For those of you that do not recognize the name Henny Penny, you may recognize the catch phrase, “The sky is falling! The sky is falling!” It seems that phrase could be the title for copious articles that have been written about retail, specifically Best Buy, since the Larry Downes article came out in Forbes in early January. That article really spurned the conversation about show-rooming and how that was the end of big-box retail.
Now news of Amazon embracing internet sales tax in order to open more distribution centers (DCs) and offer same day delivery has reinvigorated the conversation that big box is near death. First, let me start off by saying I do not believe Amazon opening DCs is about brick-and-mortar retail; it is about finishing off their online competition. Second, the opening of DCs does not finally vanquish the last competitive advantage of brick-and-mortar-retailers. And finally, big box retail as we know it will die. I will address all these points in order in the next few paragraphs.
Amazon is climbing Kilamanjaro first, even though it has set up camp on Everest.
At this point it is no secret that Amazon has it eyes set on conquering retail—as well as multiple other verticals. However, the assumption that Amazon is opening DCs as a move to beat physical retailers at their own game is just plain wrong.
For years Amazon has spent countless amounts of money lobbying not to have to charge sales tax in states where it does not have a “physical” presence. During that time, Amazon has been wildly successful; to the point that Amazon is now the #1 online retailer. If the model is currently working (and we can all agree that it is) why the sudden about face? How does immediately increasing the price that the majority of your customers pay help Amazon defeat the physical stores? The answer is it doesn’t. It helps defeat all the other e-tailers that do not have the resources that Amazon does.
Those e-tailers will suffer the most and feel the most immediate impact. Before, whereas ordering online could save a consumer in Arizona 7.3% by simply not having to pay sales tax; that advantage is gone. So all things being equal, or close to it, what is the advantage of ordering online from an e-tailer that can get you the product the next day at best? None.
Currently if the consumer sees that price is the same on-line and off-line, there still is a way for them to order on-line and get the product the same day—in-store pick-up. Amazon is banking that the value proposition of same-day delivery will keep the shoppers shopping on-line but using their site because of the convenience of home delivery versus having to drive to a physical pickup location. This will give them a HUGE competitive advantage versus smaller e-tailers. They will completely conquer Kilaminjaro (on-line retail) as a way to train to conquer Everest (all of retail).
Hasn’t Anyone Seen Terminator 2 or I Robot ?
The idea that the only competitive advantage in retail is instant gratification is ludicrous. I have always contended that physical retailers have four distinct advantages:
- 1. On-hand inventory
- 2. Physical presence
- 3. Services
- 4. Sales Associates
It can be argued that the first advantage is rendered null by being able to deliver a product to a customer within a few hours. I argue that it is not. Any veteran of retail can tell you countless stories of consumers unwilling to wait a few minutes let alone hours to get their product; instant gratification means instant gratification. This does not mean that all customers “must have it now,” it just means a customer that “must have it now” must have it now; not 4 hours later.
Having actual physical locations is not a detriment as long as they are leveraged correctly. The advantage of the physical store isn’t just about convenience or a convenient place to return things; it is about being able to serve and be part of the community. This offers a tangible advantage to brick-and-mortar that even Amazon DCs cannot compete with. Whether it is planting trees, attending community events, or simply having staff that reflects and comes from the community, a brick and mortar location can endear itself to a locale. The trend lately has been to talk about reducing the footprint of stores. While this move will save on costs it is not a panacea. Retailers have to be more creative about how they leverage their stores: from hosting PTA events to show parents the latest parental control tools to seminars on how to truly take advantage of your All-Clad cookware. There are many innovative things happening throughout retail at the local level that needs to bubble up.
If retailers use their space to engage the community around them then the community will engage with the retailer.
Retailers across all verticals offer services. From Geek Squad, to the Photo Studio at JC Penny’s, to installation and repair services from Home Depot, Lowe’s, or Sears, services can be a large part of the in-store retail experience. Often times they are the sole reason why someone buys from a store as opposed to the web. The ability to have a professional do the work and be held accountable if the work is subpar is a value proposition that will be very difficult for Amazon to compete with. Although they can offer and sell services, they cannot have a face to a name when problems arise. Brick-and-mortar can confidently tell a customer, “We will do it right but if something happens you can come back and see me.” This is a statement that Amazon currently cannot utter.
This leads to the fourth advantage: sales associates or more accurately, people. The majority of shoppers enjoy some level of human interaction when purchasing items. They often seek advice, recommendation, validation, assurance, or confirmation that they are making the right choice. Whether it is a two hour sale or a two-minute conversation where the customer asks the sales associate “is this a good purchase”, there is a unique visceral experience that occurs that cannot be replicated or replaced by machines. Hence the title of this section. However, this experience can be enhanced by technology. A physical retailer is the only place in retail where the combination of human interaction and nuance can be combined with all the wonderful technology that is available.
Over the last year, many retailers have made announcements of how they are doing this or plan to do that. Leveraging technology and customer-facing employees is not just about making the enterprise more efficient or replicating the on-line experience (see: Endless Aisle). It is about creating a unique experience for the customer that excites them and makes them loyal. In order to truly take advantage, retailers are going to have to be innovative. They are going to have to think about outside-the-box solutions for inside-the-box problems. If they do this, we will see a new retail paradigm.
What Retail Can Learn From Kristen Stewart
In the popular Twilight series, Kristen Stewart’s character Bella dies (or so I have been told). A few scenes later she comes back to “life” with the same form but much more powerful. Bella has gotten a jolt of new blood and is now reinvigorated and a stronger force to be reckoned with.
Retail needs new blood. It needs to do away with the business as usual and try new ideas, systems, and methods. It does not need to change its form. It can keep its old body. Yes, brick-and-mortar retail is dying but by combining its strengths with technology, it can come back to life more powerful than ever; just like Bella.