Amazon has created a big disruption in retail, media, e-commerce and intelligent devices sector. Many of the small stores are going out of business and even the established big box stores are feeling their wallet shrinking day by day. Where is this trend heading and if there is a way for the rest of the small and big players to maintain their share of the pie?
The driving factor behind Amazon’s successful run is nothing new. It’s not something completely radical and away from what the business textbooks propose. Make your customers feel valued, give them the best price and service possible. They will not only come back but bring more customers. That’s what happened in Amazon’s case. Apart from all the technological advancements, Amazon stuck to its core values. Everyone saw it coming. Ten years ago, firms like Macy’s, Walmart, Barnes and Nobles, eBay, Target, Toys R Us had a significant share of the market. If rest of the world, would have anticipated and adjusted to the Amazon effect, things wouldn’t be this bad in their accounting books. Well is there a turning point now? How can all the players, maintain their fair share or at least survive the Amazon effect?
In business, cash is the king. All the successful firms in the technology sector, have lots of free cash and cash equivalents (check Apple, Google, Amazon, Cisco, Microsoft, GE, Fidelity, Toyota, Uber, and Facebook). This free money helps them spend a significant amount on R&D, experimenting with new takeovers and experiment with new business ideas while recovering from failed ones quickly. If you look at the profitability margins of Amazon, it’s not that great especially not in the retail sector. But their new customer acquisition is beyond the charts. At the same time companies like Toys R Us, Macy’s had enjoyed good profitability but not a good volume increase year over year since Amazon came into the picture. With the acquisition of Whole Foods, experts are expecting a similar trend in the grocery sector. Amazon is probably trying to en-cash their spending on AI and IOT space in the form of echo and other devices. Their phone device and phone operating system (derived from Android) did not click although Fire products proved to a good cheaper alternative. Kindle is still the best reader only device but unless they come up with similar technology for color texts, it may not grow much.
Whether it is a supply chain improvement, new products, predictive data analytics or smart embedded devices, there is no stopping for Amazon. So what other companies could do now? What small stores and small business do to sell more? It may be a news to some of you but Amazon has not been No. 1 in many markets like India and China. Flipkart and Alibaba have decent market share in these countries and Amazon are trying to catch up fast by adjusting to local trends.
I believe there is no way out for small firms. If you are not selling on Amazon, you are losing a giant customer base. Even if your margins are low, you have to have a big presence in Amazon market. However, you can combine your online presence with local know how to utilize the buy local sentiments in small towns. Your customer friendly approach, personal marketing, in the home aftermarket service and exposure to town events gives you the advantage which Amazon does not have. You can mobilize local talents, farmers, chefs, students to create awareness about your products. It would make your neighborhood shoppers feel good about spending little extra in your store. Apart from that, I bet it would be really hard for local businesses to compete solely on the price point. Also, this strategy would not help in big cities and cosmopolitans. What can you do to lure the Amazon fans? Don’t get upset and be rude when someone is saying this stuff is cheaper in Amazon or they keep scanning every barcode with their Amazon mobile app. Try to either match or come closure to the Amazon price on a case by case basis especially if you have seen the same customer buying many items without referencing Amazon. Usually, customers are willing to pay a little extra for under $30 items as they get possession of the item instantly. For electronics or expensive tools of national brands, you should even proactively check Amazon and other big box store and try to match the price. Even if you can not match the price, you should attach some extra value as free service for one year or free home delivery.
How about Walmart, Target and another medium to large firms? Most of them already started innovating in the online market space (free store pickup, price match, user-friendly websites, acquiring online retailers). This is not enough.
If you are medium size firms or grocery chain, you need to join hands with other similar firms, form some sort of consortium and compete with Amazon at the same level. For example, stop and shop and shaws could merge and tie up with all local grocery chains and local farmers. Bring down your price points, add free local delivery and streamline check out process. Create a common mobile app and add loyalty perks which encourage customers to come back more often buying the same item again and again. These initiatives should be seamless in all the stores and there should not be any hiccups in the back office systems even if on the banner on the store is different. Once you stress out your customer with bad technical implementation, it will hard to bring them back.
For large firms, the greatest advantage is their brick and mortar stores. It will take Amazon years to come up with that many physical locations. That is precisely the reason home improvement chains like Home Depott and Lowes are some what remained immune to Amazon effect so far. It may not stay the same for long. It was the case with home furnishing and amazon is taking over slowly the lighter furniture space. Here is some hints for large firms.
- Make use of your data: You have been in business much longer than any of your competitors. You know more about your customers and their buying habits. You know what they need and when they need it based on past 10-20 years of sales. There are hundreds of data science startups all over the world. You should hire or acquire some of them see what hidden treasures are lying in your database. You can even join hands with the likes of IBM, Google or Microsoft to make your business smarter. The only word of caution is that you should spend only that much as the value you are getting out of it. Improve customer recommendations, study their buying patterns, predict next fashion trend, find pain points of customer usage and channel them back to manufacturers to make customized product for your store.
- Improve in store buying experience: The biggest reason people want to buy online is that they want to avoid the item collection process and skip the check out lane. After so many years the checkout lanes are still the same. The aisles are marked in the same confusing way. Do some research to find a better way for categorization and placement of items to minimize waste of time looking for the item. Streamline checkout process so it never takes more than 2 minutes no matter how much rush there is. Self-check out systems are the worst offenders. They do exactly opposite of what are the meant for. Give a project to the nations top education institutions to come up with best self -check out process. Hire the best engineers to make it work for every item or and every person. May be there is no better way. In that case just get rid of self-checkout lanes and have mobile checkout assistants, who could carry a hand held device to scan the items and receive payments with card swipe. If you can separate out the check out from bagging, there would be many folks who won’t mind putting the items in reusable bags themselves if it saves them 15 minutes.
- Add extra value : If you could assemble a kids bike in store free of cost so that a dad could surprise his son on his birthday, you have won a lifetime customer. Include free assembly for complex items if it does not add much cost. For a customer it would probably take hours to assemble a complex piece of furniture but for a trained store associates who has done the assembly many times before, it would probably take just 5 minutes. Add in store demo for electronics and kitchen appliances. Amazon can’t do it in a cost effective way as you can.
- Match amazon price : This is must. There is no other way unless you are confident that your prices are already same as amazon specially for the expensive items.
- Add free same or next day local delivery: Amazon is doing it. Why cant you deliver locally free of cost. Big box stores should come up with a common delivery service provider who can deliver items in a cost efficient manner.
- Bring innovation to store and store products: Stay one step ahead of the market. Spot market trends and encourage small businesses to come up with innovative products. Fund new product development (think fidget spinners) which give you early market advantage.
- Think out of the box:The next big evolution in the retail sector could come in the area which has nothing to do with shelving products. It could be in-store experience, kids play area, manicure, salon, 10 minutes gym in the store, seating area with big screens and movies for kids, restaurant, fast food, winter wonderland or may be something else. Think out of the box.
That’s pretty much of it. If you like any of these ideas, feel free to leave a note.