Everything we find normal online today, we owe to Amazon. But to become even more successful, the empire of Jeff Bezos will also have to break through in fashion and food. That cannot happen without physical stores, says retail expert Natalie Berg of NBK Retail.
Retail-darwinism
How can Benelux retailers best respond to the arrival of the internet giant? The author of the book ‘Amazon: How the World’s Most Relentless Retailer will Continue to Revolutionize Commerce‘ shared her vision during the RetailDetail Omnichannel & E-Commerce Congress on 6 February. She did not bring a negative story: while Amazon is indeed a powerful company, it also brought a lot of changes for the better. What’s more, the company isn’t doing everything perfectly, and that’s where the opportunities lie.
“We’ve seen incredible changes over the last ten years. Shopping is no longer what it used to be: you no longer need shops, not even a screen. Moreover, the store is no longer a point of sale: ownership becomes availability, products become services. We see a fundamental shift in how and what we buy. Consumers now put experience above possession.” As a result, we are now experiencing a period of ‘retail darwinism’, she says: “Either you disrupt, or you will be disrupted.”
No apocalypse
Are we really experiencing a retail apocalypse, as some say? It’s true that shops are closing, there are indeed too many square meters that are not used optimally. But that’s not necessarily Amazon’s fault. Retailers are going under for various reasons. For example, because they are active in a category that went online: that happened with video, and partly with books. Or because they have to deal with stronger competitors: that happened to Gap, Forever 21, Abercrombie & Fitch, among others… Other retailers are struggling with an excess of square metres and a lack of relevance, such as Macy’s, Debenhams or Mothercare.
Because this remains the golden rule: in retail you have to be relevant to your customers. “Stand out from your competitors. Amazon kills mediocre retail. Everything we find normal online today, we owe to Bezos’ company fast free delivery, one-click payment, voice assistance, the importance of reviews… They also brought the physical store into the 21st century. Amazon has made all of us better retailers and offers a better experience for consumers.”
Obsessed with the customer
But is Amazon a retailer? More than half of what they sell is not owned by them but comes from partners in the marketplace. “By 2021, the majority of sales will come from services, not products. Think of their cloud services, advertisements… They have built up a lot of consumer trust that they can now use in other sectors, such as banking. And the Prime subscription is the glue in the ecosystem.”
To what does this giant owe his success? “Amazon is obsessed with the customer. The company doesn’t settle for the status quo, it always wants to improve the consumer experience. And in doing so, Amazon focuses on how it sells, not what it sells. Sometimes simple innovations are the best: for example, the e-tailer installed lockers at the Coachella festival. Visitors could pick up their order there. That’s literally following the customer.”
“Amazon spends more on research and development than any other company. They are not afraid to fail. And they have the luxury of thinking long term. Back in 1997, Jeff Bezos said, “We’re not going to be profitable for a long time. And that’s our strategy.” The company continued to invest in growth and technology. Only in recent years have they made a profit, mainly thanks to cloud services. And the stock market has rewarded that strategy: in market capitalization, the company now weighs more than 1,000 billion dollars.”
At an inflection point
But at the same time, Amazon is at an inflection point. To become even bigger, it needs to be successful in fashion and food. That’s difficult, and it won’t happen without physical stores. Just being active online is no longer enough. In China, JD.com and Alibaba are showing the way with their ‘new retail’ approach.
Why does Amazon have to go offline? Natalie Berg sees five reasons. The structural advantages of just going online disappear. Physical shops allow Amazon to be closer to the consumer, for example with click & collect. The stores are a billboard for the brand. The future of retail is a blend between online and offline. Stores are also ripe for disruption. Who wants to queue up at the checkout? Finally, shops also help to strengthen the Amazon ecosystem. “Why did Amazon start selling smart Echo speakers at Whole Foods? People who buy an Echo will eventually become Prime members and buy even more at Amazon.” In short: “Amazon now realizes that stores are the future of e-commerce.”
‘Coopetition’
The company will certainly radically change the way we do our grocery shopping. “They democratize e-commerce in food, and they use technology to remove friction in stores. Amazon takes the chore out of grocery shopping. They’re definitely going to get bigger in food, because food means frequency: we buy it at least weekly. That again reinforces the Prime ecosystem.”
How should one react as a competitor, as a food retailer? ‘Coopetition’ will be an option: working together with Amazon, your major competitor. “It involves risks, but also offers opportunities: you get a wider reach. In the UK, Morrisons is doing it: they get access to innovative technology and get more traffic to their stores by becoming a pickup point for Amazon. That also improves the customer experience. Although you have to be careful: Kohl’s in the U.S. has merely become a billboard for Amazon, and people are coming there mostly for Amazon…”
What Amazon can’t do
How do you survive as a retailer in that new Amazon world? Berg reassures us: Amazon also has weaknesses. “They’ve taken the fun out of shopping, it’s purely functional and transactional with them. Amazon is all about buying, not about shopping. Amazon kills friction, but it also kills experience.” This trend will continue: we will spend even less time buying essential products in the future, thanks to innovations such as voice assistance and smart homes. Functional buying will be automated and that’s where Amazon has a big impact. But this will also widen the gap between functional buying and fun shopping: that’s where the opportunities lie.
“So focus on what Amazon cannot do: experience, curation, service, community, discovery… That’s where the opportunities lie. At the same time, physical stores have to change radically: they need to offer a seamless experience, focus on the customer, collaborate, personalize.”
The final advice for Benelux retailers? “Try not to be Amazon, engage in ‘coopetition’ at your own risk, focus on what Amazon cannot do. Assume your own strengths: your stores and your people.”
