The Prof G Pod with Scott Galloway - Office Hours: Trader Joe’s and the Paradox of Choice, Telehealth’s Future, and Planning an MBA

Episode Date: January 24, 2022

Scott answers a question about how Trader Joe’s has been able to succeed without offering delivery or online shopping. He then shares his thoughts on why telehealth stocks have crashed back to earth after enormous highs, and offers advice to someone in Japan looking to pursue an MBA in the states. Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

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cards, savings accounts, mortgage rates, and more. NerdWallet, finance smarter. NerdWallet Compare Incorporated. NMLS 1617539. Welcome to the PropG Pod's Office Hours. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question, please visit officehours.profgmedia.com. Again, that's officehours.profgmedia.com. First question. Hi, Professor Galloway. My name is Eliana, and I've been listening to you since I found Winners and Losers back in 2017. So I live in the New York area in Westchester. And one thing I noticed during the pandemic is that

while plenty of supermarkets around us were offering online shopping and delivery, Trader Joe's never did such a thing. Now, you mentioned in your writing that the grocery sector, in order to stay relevant to any particular chain, will need to offer online shopping and delivery. That seems to make a lot of sense. The question is, how is it that Trader Joe's has been able to buck this trend? How come they seem to be this exception to the rule, remaining afloat while remaining a brick and mortar based company? Can other supermarkets or stores of other kinds replicate their success? If so, how? Thank you so much.

That's a really interesting question. It kind of flies in the face of everything we've been talking about. I think Trader Joe's, simply put, is an inspiration. I have a lot of personal goodwill for Trader Joe's. My mom and I used to go to Trader Joe's in the 70s in the San Fernando Valley, and it was fun. I would go to these huge wood buckets of chocolate-covered almonds and cashews, and my mom would say, okay, you can get a quarter pound. And I would sit there with my scoop saying, okay, a few of these nuts and a few of this chocolate-covered cashews, whatever it was. And my mom would go get great wine for like what we thought was great wine. My mom never made more than $40,000, but we just loved it. And I see Trader Joe's now, I see a line around the block for it. They've done such a fantastic job. And

what they've said is rather than investing in the supply chain, they're going to invest in the experience. I think all of retail is kind of bifurcating into what I'd call extreme convenience. And that is an unemotional, super adroit experience where you just get what you need at a great price delivered to your home, Amazon, right? Or it's experiential, Sephora. You just going into a Lululemon, going into a Restoration Hardware, and going into a Trader Joe's. It's just got such a great feel, such great value. They've gone all vertical. About 80% of its inventory is private label, and it has fewer SKUs. I think they've just set the tone for so many great trends in marketing. And the first is the paradox of choice. And that is, I think, the biggest mistake

we make in marketing is believing that choice is a good thing. It's not. Consumers don't want more choice. They want to be more confident in the choices they make. That's why Netflix is one of the most successful companies in history, because it immediately starts pulling your data and observing your viewing patterns and say, Scott, we think if you like the Queen's Gambit, that you're really going to like, I don't know, Landscapers. Wait, that's HBO Max. Oh, shit. I can't figure out the analogy.

But the bottom line is I can go on to Netflix and the recommendation engine. It says, OK, World War II in color. Scott, you're clearly this angry old man and you love watching anything about World War II. So they're always merchandising to me. OK, 1917 or Dunkirk or what have you. And they do a really good job because I don't want choice. The thing I can't stand with my boys whenever we do a guy's night and we do a movie together and I make dinner. Actually, that's a lie. I order dinner. I don't make it. And they pick a movie.

And I just hate sitting there for 30 minutes arguing because anyways, whatever the younger one wants to watch is guaranteed the older one. Too much information. Anyways, less choice, being more confident in the choice you make is the gangster move. And Trader Joe's gets that. It's also a lesson in when you start hearing folks like myself saying something is an absolute, that usually means there's incredible opportunity to zig while everyone else is zagging. Restoration hardware never really embraced online. Gary Friedman, who's probably the most important merchant in the last 30 years, overinvested in the stores. Said, you know, okay, we'll let people order online, but it's going to happen in the stores and we're going to inspire them and we're going to put in a restaurant. I mean, they just, I could live in one of those stores.

Anyways, there's always opportunity. Shopify said it's not about gathering data. It's not about abusing your third-party retailers and totally being consumer-driven. Let's focus on the retailer. Let's let them control what goes into the box. Let's let them control the packaging. Let's give them all the data.

Let's give them custody of the consumer. And retailers will be drawn to us and we'll build a company that is one of the most valuable companies in the history of Canada. So there's always opportunity to zig when others are zagging. It's a matter of execution. Trader Joe's has addressed the paradox of choice, verticalized into private label and reinvest all that money that everyone's spending on supply chain and fulfillment into the in-store experience. An absolute inspiration and proof that there's always room for the outlier or the manager

that says, everyone's going this way. Everyone's zagging. Let's zig. Thanks for the question. Next question. Greetings, Prof G. This is Eric calling from Washington, D.C. I am a psychiatrist.

I got interested in your podcast through your book, the Post-Corona book, where you mentioned accelerating trends in the telehealth space. I'm curious if you have any thoughts or comments about the recent downturn in some of these telehealth stocks, in particular mental health stocks, including Talkspace down 80% since their initial IPO. Amwell down 80%. Teladoc down 60%, particularly in light of the upcoming merger with Headspace and Ginger with an estimated valuation of $3 billion. Curious if you have any thoughts about that downturn. Is that a temporary thing or do you see telehealth and maybe more specifically

tele-mental health being here to stay? Thanks so much and I appreciate your feedback. Thank you, doctor. And thanks for your important work. So there's a difference between, I'll give you an example. I think in a year from now, Tesla is still going to be an amazing company, inspiring a lot of wonderful things around the world, building amazing products and growing really fast. I also think the stock will be down 80% in a year. And there's value and there's pricing. And when the novel coronavirus hit and we found that we could in fact deliver healthcare

remotely, I think what probably happened is these stock prices just got out over their skis and probably the valuations probably just didn't make any sense. Oftentimes and unfortunately, when technology comes into a sector, there's a consolidation. And as a few big players figure out a way to soak it up, I would imagine that Amazon and Google and all the other monopolies are figuring out a way to get in between these companies and the consumer. I'd be shocked if a lot of this funding isn't going to Google and Facebook, who will extract their pound of flesh as all of these companies are probably overfunded right now and trying to acquire consumers and are having to turn to Facebook and Google and pay ridiculous

amounts of money. I'm seeing that in the ed tech space. So about 40% of consumers, the McKinsey survey believed they will continue to use telehealth going forward. And while these equities have shed a lot of value, especially since they're high, funding for healthcare startups continues to accelerate. According to CB Insights, healthcare funding was about $100 billion in the third quarter of 2021. That's about a fifth of all of the capital raised the entire year. So I would say the markets, the consumer market on the stock side has said these companies got out over their skis. You'll see consolidation. I think this is the year where fundamentals reunite with stock prices. What do I mean by that? I bet if you looked at these companies and you looked at their valuations now,

and you said, and you didn't know that they were trading three or four X what they're trading on now, you'd look at the valuation now and go, wow, that's a healthy valuation as a multiple of revenues. That's, that's a good valuation. But when the stocks got just kind of crazy town, you look at everything relatively, right? So a company like Robinhood is still trading at a massive premium to it's better run, more ethical competitors. But because it's gone from 60 to 14 or whatever it is, everyone's like, oh, wow, it's a meltdown. No, it's not. Look at it. It's still trading at a very healthy valuation. I actually think there's still air that could come out of a lot of these balloons, especially in the EV market. I'm not as familiar with

evaluations in your market. But what you do can be digitized, or a lot of it can be digitized. Is it as good as sitting across from you talking to you? Probably not. But it provides more access. It provides lower costs, provides more flexibility for you. So I think this is here to stay. I think it's enduring. Typically, the kind of the journey of innovation is there's a small number of players that innovate. People get massively excited about the space. A ton of capital goes in. There's a mania and the valuations go crazy. And then there's a fallout. But several companies, maybe even several dozen companies, endure. That happened in junk bonds. It happened in the internet. It's going to happen in crypto. And I think it's going to happen in telehealth. But I think online or remote healthcare, whatever you want to call it, is here to stay. Whether or not it's time to buy, I don't know. I don't know the sector well. But again, I bet if you looked at these companies by most traditional metrics, they're still trading at a valuation that assumes they're still going to do pretty well. Thanks for the question. We'll be right back.

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Through the words and experiences of investment professionals, you'll discover what differentiates their investment approach, what learnings have shifted their career trajectories, and how do they find their next great idea. Invest 30 minutes in an episode today. Subscribe wherever you get your podcasts. Published by Capital Client Group, Inc. Welcome back. Question number three. influence, I've decided to apply for MBA programs back in the U.S. I finished most of my apps for round two, including NYU Stern, of course, and I've been spending a lot of time thinking about my future. I'm interested in, and my past experience kind of pushes me towards ed tech and entrepreneurship, but I'm also super interested in things like banking, private equity, and

venture capital. I've spent 10 years in education in Japan, so I have no experience working in the US. And I have no experience in banking, private equity, or venture capital. Should I be trying to plan out my future now, or should I just wait until I start the MBA and see where things go, see what happens? I'm really nervous about the future, especially because I'm 33 now, so I'm a little bit late to the MBA path. But I'm worried I might be overthinking it, and I just need to take it easy and see what happens. Thanks so much for your advice. So Ben from Japan, I do think you're overthinking it. And if you get into a great

MBA program and you're not entirely sure what you want to do, that means that you're going to be very similar to your other first years. First off, on your age, 33 is young. And in two years, you're going to be 35. And regardless of what you try and do, in two years, you are going to be 35. The question is, do you want to have an MBA at 35 or not? And if you have the opportunity, you get into a good school and you have the money and you don't know what you want to do, I think the MBA is a great choice because the bottom line is while we all try and sound very focused in our applications, the majority of people who apply to business school or a lot of us I'll say have no idea what they want to do. When I applied to

business school, all I knew is I didn't want to go back into investment banking. I had no idea what I wanted to do. That's the idea. You go and you investigate other industries while increasing your currency in the marketplace, while enjoying the program and learning a lot. So in terms of the courses you take, I would suggest taking the best professors. I would say take the professor, not the course, because my best professor was Sarah Beckman for my best class. And it's because she was a great professor. It was manufacturing. I had no interest in manufacturing. I didn't go into manufacturing, but you will learn more from a great professor

in an unrelated field than from a marginal professor in the field you're interested in pursuing. Take the summer in between your first and second year to explore an industry or try and get a job. The internship employment rate is almost 100%. Everybody in their first year usually gets a job and investigates some stuff. That's what I did. I ended up taking a course called Brand Strategy with David Ocker and it changed my life. I thought, this is what I want to do the rest of my life. And the course I teach now is this Professor Ocker's course. I started a brand strategy firm. If you'd asked me when I was applying, or if you told me when I was applying, I was going to start a brand strategy firm, I would have said, you know, I just wouldn't have believed you. So be open to new stuff.

Business school is absolutely a place for what I call the elite and the aimless. It sounds like you've had a good career. I think the experience of living in Japan is going to make you very attractive to American corporations. Spending two years in America will make you more attractive to companies in Japan and elsewhere. So if you're blessed with the admissions to a top 20 school and with the economics to do it, by all means, brother, stamp your passport with that lifelong certification that is a top tier American MBA. Good to be you, Ben. Living in Japan, heading to the US for business school. Good to be you, my brother. Congratulations. That's all for this episode.

Again, if you'd like to submit a question, please submit a voice recording by visiting officehours.propgmedia.com. That's it. Our producers are Caroline Shagrin and Drew Burrows. Claire Miller is our assistant producer. As a reminder, we answer your questions about various business trends, big tech entrepreneurship, career pivots, and whatever else is on your mind on the pod every Monday. If you'd like to submit a question, please visit officehours.profgmedia.com to submit

your question. Again, that's officehours.profgmedia.com to submit a question. If you like what you heard, please follow, download, and subscribe. Thank you for listening to the Prof G Pod from the Vox Media Podcast Network. We will catch you on Thursday. Hey, it's Scott Galloway. And on our podcast, Pivot, we are bringing you a special series about the basics of artificial intelligence. We're answering all your questions.

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