How retailers can still thrive in an Amazon-led world
Thursday, March 14, 2019
The daily news is full of retail stores that are cutting back their operations or closing shop completely. Toys R Us, Sears/Kmart, Gymboree, Abercrombie & Fitch, BCBG, Bon-Ton, Payless, Dollar Tree, and even Victoria’s Secret are on the recent list.
Is it Amazon’s fault all these chains are struggling to the point that many have had to declare bankruptcy? Or is there more to it?
E-commerce is certainly a major factor. When consumers can purchase goods from the convenience of their home and have them delivered within a day or two — often with no delivery charge — that’s hard to beat. But it’s not the only reason.
Many chains took on enormous levels of debt over the past few years, sometimes as a result of leveraged buyouts. That debt presumed continuous, near unfettered growth in physical, brick-and-mortar locations. When conditions changed, servicing this huge debt proved an insurmountable obstacle.
And yes, consumer buying habits have changed. Virtually anything can be bought on Amazon today. But are former Victoria’s Secret consumers really heading to Amazon for their sexy lingerie? Probably not.
E-commerce is much more than Amazon. The types of products that can be efficiently bought online have expanded, from eyeglasses to high-end clothing to mattresses.
Warby Parker introduced us to online purchasing of prescription eyeglasses by sending a variety of frames to try on and return. Casper and Tuft & Needle have brought the mattress purchasing experience online.
Stitch Fix uses a combination of AI and human expertise to send customized clothing items to customers. The customer returns what they don’t want, and from there Warby Parker, Casper or StitchFix learn how to be even more effective in the future.
The common thread: the better an online retailer can match a consumer’s need, the less likely that consumer will be inclined to go elsewhere in the future and the more likely they will shop online for other product categories.
And yet there are companies like Target, Kohl’s, Home Depot, and Lowe’s who are thriving in this market. You can add in Macy’s, J.C. Penney and Best Buy — three chains that have struggled in the past but appear to have turned things around.
How do they do it? What do these chains know that the rest of the retail world is missing?
They focus on their differentiators.
What can each of these brands provide that online retailers can’t? For Target, it’s convenience coupled with a wide variety of high design but low-cost products. For Home Depot or Lowe’s, it’s the ability to get the specific item you need when you need it — and those items are often bulky and hard to ship.
When something breaks in your home, even overnight can be too late to wait for the fix — and what if you ordered the wrong item by mistake? Whoops.
They understand they’re selling experiences and service.
Consumers go into a physical store for the overall buying experience, from beginning to end. It’s easy to buy many products online but returning them can be a hassle.
What do you do if you’ve got a question? You can engage in chat with a bot and see how that works, or you can go into a store that sees you, hears you, and cheerfully works to help you.
They’ve integrated their e-commerce and physical locations.
Order online at Target or Macy’s and pickup or return in the store. No problem.
Kohl’s has taken this a step further by becoming an authorized Amazon Online Return Center. Customers bring the packages they want to return to Kohl’s, where there’s no charge for return shipping. While they’re there, they wander the aisles and often find items they’d like to buy. Win-win.
They’re not afraid to reinvent themselves.
Best Buy used to devote aisles of floor space to DVDs and CDs. That’s gone. Their sales are driven today by video games, TVs, and Apple products. Target introduced eight private label brands in 2018, some of which have already reached over $1 billion in sales.
What’s the biggest indicator that brick-and-mortar retail isn’t dead? The king of e-commerce, Amazon, continues to open physical stores. They started with bookstores, and have expanded to Amazon Go, Amazon 4-Star Outlet, and nearly 100 pop-up sites. Plus, Amazon recently announced it will be opening an additional chain of physical stores that will be separate from the nearly 500 Whole Foods stores they already operate.
Is Amazon killing the retail channel? It may be forcing retailers to become more fit. But to paraphrase Mark Twain, the reports of retail’s death are greatly exaggerated.
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