Containing the Amazon offensive
As seen on Inside Retail.
“What does not kill me makes me stronger.” – Friedrich Nietzsche, 1888
This quote may be more than 100-years old, but it holds a potent promise for Australian retailers who are prepared to embrace the new economy, take decisive action to defend their turf, and succeed in the ever-shifting commercial landscape.
Topping the list of destabilising forces is Amazon’s looming arrival down under, which has generated a significant amount of media noise, on the verge of hysteria.
The panic seems to be somewhat justified, given that Amazon has not been gentle with its competition, and many retailers have been crushed by its relentless advance. However, some retailers have done well in this brave new world – not only surviving but thriving against the odds. What’s their secret?
To prepare for Amazon’s arrival, it’s important to recognise what we’re dealing with. I argue that in many ways, Amazon’s rapid proliferation can be compared to Genghis Khan’s Mongol invasions of Europe in the 13th and 14th century.
Both have much in common: persistent, highly capable, occupy vast territories, feed on expansion, have unlimited access to money and resources (the Mongols through conquering, Amazon via the share market capitalisation), and they have a killer instinct. Put simply, you can’t beat them at their own game. Many have tried, to no avail.
I chose to use this stark analogy because it helps unveil the true nature of Amazon, spotlighting valuable lessons from history to help us in defending our retail territory.
Mongols vs. Europe = Amazon vs. Australian Retail
When the Mongols advanced towards Europe from central Asia, they encountered minimal resistance. They were fighting in their element – open warfare.
But, when they moved deeper into Europe, they encountered castles, fortresses, heavily wooded areas, and armoured knights – all of which made the Mongol advance more difficult.
Initially, the Europeans were poorly organised and fragmented. So, the Mongols’ early raids on the region were quite successful. However, rather than submit, the Europeans realised that their fortified positions and professional armies could stop the horde. They just needed to consolidate, invest in their defensive infrastructure, and persevere. This is why in the end the Mongols retreated.
Just as Europe stood up to the Mongols with their fortresses and agile response, Australian retail can stand up to Amazon using our castles – brick and mortar stores. But, like the 14th century Europeans, we need to change our ways and learn how to make the most of our existing assets.
Amazon’s Arrival: Strategic Response Options
Knowing that we’re on the precipice of being invaded by a ruthless competitor who has mastered its domain (e-commerce), we have three responsive strategies to consider:
- Retreat to your fortresses (stores), change nothing and try to wait out the storm. Likely result: slow death. An example here is Circuit City in the US, which I talk about later in this article.
- Charge out into the e-commerce plains and engage Amazon head-on. Likely result: just like trying to face the Mongols in open warfare, defeat is almost guaranteed. Look no further than diapers.com to realise the dangers of this approach. Bebe in the US recently announced that they will close their 180 stores and focus on e-commerce. Ave, Imperator, morituri te salutant.
- Stop listening to hysterical populist opinions and recognise that your stores are an asset rather than a liability. Use digital to fortify and augment this asset to create a frictionless, holistic brand experience across all channels. Sell everywhere, but most importantly, use your digital estates to drive customers into store. Amazon will find it difficult to compete with compelling human to human customer service. Likely result: a solid chance to survive and flourish.
The Endurance Strategy – Your Stores are the Key
As noted above, once you start to view your stores as a strategic asset, the next step is to make the most of them. But, the traditional store model won’t cut it with the Mongols at your doorstep. Stores must be infused with digital, and must become an integral part of your commercial ecosystem if your business is to remain relevant and strike back at the invaders.
This means that it would be a mistake to view e-commerce as an add on to the physical retail business, which unfortunately many retailers still do. eCommerce must be integrated seamlessly into a retailer’s business, with an important focus being to engage consumers to drive them into your stores, more often. Stores are the place where retailers can provide a human-led experience that cannot be replicated online.
The following map of the retail battlefield leaves no doubt about what happens if you try to fight Amazon head-on, in its e-commerce element.
Case studies detailed later in this article show how store-centric digital strategy has led to survival and expansion for savvy retailers, despite the squeeze from Amazon and other pure-play retailers.
Socio-demographic Shifts in Retail
If you believe the myth that your stores are a heavy liability because millennials transact predominantly in the Amazon-dominated digital world, think again. Understanding Millennials is critical to the strategic framework suggested in this article, as they are now the largest living generation, and by 2020 they will also be the most dominant market segment in terms of dollars spent in retail.
It’s important to realise that Millennials value experience above all else. They may not come into store as often as their predecessors, but when they do, they come to spend. The key here is to acknowledge and cater to their high expectations.
This ties in with another interesting statistic: 50% of every dollar spent in retail is influenced by a prior digital interaction. The key word here is influenced. For the majority of purchases, people still prefer to transact in store if the value proposition is good enough.
Let’s have a look at several interesting and telling case studies to reinforce the practicality of the suggested strategy.
Case Study 1 – Under Armour
Under Armour has unified their store and digital estates to create an immersive brand experience that extends way beyond just performance apparel.
Under Armour stores have impressive visual merchandising, infused with digital. They have also gamified the shopping experience, and invite their customers to participate. Just look at the energy in the above photos!
Under Armour has made strategic acquisitions, creating the world’s largest mobile digital fitness community. This community is not only a marketer’s dream, but it also provides unparalleled data to inform the entire business.
Under Armour has even created an integrated wellness ecosystem, using technology to track total wellbeing.
The Key Lesson: Under Armour is no longer an apparel retailer, but rather the custodians of a performance lifestyle community. The perfect defense from the likes of Amazon.
Case Study 2 – Nordstrom
Just a glance at the media headlines tells a sorry tale for department stores, globally. The one-stop-shop business model was in decline even before the arrival of Amazon. But, rather than retreating into history, some department stores have capitalised on the digital revolution to rebound and start to grow again.
Nordstrom invested in a holistic omni-channel strategy to permeate their ‘castles’ and to revive the business as a whole. Its results say volumes about the power of this approach.
The graph above shows the harmony between online and offline activities. Online grew strongly, but it was also used to boost the whole business – translating into solid growth for the brick and mortar business, no doubt making most department store operators envious. Yet, in isolation, both channels would most likely flatline or decline.
Note the insightful words from the man in charge.
Today, Nordstrom delivers a single brand experience across all channels, having invested in both online and offline experience. Their customers can also buy via social or text, with same day delivery via Uber Rush or curbside pickup. Key strategic partnerships and acquisitions have also helped underpin Nordstrom’s strong performance.
The Key Lesson: Nordstroom’s holistic investment in omni-channel and in store has underpinned total growth, and given them an edge in the battle for relevance.
Case Study 3 – Circuit City vs Best Buy
When Amazon first started to dominate online, book retailers were the first to crumble, followed by CD shops, with electronics retailers appearing as the next round of likely victims.
At the time, two very similar electronics retailers faced the same existential crisis, but implemented very different tactics in response to the Amazon threat. Only one has survived.
Once featured in Jim Collins’ business bible Good to Great, Circuit City was slow to respond to trends and failed to invest in recasting the brand into the new holistic model. The business is a prime example of a retailer that, when faced with the Amazon horde’s arrival, retreated to their castles and tried to wait out the siege.
Even worse, and obviously driven by lean times, Circuit City laid off its highest-performing and highest-paid salespeople, and replaced them with cheaper workers. One year later, Circuit City filed for bankruptcy.
Best Buy were also losing to Amazon as customers “show-roomed” their stores but then bought online. But, instead of retreating, Best Buy went on the attack.
Best Buy turned their weakness into an advantage. Given that people were still coming in large numbers to their stores, Best Buy turned the stores into an experience Mecca, positioning itself as a place where consumers could immerse themselves in technology. Because the business was operationally sound, it also went on the offensive with aggressive price matching. So, Best Buy figured out how to pull the crowds and send them home with goods in hand.
Best Buy’s sales and profits have been rising steadily, and the stock has gained 63.1% in the past year, beating Amazon’s 45% return.
The Key Lesson: Australian retailers need to be equally proactive and operationally sound to meet the Amazon threat. Retreat will result in almost certain defeat.
This strategic blueprint to neutralise the Amazon advance wouldn’t be complete without another important element: industry-wide collaboration, across several fronts. While each business will continue to work separately, opportunities exist to work together to strengthen the foundation on which brick and mortar retailers operate:
- Shopping centers must play a central role in creating retail precincts that deliver combined, holistic experiences, not replicable online. Examples of this could be instant alterations, personalisation stations, or image consultants in the proximity of apparel stores.
- Local government must be motivated to wake up and assist physical retailers in the areas of accessibility, parking, signage rights, etc. Historically, local governments have been obstructionist with regulations, and focused on milking retailers through rates, permit charges, etc. If they don’t change, they will kill the golden goose. Not smart.
- The Federal Government needs to be lobbied to help equalise the playing field too, so that physical retailers aren’t handicapped by a radically higher cost and tax base than their online counterparts.
- In all of this, retailers’ associations must step up big time and drive the required cooperation and reforms. In my view, until now these bodies have been largely ineffective. If they cannot change, they should disband themselves for a new body to emerge – to represent retailers the way the 21st century requires – to work directly with the public. Nothing motivates politicians better than a threat of a disenchanted constituency.
The invasion is coming. But, I don’t think the future is bleak for Australian retailers who chose to take a stand. Technology-fortified brick and mortar stores are central to the Amazon resistance, but so is a seamless digital brand accompaniment that retailers can use to reach out and harass the enemy on its own turf.
As demonstrated by the likes of Under Armour, Nordstrom, and Best Buy – what does not kill you does make you stronger.