When Did Henny Penny Start Writing About Retail?

Posted by on Jul 20, 2012 in Retail | 7 Comments

Henny Penny

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.

Mt. 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 ?

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

Bella from Twilight

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.

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7 Comments

  1. Red Russak
    July 20, 2012

    Great work! Looking forward to watching you challenge and improve the industry head on!

    Reply
  2. Jennifer Hurshell
    July 20, 2012

    This is spot on. We work with leading omnichannel retailers at Vendaria to generate sales conversion, and what particularly resonated is your statement that “Leveraging technology and customer-facing employees is not just about making the enterprise more efficient or replicating the on-line experience. It is about creating a unique experience for the customer that excites them and makes them loyal.”

    What you describe is already better understood by small to midsize regional players. And although painful, it’s my belief that the current pressures faced by omnichannel leaders can and quite possibly will result in a “rebirth.”

    The key requirement for “big box” leadership is to accept that there is no turning back the clock on consumer access to more and better information. If Omnichannel retailers truly embrace the four advantages you cite above, and develop proactive and sustainable strategies to leverage these over their online pure-player competitors, they will better meet the hopes and expectation of today’s smarter and more demanding consumers.

    Reply
  3. Stefan Midford
    July 20, 2012

    I can’t agree more! As retailers look to create new solutions they have a huge advantage through leveraging the existing staff in conjunction with better tools. With the rush to provide mobile solutions to staff, there is now the opportunity to deliver a whole suite of tools to the sales floor. No one tool will be the absolute answer, but a toolkit is a powerful addition to the expertise of an engaged employee.

    Reply
  4. Blake Hall
    July 21, 2012

    I believe that the most tangible advantage that a retailer has over Amazon is control over the user experience. Amazon can’t provide Sight, Sound, Touch, Taste and Smell to convince users to purchase.

    To the other points, communities were all too happy to let mom and pops grocery and hardware stores go out of business when Wal-Mart and Staples, who could offer lower prices, moved into town.

    I’d like to see more data about how customers segment their shopping habits. Neither is every purchase a service purchase, nor do all (most?) customers take advantage of service packages. There is certainly a stigma due to the negative NPV on warranties.

    While your comments might be correct for a certain segment of customers, are those customers representative of the mass market or, more importantly, what the mass market will look like in five years?

    Reply
  5. Will Fuentes
    July 22, 2012

    @Blake-The business models of Wal-Mart and Mom and Pop’s at the crux were the same: immediate access to the goods that one wanted. Logistics, pricing power, and many other factors separated Wal-Mart an Staples and led to the smaller competitors being beaten. The tactile experience that you mention in your first paragraph coupled with the immediate availability is a difference that Amazon cannot compete with.
    While it is true that the majority of customers do not take advantage of services with every purchase 70% of customers will consider or purchase a service or service plan. And those that do purchase are more loyal.
    Also, recent studies by NRF and RIS have shown that pricing apps, or showrooming, have a big effect on purchase decisions for those that use them the use of them is still in the minority. Shocking I know!
    You are correct that retailers MUST look at what the mass market will look like in 5 years. That is why they must innovate now and create unique in-store experiences that leverage technology.

    Reply
  6. Randy Domolky
    July 23, 2012

    Many times things happen slower than one thinks. Case in point, Henny Penny was right that the sky is falling in that airborne pollution is creating a buildup of greenhouse gases that is increasing cloud cover and ambient temperatures on the earth’s surface. Henny was also right in that our sun is slowly dying and will eventually expand and melt the earth before exploding and pulverizing the earth – just not so fast. Retail as we know it is dying but just not so fast. Retailers that ignore this evolution will die out like the dinosaurs (which, btw, whose extinction took thousands of years) and retailers that embrace the changing landscape and can integrate the right technologies into their work flow will triumph. And, since this evaluation and successful integration of technology will also take longer than you think, smart retailers better get going! Great article Will.

    Reply
  7. Ashley E. Ware
    June 9, 2013

    Specialty electronics retailers are still going to see challenges with sales because of online retailers like Amazon. One competitive advantage that Amazon lost is that roughly 50% of U.S. customers will now have to pay sales tax on online purchases. Consumers have fewer reasons to buy online now. They will have to pay sales tax and stores like Best Buy offer price-match guarantees, so they can get the product at the same price in store.

    Reply

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