#137. Espresso is a new talk show from Loose Threads where we dissect two different business strategies from the past two weeks, putting them under the microscope to see if they hold up or fall apart.  In our third episode, we discuss legacy department store’s holiday pop-up shops in New York City hotels and Airbnb’s new program, Cooking Experiences.

Check out the full transcript below. 

Richie: [00:00:01] Welcome to the third episode of Espresso, a podcast from Loose Threads, where we dissect two different business strategies from the past two weeks, putting them under the microscope to see if they hold up or fall apart.

Richie: [00:00:11] I’m Richie Siegel, the founder of Loose Threads, which analyzes and advises next-generation consumer companies, and FaceLift by Loose Threads, a retail incubator and accelerator for leading brands and retailers. For our latest analysis and insights, check out our free weekly newsletter at LooseThreads.com.

Richie: [00:00:25] Joining me for our discussion this week is Caroline Kondrat, a partner at FaceLift by Loose Threads, and Caroline Tibbetts, who leads our research at Loose Threads. This week, we analyzed how legacy department stores such as Macy’s and Nordstrom are partnering with New York City hotels during the holiday season, and the launch of Airbnb cooking experiences. Here’s how these strategies stack up.

Caroline: [00:00:51] So this holiday season, legacy retailers are opening pop-up shops in New York City hotels, so they can capture the tourists attention before they even leave the hotel. Not that this is a completely new concept. However, I think this is especially unique because it’s department stores like Bloomingdale’s, Macy’s and Nordstrom, who are featuring clothing, men’s and women’s clothing, gourmet food and rather mundane product categories versus more unique aspirational experiences.

Caroline: [00:01:23] The one that stands out here is Bloomingdale’s, that seems to have this kind of bizarre assortment of Baccarat Crystal, French chocolates and some other things that you probably wouldn’t pick up in a hotel lobby, which—I don’t know. On the one hand, that could be good. It could lure customers. Maybe they then go and visit the flagship location and shop more. Or it could totally backfire, because who’s buying crystal when they’re out on vacation? And they probably need clothes and toothpaste. Like, those things make a bit more sense to me. So, is this like a brand recognition play? Is this a data capture ploy? I kind of am wondering, “Why?”

Richie: [00:02:08] It’s interesting also to think about like, the purpose of a lobby. Either you’re checking in and you’re trying to get to the counter and get up to your room as quickly as possible—so, almost like airport retail, you don’t really want to be there for a while. Or you’re waiting for someone. You’ve gotten ready for the day early, maybe family’s taking longer or so forth, and so you’re just kind of sitting there waiting, which would lead one to maybe go browse something. But it reminds me a lot of airports in that sense of like, it’s not really a captive audience, as you would think, and it’s someone in transition, versus like, you’re not going to go shopping in a lobby. Like, that’s not your day. You’re trying to get out of the hotel, I would hope.

Richie: [00:02:45] There’s a company called Zeus that we had on the podcast before that specializes in medium-term housing, and their whole thing is like, to make you feel at home when you’re staying somewhere for 30-plus days, could be two months, three months, whatever. And they’ve worked with brands like Public Goods and so forth, to like, give you the toothpaste and the popcorn and like, all the little things you need to basically have when you move in. And that makes so much sense ’cause it’s like these utilitarian things. Even this week, there was a story about Rent the Runway starting to partner with hotels so you don’t have to pack, right? It’s like a super functional-driven partnership for people traveling. The idea of just making a mountain of products from crystals to chocolates in the lobby misses the point, and like, fundamentally misunderstands why someone is in a lobby.

Caroline: [00:03:25] Right. And to your point of function, they could take those crystal glasses and put them in the room and say, “Here, use this fine crystal, and if you like it, here’s where it’s from, here’s where it’s manufactured.” There are better ways to make it more functional or to make it like a hands-on trial where you otherwise wouldn’t get one.

Richie: [00:03:45] It makes me think of personal shopping a lot too, right? Like, you have these people. You know basically how much money they’re spending by the size of their room. And so it’d be much more interesting to offer like, a personal shopping appointment, where you would bring up almost like a cheese cart worth of stuff to the room and let someone shop in there than it is—and again, this transitional space, that’s a lobby.

Caroline: [00:04:04] For me, there’s no in-between. You either go super-luxe and have Louis Vuitton trunks in the lobby, or FAO Schwartz partnered with the Conrad Hotel and they had specialized suites that were filled with toys that people could buy. The rooms start at $3,000 a night. That makes sense. But having like, Macy’s dress shirts on display in the lobby seems really counter intuitive.

Richie: [00:04:29] The room is the perfect place to do this, on a personal level. It’s not the lobby. It would almost make more sense to do something in the bathrooms.

Caroline: [00:04:37] Right. Because then they can test the items. The hand soap or the lotion or whatever it is.

Caroline: [00:04:43] So I think part of the decision for this move was the lack of foot traffic in large department stores. So they’re trying to think of interesting and aspirational ways to attract shoppers. But what are other ways that hotels could incentivize travelers to shop at their department stores’ flagship? Outside of just the promotions and the meal comps, are there any other creative ways?

Richie: [00:05:06] I think we almost have to look at the problem first, which is the lack of foot traffic. Bringing the store into the hotel is potentially a way to make the foot traffic even worse. ‘Cause if I could just get someone a gift in the lobby, why would I ever go to Macy’s again? Either, like, really bring the store to you or encourage you to go to the store. It’s this weird average of the middle that doesn’t seem to make—like, it almost accomplishes nothing, versus getting people to buy more in hotels or getting people to go to the store who are at hotels.

Caroline: [00:05:35] I can understand the logic, in so far as more people walk through a lobby than stay in a single room, so you can have less products, more people see it, than if you put products in every room, then you would have to have more inventory and all of that. But…

Richie: [00:05:50] You’re describing a retail store.

Rebekah: [00:05:51] I sure am describing a retail store! But, to your point, they’re bringing it to a hotel, where the nature of traveling through a lobby is not to stop in it and browse.

Richie: [00:06:02] Right. Like you do something like a New Stand. That’s like, a super transactional, peanut M&Ms and a soda or a drink or whatever. Or you do like, a dressing-room-level private appointment. It’s this weird middle—and ironically, like, the middle is where all these department stores have been struggling. They’re trying to be everything to everyone.

Rebekah: [00:06:20] New Stand is a great example, too, though, because they actually capture the data and then use it. So it’s not just, “Oh, I need an umbrella, lemme buy this umbrella and then I never talk to you again.” They actually take that data and use it and continue to feed you content that you want to see. So, I mean, maybe if they were going to do something like that, it would be smart for Macy’s and Bloomingdale’s and Nordstrom to kind of learn things about their customers through this experience. But it sounds like it’s just a little pop-up shop in the lobby.

Caroline: [00:06:47] Well, last year, tourists spent $8.9 billion dollars on retail, almost one-fifth of all their spending in New York City. So there’s definitely something there. I feel like experiences is the key to draw them in.

Rebekah: [00:06:59] Yeah, I mean, I guess, what if Macy’s set up like a mini-story at Macy’s in a hotel lobby? I mean, that would almost even be better, because it could potentially become a destination. Super gift-able, super Instagram-able, to talk about user-generated content and all of that, which I’m sure is something that these legacy retailers really want.

Richie: [00:07:19] Dying for youth blood.

Caroline: [00:07:20] They just don’t have it!

Richie: [00:07:21] The story idea is a great idea, right? ‘Cause they’ve already worked on like, compartmentalizing that to roll out to other stores, right? It started in New York and Chelsea as a single experience, then Macy’s bought it and then started to scale it. That is a perfect New-Stand-like thing that could totally pop up in lobbies. Macy’s could operate it like a shop-in-shop, control all the data.

Caroline: [00:07:38] It’s a range of product prices.

Richie: [00:07:40] Very accessible.

Caroline: [00:07:41] There you go, Macy’s. There’s my idea for you.

Richie: [00:07:44] So, the other partnership we mentioned earlier is: Rent the Runway just announced this collaboration with W Hotels, which is part of Marriott, where people staying at their West Hollywood, their DC, their South Beach and their Aspen, Colorado hotels can basically preorder Rent the Runway products. They can pick up to four styles, Rent the Runway will have mini-closets at each of the locations, basically. And the idea is to augment your existing wardrobe, hopefully allow you to pack a little bit lighter and get Rent the Runway more into the hands of new customers and existing ones. They also just added ski clothing and kind of winter apparel, and so the Aspen location makes a lot of sense, but this feels like a much more seamless integration with the hotel on the hospitality angle than stuff in the lobby.

Caroline: [00:08:28] I’m just curious, logistically, how this will work for Rent the Runway. If we’ll have another meltdown in customer service. Do you think it’s easier, or it’s a seamless transition for them?

Richie: [00:08:39] Just to expand upon what you just said: Rent the Runway started with a single distribution center in New Jersey, they opened a second one up, I believe in Texas, and had tons of problems operationally as they tried to really scale the service with one warehouse and moving it to two. As you start to do this—and they have a little bit of experience with this from their retail stores, which are effectively mini-distribution centers—your inventory’s just getting spread out even further across the country. And so, from like, a prediction perspective, with their unlimited service, which allows anyone to rent four items at a time, it’s insanely hard to know what’s coming back because no one tells you how long they’re gonna keep something, it just kind of shows up. So, the chance of this adding extra stress operationally, I think is very real. They’ve only done it with four hotels, which I think should be manageable and enough for them to kind of figure out if it actually can work. But, you know, they’ve had a very rough year, as you alluded to. And more locations is more complexity.

Caroline: [00:09:31] One would hope that they’ve been a little bit strategic in choosing these locations for where their distribution centers are. But I don’t know, hearing the locations of the hotels, it sounds like they were maybe just going off of probably customer data and where their largest customer bases are.

Richie: [00:09:47] Rent the Runway has stores in D.C., New York and LA, which is where three of the locations are. And then Aspen and South Beach are the two where they don’t have stores, but they’re opening in those W hotels. So it is some way to see the market there. The hope would be that there’s some sort of inventory sharing between the retail stores and these. It’s a great idea. It’s still a little aggressive, though, just knowing how rough their year has been, operationally.

Caroline: [00:10:09] Well, and yet it’s four hotels, but how many rooms are in one hotel? Do the math. I assume it’s in every room.

Richie: [00:10:16] I think it’s available for everyone. But the closet itself is in some sort of common area, I’m guessing. And I assume these are gonna get stocked out. It’s just that whole prediction part of the business—I mean, it’s kind of amazing it took so long for it to break. When it was Netflix and DVDs, like, no one misses their wedding because a DVD didn’t come back. But like, the implications of this are very serious. And imagine being like, “Okay, I’m not gonna pack for this trip now.” And then like something happens, and then you’re going to just go buy a whole new—like, the backfire is almost worse on the premise of “don’t pack as much.”

Caroline: [00:10:48] That’s very true. But this could help them out because people know how long they’re staying at a hotel. So if they actually pull that information, they know that I’m only staying at the W in Aspen for three days. So they know the maximum amount of time that I can have that ski suit that I rented is three days. And then they’re gonna get it back, however much time it takes to clean it and then push it back out to some other customer. So, I guess, in that respect, maybe it’s a little bit easier for them as long as they can actually tap into that information.

Richie: [00:11:21] Well, Aspen is an interesting example because you could think that they could start to regionally build their entire like, ski and snow clothing business out there, and build almost a mini distribution center there and like, totally service that area locally. That, to me, makes so much more sense. Then again, in Miami, I guess I could say you could start to like, imagine what people wear, but it’s still such a diversity of aesthetic and clothing and so forth. I like the idea a lot of basically this like, segment specific option via all the ski apparel they have and then baking that locally around all the ski towns or something like that, it seems a lot more achievable. And the point you made is very true, of knowing the end date of the reservation.

Caroline: [00:12:01] Well, I’m not sure if they’re planning on this—I would assume—but if there could be more work upfront… You have the option of choosing when you arrived, right? But you also had the option of selecting your outfits before you go.

Richie: [00:12:14] According to CNBC, upon arrival—so once you get to the hotel, you can pay $69—which I think is a cost of one of their lower unlimited-level services—and pick from the selection of clothing that’s already there. What’s weird about that, though, is you should be able to pick before you even go.

Caroline: [00:12:28] That’s what I’m saying. Because you could just arrive and by happen-chance say, “Okay, fine, I’ll wear this to the club tonight in Miami.” But it would be much more practical if I were going and I didn’t have to bring four dresses ’cause I had already selected.

Rebekah: [00:12:42] Yeah. I want to know what my club outfit is ahead of time.

Richie: [00:12:44] That kind of defeats the purpose, then.

Rebekah: [00:12:45] Right. ‘Cause if I’m going to someone’s wedding, I don’t want them to pick what dress I’m wearing. I want to pick the dress I’m wearing.

Caroline: [00:12:49] Or you just show up to the hotel like, fingers crossed, hoping your size and something good is there.

Richie: [00:12:56] Yeah, that doesn’t make any sense.

Rebekah: [00:12:58] Ah, missed opportunity, Rent the Runway.

Richie: [00:13:00] You would think they would want you to pick stuff in advance as well, because they can then better plan their inventory.

Caroline: [00:13:07] Exactly. Otherwise, I think if you’re a member, what you would have to do is—say you’re going to Miami for vacation, and I live in D.C. I would ship it to me in D.C. and then have to pack it and bring it. But I guess you could then drop it off there maybe, which would be helpful, after you’re done.

Richie: [00:13:22] Or you could ship it to the hotel. But then again, what’s the point of the partnership? You could always ship a package to the hotel. You also could just leave a package at the hotel, ’cause don’t they give you a return label? And then just drop it off. You can do that to any hotel today without them doing anything, which almost, again, seems like a better experience because then you know how to pack for what you shipped.

Caroline: [00:13:42] It seems like they’ve created it to be more novelty than it is for practicality.

Richie: [00:13:48] Which goes against the unlimited service in its entirety, which is meant to be a utility, right? It’s meant to be a reliable wardrobe solution.

Rebekah: [00:13:57] Unless they’re using this to just fill in the gaps of like, the items that haven’t been sent out yet. Right? So like, you order a dress, you picked it, you ordered it. You order a suit, you know what you ordered. I’m gonna go to a Rent the Runway hotel, I’m gonna get the leftovers. Because the more inventory that’s out, the more money they make, so they want to have as much of their inventory out in the wild being worn as possible. So, I don’t know, maybe this is just like a, “Oh, here, we just need a way to filter out this unrented inventory right now.”

Caroline: [00:14:27] Or like marketing to just see if more people will use it because, yes, they’ll have various sizes, but what if you’re a plus size? Or a really unique and strange size? They’re really going to have the inventory of every item that they have in all sizes?

Richie: [00:14:42] Well, no.

Caroline: [00:14:43] No.

Caroline: [00:14:43] Exactly. So it’s unfair, unless you’re like a two/four/six. Like, the typical sizes. Then you’re out of luck.

Richie: [00:14:51] The lack of consumer trust is gonna be a huge issue here, because they’re actually asking more of you. They’re asking you to pack less, which means trust them more. But they’ve lost a good amount of trust this year from consumers. It does not seem like the best way to build it back, given the operational things that probably are gonna go wrong.

Rebekah: [00:15:09] It’s just not the right time. Wait a little while until your business has kind of calmed down, your new distribution is solidified, things are running smoothly, and then introduce this.

Richie: [00:15:21] So I guess just to bring it full circle: you know, I think we have these examples of these legacy department stores basically dropping loads of product into the lobbies, which I think we feel collectively is not a great strategy. And then there’s this Rent the Runway concept where they’ve started to partner with hotels on the backs of their WeWork and Nordstrom’s partnerships, which is a great idea in theory but they’ve unfortunately, I think, made a few critical operational mistakes, at least in this first iteration that kind of limit the effectiveness and usefulness of the entire partnership.

Caroline: [00:15:51] So, next we’ll talk about how Airbnb lunch cooking experiences, which is the opportunity for travelers to book experiences when they book their Airbnb stays, and the experiences are hosted by locals. So you’re actually able to book everything all-in-one, and it gives the chance for hosts to monetize their cooking experiences and their knowledge of the local cuisine and share it with travelers. I think this is super-interesting because, right now, travelers want excursions and whatnot, but they can be difficult to organize based on language constraints, and often they’re very expensive, or they pay for them and they end up being super-touristic and then not really authentic. Then I think this is a great move for Airbnb as a hospitality platform, because travelers might elect to choose Airbnb over hotels more than they did in the past just because this option is available.

Rebekah: [00:16:48] Something that I’ve found in just researching this is it looks like you do your eating experience, not at the place where you stay. Like most of the places, I have yet to find an opportunity where you can like, cook with an Italian grandma and stay at her house. So I think that’s just an important thing to note, is you still are going somewhere else, which means that if you book travel and you’ve already booked a hotel, you can still do one of these experiences. You don’t have to stay overnight.

Caroline: [00:17:17] I think it depends on the participants, right? So right now it’s just getting out there. So, yes, you don’t have to be a host. However, if you’re a host, you’ve already heard of this and you’ve already been like, solicited by Airbnb to potentially join. And if you have a great kitchen and you want to stay there, I think it’s an option, too. So again, another aspect of like, this flexibility associated with it.

Richie: [00:17:38] Just to back up a little bit for context, I think when Airbnb launched experiences, they advertised a lot of like, individuals. Like, “Bobby gives you the walking tour or the food tour or whatever,” and then it moved into more of these companies. ‘Cause I think, similar to the booking business, there are a lot of professional Airbnb hosts now. It’s not random people anymore. This is an interesting return back to the people, in a sense. I would be surprised if there are people on here operating like, a fleet of Italian grandmothers cooking you dinners. It’s probably just an Italian grandma or whatever it is, ’cause I think they used one of those in the ad, but like, there’s a nice part of this that is not mass produce-able.

Caroline: [00:18:19] Well, I thought that this was born because this was already happening. Like, you were staying at your friend’s grandma’s place, and she hosts people just because she has an extra room and she just wants to meet people and talk to them. And these experiences were happening. And now you just get to plan in advance. So I might elect this French grandma who offers cooking versus the bachelor who’s just renting out his apartment randomly, if I want to have an experience while I’m in France.

Richie: [00:18:47] I think they were already happening, but I would say I’ve probably stayed in a dozen Airbnbs. I don’t think I’ve ever had that super host who’s so accommodating and like, is gonna make you stuff. And—

Caroline: [00:19:00] I’ve had it.

Richie: [00:19:00] Would you consider it, though, common, or do you consider it an exception?

Caroline: [00:19:06] I mean, I’ve done, you know, 20 Airbnbs in my life and I’ve had it like, 60% of the time.

Richie: [00:19:11] Really?

Caroline: [00:19:11] Yeah. I actually haven’t done Airbnb in the US, so I can’t speak to it.

Richie: [00:19:15] Which is maybe more of an international hospitality mentality, in a sense.

Caroline: [00:19:18] Well, the sharing of cultures, perhaps, right? Maybe if you were from another country in the U.S. staying with an American, you would have had a little bit of a different experience. I don’t know.

Richie: [00:19:30] Just plop like, a bucket of KFC on your bed. “Eat up!”

Rebekah: [00:19:35] But, to your point of this already happening, there are. actually, already apps that have existed for years that connect people. So there’s an app called Eatwith that was started here in the U.S. but was bought in 2017 by a European company that does the same thing. This has also been happening in France. It’s kind of obvious, at least to me, because it seems to be one of the food capitals. Let’s say France and Italy, right? Everybody goes there and does some sort of food thing. This was already happening in app form, people being connected with local people who would do cooking classes and whatnot.

Richie: [00:20:09] Airbnb’s long term strategy is to get you to book as much of your vacation with them as possible. Like, that’s clearly where it is going. The vast majority of people do not stay in Airbnbs when they travel. I think this is an interesting entrée to that, but I also think I would still probably want to stay in a hotel, but I could just go book one of these and then go back to where I already reside. There’s something I think when someone has a bad Airbnb experience where like, I don’t really trust them anymore, and I will try to avoid staying with them unless I really, really have to. But I would trust some Italian grandma that Airbnb’s taking 20% of earnings from.

Rebekah: [00:20:42] Right. But also it’s like, you’re trusting the Italian grandma for three hours, not for three days or whatever.

Caroline: [00:20:49] Your safety and security.

Caroline: [00:20:49] Yeah.

Caroline: [00:20:49] You’re just having an experience.

Richie: [00:20:51] Yeah. I guess I’m just saying, I think it could just be a good add-on to a trip. I don’t think everyone’s gonna just go book everything with Airbnb because of it.

Caroline: [00:21:00] So this feature won’t give hotels a run for their money.

Richie: [00:21:03] It just feels very different. Like, I think the hotel people are going to generally be like the steakhouse expense account. I mean, I don’t know what the prices are, but I assume that you can get a great meal for like, $20, $30 bucks a person, whatever it is.

Caroline: [00:21:14] Yeah. So they’re actually super reasonable. There are some that are like one hundred dollars, which would be—

Richie: [00:21:19] Which is like, private chef level.

Rebekah: [00:21:21] Private chef, full meal with dessert, and you learn how to make all of it and then you eat it. So, I mean, I feel like I would pay one hundred dollars to learn how to make tiramisu when I’m in Italy.

Richie: [00:21:30] That’s like a cooking class. I guess I’ve been thinking of these as more like, dinners, but it makes sense that it’s a broad definition of cooking experience.

Rebekah: [00:21:37] I mean, a lot of the ones that I have looked up include some sort of educational component, whether it’s—

Richie: [00:21:43] Which makes sense.

Rebekah: [00:21:43] Yeah. Like a wine tasting or something, maybe not necessarily cooking, but some sort of education about the culture, because I think that is part of the point, is getting this authentic…instead of booking through the travel agent and booking through the like, excursion company.

Caroline: [00:22:00] Right. Which is double the price at least. I agree with you, Richie, to your point, that it’s just a different sect of clientele who use Airbnb. So, no, I don’t think that it will impede on hotel’s businesses. But if you participate in the sharing economy and you want to meet people, then this is a great opportunity for them.

Richie: [00:22:19] What happens if someone gets food poisoning?

Rebekah: [00:22:21] So I was reading about this and I know that Airbnb carries insurance. They do say that it is the guest’s responsibility to disclose any food allergies or anything like that. But in the case of food poisoning, which is not caused by food allergy, I think that their insurance would kick in and they would reimburse you. But it’s really unclear.

Rebekah: [00:22:43] What is the vetting process, I guess, for these hosts? Yes, some of them are hosts, so it’s fine, but if I wanted to host an experience and I’ve never used Airbnb before. They send photographers to every place to photograph it officially, I believe they probably are gonna do the same thing with these, ’cause there are some pretty like, official looking photos of the guests. And so I assume there’s some sort of confirmation of like, “Do you have a kitchen,” and like blah-blah-blah? But food safety and handling, very different practices, very different countries. For example, here, if you’re gonna operate anything like, somewhat commercial, you need a separate set of utensils and cooking materials and so forth. Like there’s a lot of interesting regulation stuff that they just don’t seem to be in a great place to help with. Like, it’s definitely gonna be a little by-the-seat-of-their-pants or whatever.

Caroline: [00:23:25] That’s actually a really good point. So there is this whole like, licensed food handler angle that we have to deal with here in the states. And, do they make these hosts or experience-givers adhere to that same set of rules in, say, like, Italy? I don’t really know. I don’t see how they could.

Richie: [00:23:45] I only can imagine what some of these reviews start to look like if people have bad experiences or get sick. It’s gonna become Yelp, in a sense, rating these grandmas on their cooking. And like, there’s a lot of interesting like, human dynamic that seemingly could get out of whack. But, like any platform—and you see this with like, ghost kitchens right now, where people are opening up restaurants that only service delivery, ’cause they don’t have to pay any waiters, they don’t have to have the physical space. People are gonna try and professionalize this, right? And like, that’s where the largest Airbnb scams came from, were people renting out 30 apartments in a building and just running it basically as an illegal hotel. This is gonna happen on these, and it will be interesting to see, I guess, what those are and then how Airbnb responds.

Rebekah: [00:24:27] I mean, I feel like that’s already happening because there are experiences on the site right now that happen in restaurants, not in homes. ‘Cause I was looking at one, I think it was in Thailand, where it was the owner of the restaurant, but it’s a restaurant. It’s a commercial kitchen, it’s not a home. So it will be interesting to see what kind of like, scams pop up.

Richie: [00:24:50] Thanks for listening to Espresso, a Loose Threads Podcast. You can read full transcripts of the podcast and join the newsletter at LooseThreads.com. Feel free to leave us a review on iTunes, we always appreciate it, and thanks to George Drake, Jr. for editing this episode. We’ll be back in a few weeks with more.