to have can help level set your business for profitable growth going forward

• Non-Amazon and Walmart Retail Media Networks – a Retail Cities Commerce Nextellence workshop can help all the teams responsible for demand creation align on how best to manage and optimize these non-traditional marketing assets

Upcoming Retail Cities Session

In Search of Nextellence – November 18, 2025 @ 11 AM ET
A US Retail Overview led by Bryan Gildenberg and then three breakouts:

• Growth Brand Strategy – Bryan Gildenberg

• Retail Media Beyond Walmart & Amazon – Brian Owens

• Regional Grocery Resurgence – Diana Sheehan

Join us to explore how to find your next 2 percent.

Buy tickets – In Search of NEXTellence – Zoom

I have been studying retail for almost 30 years and have listened to thousands of quarterly results calls. For this earnings season I’m going to articulate a framework I’ve used informally for years and share it with you – I hope it proves helpful.

We’ll call it “The 7 Habits Of A Highly Effective Earnings Call”…over the years I have found an astonishingly high correlation between a retailer’s ability to communicate their business effectively and their commercial results. Part of this is obviously circular logic – retailers doing well have an easier time talking about their operations and results.

Today we are going to compare two retailers who have already put their latest results out – Costco who released their Q4 FY’25 earnings in late September and Tractor Supply whose FY’25 Q3 results were released on October 23. It’s not just what they do that sets them apart, it’s how they talk about it. These are the seven habits of highly effective retail conference calls.”

The 7 Habits

1. Granular & Candid Business Understanding – “Weather Or Not”

Great retailers talk the details – Costco over the years is legendary for this – regularly reporting out sales and growth changes by category at a basis point level. And Tractor Supply brought this to the table as well, being able to break down comp results by week to illustrate a key performance point.

As for candor, Costco spent 3 PARAGRAPHS discussing a 0.1% drop in membership renewal rates and Tractor Supply talked honestly about how weather both helped and hurt their business. Weather obviously features into many an earnings call – the test is weather a retailer talks about it when it both helps and hurts the business and lets investors easily comp the year over year weather impact.

2. Technology as Enabler, Not As A Strategy

The best retailers talk about technology in terms of business improvement, not just technology for technology’s sake. And they never claim to be a “technology company” but a retailer using technology to achieve specific, measurable, actionable, reasonable and time-bound objectives.

• Costco: Inventory-visibility tools and operational AI support as well as specific tools to speed up the checkout process and allow online shoppers to buy Pokemon cards more efficiently.

• Tractor Supply: Quiet, functional digital integration in supply chain and loyalty.

3. Customer/Trip Acquisition – Specific Models And Initiatives

Great retailers have a coherent growth story rooted in something tangible – either acquiring new customers or specific new trips.

• Costco: One million new members this quarter and retail media programs partnering with key brands to drive new members as well as tackling strategies that hurt their renewal rates but get membership in front of a younger audience.

• Tractor Supply: Expansion into new rural trade areas and small-business segments as well as strengthening offer in pet.

4. Balanced Physical vs Digital Narrative

Great retailers tend to talk with specificity about their stores and balance the conversation between stores and digital in a way that reflects their business reality

· Costco: Store expansion plus app usage transparency and a reframing of their digital reporting to better reflect their business priorities – transactions like Instacart will now be counted as part of their “eCommerce” sales figure.

• Tractor Supply: Omnichannel integration and right-sizing discretionary vs consumables, as well as an extensive discussion of the impact of their new prototype Project Fusion stores.

5. Exogenous Shocks Like Tariffs Addressed Rationally

Great retailers discuss external shocks as problems to solve and discuss specific solutions to manage them, and being honest about the impact on the business – positive or negative.

• Costco: Calmly outlined how they pre-bought inventory and quantified exposure as well as an assortment repositioning in seasonal towards higher penny-profit categories to offset margin pressure.

• Tractor Supply: Highlighted US-sourced assortment in their core trip-driver categories and flexible vendor base. And most of the conversation was around the elasticities they are measuring from a price sensitivity perspective.

6. Adjacencies, Brand Extensions and Private Label

Great retailers discuss at the highest level how their brands are emerging and how they’re able to grow their private brand, partner brand and adjacent brand footprints.

• Costco: Private-label growth (Kirkland) as category muscle -talking honestly about the leverage the brand plays as well as specific new product innovations and the idea that they do not have a set target

• Tractor Supply: Petsense remains a key growth platform for them and their Field & Stream branded products expand their reach into higher margin categories.

7. White-Space Mindset – Where Is Growth Coming From?

A forward-looking view of where others aren’t.

• Costco: Business centers and selective but mostly very successful international expansion.

• Tractor Supply: Their tagline – “Life Out Here” – is pretty much the definition of white space. Owning rural lifestyle retail as a unique ecosystem.

The Tale Of The Tape

Each of these retaielrs scores a 4.4 out of 5!

Both exemplify how “humility, detail, and discipline” themes on a call.

Why Does This Matter?

Retail is a conceptually simple business - generally businesses that cannot explain the core business drivers above with a sense of clarity are usually obscuring a key challenge with customer acquisition and retention, operations, sales or profitability. I can only tell you that retailer peformance, in my experience, correlates strongly to retailers that do these 7 things well when communicating about their business.

Throughout the Q3 earnings season I’ll be posting a scorecard review of retailer earnings calls – these are two retailers that in different ways achieve a near “gold standard” approach. I hope these “7 Habits” are a good and useful guide to retailer earning season!

Today we’re going to take a look at a conversation that I’ve seen happening online a lot about the relative size of AI-related search versus sort of what I would call traditional search.

I have seen a number of experienced search/media executives saying, things like:

· “Hey, look, this is still a pretty small deal”

· “It’s only one percent of traffic

· “Google handles something like 370 times as many searches, et cetera…”

And it reminds me a lot of people twenty years or so ago trying to explain what e-commerce was going to do to somebody in the brick-and-mortar world….

“History doesn’t repeat, but it often rhymes” is a quote attributed to Mark Twain, but nobody seems to think Mark Twain actually said it.

Anyway, this was prompted today by something I saw, which came out in August — a quote from TechCrunch about the Google VP and head of Search, Liz Reid, talking about how AI is not killing search traffic.

Search traffic is up. Everything is fine. Nothing to see here. Dog with a coffee mug. We’re all doing great.

And that reminded me a lot of things that I read a long time ago.

I’m old enough to remember this edition of Walmart’s annual report (when Rob Walton was the chairman, talking about e-commerce.

He wrote that very few internet retailers have made a profit, and that issues like the cost of delivery all have to be resolved before this business model is validated.

That’s in Walmart’s fiscal 1999 report.

I think that’s about where we are in the evolutionary cycle of AI versus search, as opposed to the evolution of e-commerce versus traditional brick-and-mortar retail.

There is a danger, of course, to underestimating this completely.

And Arthur Martinez, who said a number of very silly things when he was running Sears, this was one of them — that “the web isn’t going to supplant store-based retailing, period.”

And that worked out great for Sears.

So what do we mean by this parallel?

If history often rhymes, what’s the poem?

Well, here’s the poem.

First of all, we think that digital media is about to get what we’ll call e-Commerced.

· ChatGPT’s role in this world is obviously Amazon — a new business model that threatens what I’ll loosely call the asset base of the existing status quo. They also have permission to spend well beyond a traditional, rational economic return horizon (like Amazon did) because their investors believe in the long-term vision. This gives them a unique opportunity to shape the ecosystem.

· Google is Walmart — the incumbent that sees the new model coming, invests in it, and struggles with the Innovator’s Dilemma of protecting the old thing while trying to grow the new one,

· Bing is the rest of brick-and-mortar retail — always insisting, “What about me? I’m still bigger than this new thing!” which is true until it’s not.

· Other LLMs — Claude, Anthropic, Mistral, Gemini, and so on — are the Jet.coms, the Chewys, the niche pureplays. Some will carve out specialized roles; others will vanish when the economics get tough.

· User-generated content — Reddit, Wikipedia, Quora — that’s Bazaarvoice and 1WorldSync - the broad-based, hierarchically organized user generated content that the surfacing algorithms are trained on and use for credibility

· Entity-specific LLMs — brand- or company-trained models — are DTC sites. They’ll matter for certain verticals, but most won’t scale fast enough to compete with the platforms. But consultants will insist that companies need far more of these than the market will support, and like DTC sites a number deployed by large brands will be moderately expensive failures.

· Retail media reminds me of where shopper marketing was in the late 1990s when e-commerce started. Shopper marketing was a big deal. Paco Underhill had just written Why We Buy. Companies were setting up shopper marketing teams. There was enormous energy behind it..There are many parallels between that evolution of shopper marketing and today’s evolution of retail media – and new technology arrived in the middle of the shopper marketing hype cycle and took some of the air out of the balloon. Shopper marketing grew and turned into something, but the budgets were redistributed into e-commerce. My suspicion is that the same thing might be a risk for retail media today as we move into the AI world.

Here’s a summary table of the key points above.

Rhyme ‘N Reason: 6 Key Implications

1) The incumbent infrastructure — what I call the biddable media industrial complex, people who buy keywords on search — will have to go on the Kübler-Ross journey: denial, anger, bargaining, sadness, and then acceptance, These are people who still remember being the disruptor. Now they are the disrupted. They will need real leadership and coaching to manage the transition.

For those of you who work for brands, and especially those of you who work for agencies, this will be a big deal. You will have people throwing toys out of the crib as the new model replaces the old.

They will also get annoyed at AI teams who are “discovering” things they already know. In particular, many aspects of optimizing for AI or LLM-powered content are the same as what to do for search engine optimization. You will have a lot of forty-something search marketers staring at twenty-something AI people saying, “We know this already. Stop pretending you discovered it.” That is similar to analog shopper marketers explaining path to purchase to people who grew up on the e-commerce side years ago.

2) Search teams will need to learn what Walmart team leaders learned to do: operate in multiple modalities. Today, if I am a Walmart team leader, I have to know brick-and-mortar and e-commerce. A search team leader or search media director will need to understand both traditional keyword-powered search and contextual LLM content-powered search. They will need to figure out the commonalities between those modes, learn to speak both languages, and work with both sets of developers.

3) ChatGPT teams and people who are getting expert in this will want to hang out with themselves and the other cool kids at other companies. There will be an equivalent conference to Shoptalk or Groceryshop that gathers the cool kids from AI, including the CPG AI folks, and everyone will want to go to the parties and talk to each other more than to their own company.

This reminds me of parenting teenagers. If you are going to give them resources, they need responsibility. If you get a car, you have to drive your brother to practice. It probably makes sense to have family dinner regularly so the learnings do not get siloed the way Amazon team learnings did. As Amazon grew up, it took organizations too long to learn about e-commerce from their Amazon teams because Amazon was so separate. There is a way to avoid that today as LLMs grow up in parallel and in a more integrated way with search.

4) Consultants will tell you that you need your own LLM or your own agent, because that is how they make money. Like when they told you that you needed your own DTC site. The consultants will make a fortune. Be judicious about people telling you that you need your own thing when common sense suggests it is smarter to bolt into the places where people already are.

5) New skills will be required across the media ecosystem, and new workflows will be needed. That is the most important thing we learned in e-commerce: you need the right workflows to get the right content into the right places.

6) Finally, retail media will need to embrace this new modality and not get stuck in a separate budget silo, so we do not repeat what happened in shopper marketing. Shopper did not transition particularly well to e-commerce, and e-commerce took over a lot of what should have been shopper marketing. Today I would still argue that a lot of retail media should be shopper marketing. The function was underinvested in digitally for years and could not quite make the leap.

I worry that retail media today, as AI evolves, might find itself in the same place in three or four years: not tied into how shoppers are actually discovering products between what is happening in LLMs and social, and becoming a budget that people draw from to invest in these new routes to market.

Simple concept – TikTok is to Facebook what ChatGPT is to Google – an ecosystem that replaces keywords with context, and replaces buying placement with earning it.

____________________________________________________________________________________________

1. From “Indexed” to “Interpreted” Environments

Google and Facebook both operated on structured, index-based systems. You could buy your way into visibility (SEM bids, Facebook audience targeting). They rewarded optimization built on keywords, segments, and bidding precision.

ChatGPT and TikTok both operate on interpreted, context-driven systems. You don’t buy slots; you earn surfacing through fit: relevance, resonance, and engagement signals such as completion rate, user follow-ups, likes, saves, and replays.

The algorithm is less a marketplace and more a meritocracy of response. Your content (or prompt or offer) must earn its presence through user interaction and algorithmic judgment.

2. The New “Earned + Embedded” Paradigm

TikTok upended ad content in social because it demanded native creative: ads that look, sound, and behave like the platform’s culture.

Similarly, LLMs are going to reward native answers, content that fits the discourse and informational intent of the conversation.

In both cases:

• Paid media becomes less about placement and more about participation.

• Creative needs to be modular, adaptive, and context-aware.

• The distinction between “ad” and “content” collapses, as does the gap between “search” and “shopping.”

3. Why TikTok Converts (and Why LLMs Might Too)

TikTok works as a commerce front end better than Instagram for a few intertwined reasons that also hint at what is coming for LLMs:

TikTok converts not just because it is “video” but because it is immersive, predictive, and transactional. Those same ingredients may define what “ChatGPT as a commerce surface” will become.

4. The Important Difference – The Transition May Be More Sudden

In social media of course the world didn’t move from Facebook to TikTok – it went through Instagram first, which was owned by Facebook. Initially Instagram presented marketers with some of these same challenges that TikTok does today – go back to 2015 or so and read all of the pieces about Instagram forcing brands to “earn” share of mind rather than just buying it. Instagram developed a buying model that works like Facebook for its core feed, and made Instagram less of an earned attention platform. But even today monetizing Instagram Reels (their TikTok response) is a challenge for Meta, and brands still struggle to make this platform work the way Google and Meta’s other platforms do.

A key difference today is that ChatGPT is not the same company as Google, and does not share a business model with them, or a set of assumptions about the role and nature of advertising as part of the ecosystem. Therefore it seems likely that the shift required by LLMs will be markedly more pronounced and disruptive to search marketers than TikTok was to content marketers – the ownership dynamic will force this to be a step change rather than a glide path.

____________________________________________________________________________

5. Implications for Marketers

According to eMarketer, 28.4% of US Shoppers say TikTok is already the most useful socal platform for researching new brands/products. In heavy social engagement categories like hair/makeup TikTok has passed Google as the primary tool for younger shoppers to use for product discovery.

And today, according to Search Engine Land 71.5% of Americans use AI tools for search, and 14% use them every day.

These trends will both continue to accelerate and put pressure on keyword-centric search and social media platforms.

· For both, engagement is the key variable. In both shifts:

o The algorithm is optimized for sustained attention, not instant response.

o Engagement is not just likes or words; it is continuation, the measure of how much longer a user stays, watches, or talks.

· The conversion power of these new systems depends less on CPMs or CPCs and more on CPR: cost per relationship.

· You can’t simply buy discovery anymore. You have to train into it through data, trust, and engagement.

· Performance marketing becomes performance storytelling.

· The LLM era will demand a shift from “semantic SEO” to “Conversational EQ.”

· The winners will be brands whose content feels like an intelligent participant in a discussion, not a bidder in an auction.

· Measurement will migrate from impressions and clicks to engagement quality: depth, dwell time, follow-up actions, and trust signals.

In the session we tackled holiday shopping/the state of the shopper, the future of in-store space planning using a framework called PRESS and a look at the state of AI in retail.

1. The State of the Shopper: Tariffs, Confidence, and the potential for a “Holiday Woe(d)”

Right now, the consumer story is one of mixed signals and mild anxiety.
The Conference Board says Americans are remarkably confident — the “present situation” index is well above long-term averages — while the University of Michigan reports a 64-year low in sentiment.

The gap reflects two very different questions:

• Ann Arbor’s Michigan survey is driven by prices and pain at the pump.

• Washington’s Conference Board focuses on the labor market.

Consumers feel good about today but are uneasy about tomorrow. And that unease is deepened by rising living costs. Inflation ticked back up in August to a 2.9% annualized rate, with food inflation driven by tariffs (coffee, tomatoes), labor costs (apples via H-2A rules), and demand (beef).

Tariffs now effectively add about 1.9% to overall inflation, and $397 billion in added tax costs are rippling through the economy…the “payor” seems to be very category dependent. Sometimes it is the overseas manufacturer through price concessions, sometimes the importer, sometimes the manufacturer, sometimes a reseller, sometimes a consumer. This scattered impact is also causing a lag in how tariffs manifest in consumer price inflation.

2. Holiday Woe(d): Three Things We Know About This Shopper

1. Who’s worried:
   Middle-income and Gen Z shoppers, particularly in technology, finance, and retail — and especially Democrats in blue or urban markets — are most anxious. About 20% of these consumers worry AI will take their job in the next five years.

2. When they’ll spend:

   • 36% of online shopping happened before Thanksgiving last year.

   • Cyber Monday remains the biggest digital day.

   • The final five days before Christmas now drive almost 15% of total spend.

3. How to win:

   • Go early: Prime Day-style events are losing heat; activate gifting content in October.

   • Play smart through Cyber 5: Target your “right-to-win” segments; think depth over breadth.

   • Finish strong: Be ready for last-minute male shoppers and in-store urgency.

This year’s forecasts reflect caution, not collapse:

• Mastercard: +3.6%

• Deloitte: +2.9–3.4%

• Bain: +4.0%

• PwC: flat to modest growth, reflecting deep tariff anxiety when fielded in June.

The takeaway: Holiday spending will happen — but both earlier and later, leaner, and more selective.

3. PRESS Forward: The Future of Physical Space

Retail Cities partnered with the Category Management Association to explore how physical store planning is being rewritten.
Our PRESS Framework helps brands and retailers rethink the composition of physical space:

To PRESS Forward, brands must:

• Product: Bring emotion, delight, and personalization that justify higher margins.

• Redistribution: Position themselves as profit solutions for low-margin online baskets.

• Experience: Deliver simple, beautiful design and community connection.

• Service: Use expertise as a brand differentiator.

• Space: Innovate with packaging, productivity, and promo design to earn their real estate

The physical store is evolving from a distribution hub to an experience engine — and growth brands that understand that shift will earn the next generation of shelf space.

4. RetAIL: Putting the “AI” in Retail

The session closed with a look at the rapidly emerging world of Agentic AI — “apps with initiative” that act rather than react.
Retailers are already deep into this evolution:

• Walmart’s AskSam handled 1.3 billion associate queries.

• Target uses AI to simulate customer interactions for employee training.

• CVS deploys AI for health personalization and medication adherence.

AI will soon drive predictive conversations and granular personalization — real-time demand forecasting, store-level pricing, digital twinning, and contextual content creation.

Bryan’s framework reframes AI in retail:

• Using AI = learning the tool: prompt engineering, coding, experimentation.

• Managing AI = building the team: treat it like a 22-year-old new hire — smart, ambitious, but context-poor and in need of supervision.

The challenge isn’t “adopting AI” — it’s sequencing it. Start with Using, mature into Managing, and ensure every investment moves you toward serving shoppers more specifically.

5. The Common Thread

Whether it’s the wary holiday shopper, the evolving physical shelf, or the nascent AI agent — the story is the same:
Precision and empathy will win.

Know who you’re selling to, where they’re feeling pressure, how your store space engages them, and what technology can personalize their journey. The future belongs to brands that can connect these dots — and PRESS forward into a more intentional, human, and data-driven retail world.

Retail Cities | Winning Commerce for Growth Brands
📅 Next Session: November 12 — Next Winning Commerce for Growth Brands
🌐 www.RetailCities.com | ✉️ Bryan.Gildenberg@RetailCities.com

We’ll be taking some of our content and turning it into a quick written POV – today’s is a summart of a Retail Cities 5-in-5: five key points in five minutes to help you make sense of the commerce world around you.

This week’s edition was sparked by a chart making the rounds on social media — one that claims retail media is eating trade’s lunch.

Now, the numbers on that chart are… let’s call them “estimates.” The trade marketing number looks especially suspect (way too low if it’s meant to be global).

But the premise — that a large share of retail media is funded by trade, and that as retail media grows, it will eclipse trade — is worth unpacking.

Let’s do that.

1. Take Walmart and Amazon Out of the Equation

First, let’s define what we’re talking about – in the US most retail media dollars go through Amazon, - over 75%. Of the remaining 25%, 1/3 of that is Walmart.

So let’s park the Big Two for a second and focus on everyone else — the 50 or so retail media networks that actually matter in the “other 15%” of U.S. retail media.

Collectively, those networks represent about $10 billion in spend (give or take) across retailers that together drive $4 trillion in sales.

The trade budgets attached to these retailers? Roughly $400 billion.

When you look at it that way, the question isn’t whether $10 billion of media spend can transform $400 billion of trade — it’s whether the $400 billion is going to reshape the $10.

And in a world where scale matters, I know which way that water flows.

3. Retail Media and Trade Are Doing the Same Job

Most retail media spend today goes toward sponsored products and brand ads — placements meant to intercept shoppers on the path to purchase.

Sound familiar? That’s exactly what endcaps and feature displays do in-store.

Both aim to:

• Speed conversion — help shoppers find your brand first

• Drive switching — intercept competitors

• Prompt impulse — create incremental buys

The difference is just in who buys them:

• In-store, it’s a trade negotiation — price and placement in the same conversation.

• Online, it’s a media buy — handled by an agency, measured in impressions.

But the job to be done is identical.

4. So Maybe We’re Calling the Same Thing by Two Names

If most retail media placements mirror what trade already does — digital endcaps, digital shelves — then the distinction is more procedural than strategic.

For the vast majority of retailers (i.e., everyone not named Amazon or Walmart), “retail media” today is really just digitized trade.

5. The Practical Implication: Teach Old Trade Dogs Some New Media Tricks

So what do we do with this?

If you’re a brand leader, it might make more sense to teach the teams who already manage retailers some media skills than to try to bolt retail media planning into a centralized national media workflow.

Why? Because:

• The closed-loop measurement lives inside the retailer’s ecosystem.

• The people managing those relationships already own accountability for that performance.

• Media teams care about GRPs; customer teams care about Hy-Vee vs. Schnucks.

Those are different universes.

So maybe — just maybe — it’s not retail media eating trade’s lunch. Maybe trade is quietly learning to use a fork.

Bonus Takeaway (Because This One Ran Six Minutes)

Walmart and Amazon are different species entirely. Their retail media ecosystems operate at such scale and sophistication that they almost deserve their own taxonomy. Everyone else — the fragmented, high-growth middle — is still figuring out how to merge media and trade into a single commercial system that makes sense for both sides.

Want to Go Deeper?

Join us November 18 at 11 a.m. Eastern for a Retail Cities virtual session on joint business planning for retail media — focused on mid-sized RMNs.

I’ll be joined by my friend and collaborator Brian Owens formerly of Kantar, WPP, BAV and VML for a conversation about how brands are building practical frameworks for integrating trade and retail media at scale. Use the URL below to register!

https://www.tickettailor.com/events/retailcitiesglobalinc/1892310

Save the date — registration details coming soon.

Subscribe now