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Competing against Amazon

What are the new ways brick and mortar retailers are successfully blunting attacks from Amazon?

A cottage industry is emerging among consultants to help retailers develop defensive strategies against Amazon. Some private equity funds are even making this an essential requirement for retail deals.

It’s clear that it’s possible to identify the geographic location of shopper searches for products or recipes done on the internet since each IP has a physical address – so can companies build business models that convert search into sales or leads for local retailers?

Google seems to think so. They’re working on partnerships would enable them to facilitate one-day delivery for local brick-and-mortar branches of Macy’s, Best Buy, and others per this recent Lookout entry. What’s in it for Google? More product searches (where Amazon dominates). What’s in it for retailers? The conversion of search into sales?

Is geo-location part of the answer? Where do you see it working?

What are some of the other strategies being developed to blunt Amazon's attack? Who’s using them successfully? How?

This discussion is now closed.

Special thanks to participants: Andy Robinson, Craig Elston, John Caron, Chris Broxon, Faye Sinnott, Anton Xavier, Mike Spindler, Krysten Hommel, Bobby Martyna, and Ro Kumar.

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BlackBeltAndy Robinson said:
Amazon and Google have taken advantage of shopper evolution to shop and buy online. For retailers in general they have viewed this as a requirement for a revolutionary change in how they do business. And while it is a massive change for retailers, this is true because so much of their focus is not on the shopper. Retailers need to embrace the natural evolution of the shopper behavior and in deed make their approach a more natural evolution instead of a revolution. For traditional retailers this ability to compete with Amazon and Google starts with having people in the organization that can lead the process internally to adopt to this change and define an execution to successfully approach to this fundamental shopper shift. Revolution is hard, evolution happens easily.
BlackBeltCraig Elston said:
I agree with Andy, revolution is hard. It is interesting that the retailers do not, on their own, appear to be doing very much. It is the eco-systems around them that are building the “cottage industry”, or are forcing change as part of deals, or, like Google, see an opportunity to further their own business. In the main, retailers do seem to suffer with what Charles Handy coined in his book The Age of Unreason as “Boiling the Frog”. The assault from Amazon et al is just not impacting their businesses significantly enough, fast enough for them to do something. They are, essentially, being boiled alive and they don’t recognize it.

Having said that, there are always exceptions. Best Buy has recognized that they have essentially become a showroom for Amazon. They appear to have accepted some of that notion and have gone with it. As an example, they now provide QR codes on all products in-store that enables shoppers to access the product information they need. Providing value in forms other than purely monetary is a smart defense to the Amazons of the world. If Best Buy provides the information I need, the reviews I’m looking for, if there is someone on hand I can talk with – the longer I stay in the store – then maybe I won’t worry so much about paying $100 more and waiting three days for it to arrive.

JC Penney will also be interesting to watch in the next few years. I like this quote from Ron Johnson. In an interview in the Harvard Business Review recently, he said;

“A store has got to be much more than a place to acquire merchandise. It’s got to help people enrich their lives. If the store just fulfills a specific product need, it’s not creating new types of value for the consumer. It’s transacting. Any website can do that. But if a store can help shoppers find outfits that make them feel better about themselves, for instance, or introduce them to a new device that can change the way they communicate, the store is adding value beyond simply providing merchandise. The stores that can do that will take the lead.”

Let’s see what JC Penney does next.
BlackBeltJohn Caron said:
Question. Where can you buy an iPhone or iPad? Virtually anywhere (and virtually at apple.com). So, why is it that Apple stores do $40M per year per store? Or, generate sales of over $4355 per sq. ft? Because it's not a store. It's an experience. They differentiate on service and the experience. I did this with my first job out of school building a video store chain that was in the top 100 in the country and thwarted Blockbuster. How? Because the experience we delivered was beyond what you could get anywhere else.

There's a reason we all reference Apple stores with regard to the future of retail. Because they combine design, people, experience, products and technology in an innovative package that inspires us to shop and BUY there. Give your shoppers a reason to come into the store and they'll reward you.

We're just at the beginning of this with mobile. When you combine what's possible with mobile (personalized experience, payment, more buying, less shopping, recommendations, navigation, new store layouts, etc.) with the physical store, you've crushed it. We want a better experience. We want better service. We want to be recognized as a valuable customer. When we are, we reward the retailer with an open wallet.
BlackBeltChris Broxon said:
I'd say Apple is the only retailer I know who is blunting any efforts of Amazon; and, yet many with a retail outlet could. The secret is the experience; yes, and it is also the 'no effort to sell you anything'. Tough for Amazon to compete here. They are not yet at the experience level regardless of how much info they provide. The same is true of mobile. Maybe videos could sorta' offer an experience of use. Maybe questions could be answered. How could I use a device though?? Retailers could compete against some of amazon's offerings - free shipping, drop shipping, lower pricing due to volume (the really big ones who could buy the inventory and shift it around as needed) And, those offerings would damage the retailers already small margin. It's a real conundrum. How about teaming with the manufacturers to get a reduced price? They must be giving Amazon one. With in-store support maybe the manufacturer would sell more to make up for the loss. Worth a test. That's it for now.
Cindy Christian said:
Here's an example I recently experienced during check out at my local Barnes & Noble. The register generated a list of book suggestions similar to suggestions given while shopping online at Amazon (or B&N.com). And while B&N's intentions were good, better execution would likely drive increased value to the shopper.

The B&N cashier gave me my receipt and also a second piece of receipt paper that had the heading "YOU MAY ALSO LIKE..." followed by a list of five book tiles and authors but she did not, however, mention the list to me. At first I thought it was a coupon or survey request but then I noticed it was a list of suggestions clearly based by my stack of just-purchased books. I asked her about the list and she explained that the system automatically generates it and that if I didn't want it, she would be happy to throw it away. I had to pause for a moment but decided to keep it.

Since then I asked a few B&N cashiers about the "Lists" and they said not all customers notice the list but when they do notice, the reaction is about 50/50. In today's market that suggests B & N is on to something but needs to finesse the delivery, especially related to the cashier's ability to help me "see and feel" the value.
BlackBeltFaye Sinnott said:
Andy and Craig have raised excellent points, and we are hearing the refrain, "focus on the customer," from all quarters, not only to compete effectively against Amazon, but to compete period. To do that most effectively, companies must invest in training store personnel well and a robust data back end. Implications may include:

1. Inventory transparency between web and stores and among stores. Several chains have stores that can tell if another has the inventory they do not, but often the logistic support stops there. Some can handle store to store transfers, but it is often not a smooth customer experience. It is practically impossible to order an item from another store to be sent to a gift recipient in a third location. Why? There is significant potential for leveraging inventory, wherever it is, and doing so from a customer focused perspective.

2. Make pricing and specials consistent. If it is on the web, it should be in the stores at the same price. This won't eliminate the possibility for store manager specials, but those should be at the web price or lower.

3. Use technology to amplify the capabilities of sales staff. Equip staff to share product information, suggesting accessories, or even facilitating virtual collaboration with experts. Choice of resources will depend on the products, customer buying behaviors, price points, and so forth.

Above all, retailers must step up their game and truly think through the total shopping experience from the customer's perspective, from purchase to possible return. Operations such as Amazon have raised the performance bar and the expectations of customers for their retailers. Competition is good, because it encourages innovation and overlooked capabilities.

A useful tool to help managers in this is "journey mapping," a designer tool. It is basically the representation - as in a flowchart or such - of the customer's experience as they patronize a store or service. The "map" should capture how the customer's actual experience (they can also be developed to depict an ideal experience). Mapping the steps forces one to see through the eyes of the customer, rather than from the perspective of the organization. Look for the points of satisfaction or disappointment and the "take-away" impressions of the customer dealing with your store or service. These are the opportunities for identifying how you can add value to the customer experience.

One could also chart a customer's experience with Amazon (or Apple), to sharpen the focus on what they do well or not so well, and identify some of the opportunities where your organization can differentiate itself.
Anton Xavier said:
Target looks to combat mobile price comparison by asking its vendors to develop exclusive products or by offering a price match service.

The first big retaliatory step?

http://www.retailwire.com/discussion/15773/target-looks-to-battle-pricing-apps

BlackBeltJohn Caron said:
Great point Anton. Price comparison will be dead within 18 months. The retailers will force the brands to change the game so that they sell "exclusive" products that disable the shopper's ability to do an instant price comparison. The auto industry did away with the relevance of the invoice by providing volume and marketing incentives that are not reported. As such, seeing the invoice was no longer a strategic advantage to the shopper. It became a marketing tool for the dealers and MFRs. We could discuss TrueCar and it's impact, but that's off topic.

Look at the mattress industry. You cannot buy the same mattress from the same store. There's a reason they all have price guarantees and big sales.

Like I said before, the store has to become an experience... not just a warehouse.
BlackBeltMike Spindler said:
I understand the "wish" Target and others have about not giving consumers an easy comparison. This game has been played before in the small and large appliance retail arena. Very big retail buying groups, made up of largely non-competing regional retailers, beat up suppliers for "unique" models with generally meaningless "features" so as to make the task of comparison shopping much tougher on the consumer.

Methinks I would review that strategy very, very closely before engaging in this strategy again. These are VERY different consumers, equipped with very different tools.
BlackBeltAndy Robinson said:
I agree with Mike that comparison engines and consumers are equipped with tools that make the unique models unable to stop comparison to the underlying core products. Additionally this practice could cause a backlash from consumers against retailers and manufacturers that try to shield pricing via unique models. This practice is more rampant with larger ticket items than it will ever be in basket level shopping trips. The ease of consumer activism and its ability to influence is real and part of the new shopper marketplace. A recent example of activism and the communications tools available to the public manifested itself last week with public pressure causing Congress to postpone the SOPA/PIPA bill. For the retailers and CPG's in the Grocery, Drug, and Mass space there are significantly better ways to spend your energy to attract the empowered consumer to go beyond engagement to shopper influencers that attract their friends and family to your products and brands. Amazon and others in the ecommerce space understand this; their opportunities were created by the existence of this change. There are great ways to add this to the strategy of brick and mortar retailers, who have the additional advantage as John points out as they can create the physical "experience" that ecommerce alone cannot.
Anton Xavier said:
JC Penny's re-branding announcement this morning seems to support many of the points made above.

The CEO on CNBC this morning made reference to a "town square" concept for their stores with more focus on specialty stores and better customer service / support. He also made reference to the need for mobile and bricks to converge to provide a holistic solution.

This sounds like a comprehensive effort to combat the negative forces out there for retail.

However, If retailers are required to make such large scale fundamental changes is this something that's within the reach of small to medium size retailers?

http://online.wsj.com/article/SB10001424052970203718504577182751798318594.html
BlackBeltKrysten Hommel said:
I agree an obvious way to blunt Amazon is to invest in the overall store experience—from product offering to check-out and, most importantly, training employees to engage with shoppers (make eye contact, smile and say “hello”). These are brick & mortar assets that can’t be matched online.

Here are a few examples of people and process working together to support the in-store experience:

1. Last week at Safeway, I asked about a new apple variety and the produce guy said: “wait right here, I’ll go get another new variety that just came in; you should try them both.” Amazon can’t do that.

2. Paradoxically, Safeway’s addition of self-checkout has increased my interaction with its staff (and probably increased my trip count). One self-checkout monitor is knowledgeable and quick-witted, and she can herd the cats. She seems to understand we are doing the work not because we don’t like talking to people, but because we appreciate the illusion of controlling our own time.

Beyond the bricks, food retailers could offer online platforms for engagement, dialogue and purchases focused on their distinctive private label programs, such as Target’s Archer Farms and Safeway’s O Brand. This virtual community should have all the energy of a real-world pop-up store—and enable fans to rate products, compare notes and make suggestions. (www.traderjoesfans.com is an example, if not a model). Target has been out of stock for about six months on AF Dark Chocolate Cocoa Mix, and it’s not sold online. I’ve asked in-store and sent an e-mail to corporate– no response. On what items with even higher margins are they missing the opportunity to sell more, and more efficiently? Retailers could create a space focused on building the brand and learning from the customer.
BlackBeltCraig Elston said:
Quick piece on PSFK this morning on this topic making a few of the points that have been made here.

http://bit.ly/y1RmVR
BlackBeltCraig Elston said:
Another interesting piece on this topic from Keith Anderson at RetailNet Group released earlier this week. http://bit.ly/zy5Mny

BlackBeltBobby Martyna said:
I do believe that offering unique products at retail may slow the tide of shop in store/buy online. However, it won't be long before the comparison engines will be able to take any differences between in store and online products into account. Pretty easy with food (e.g. price/oz), and not too difficult with hard goods (e.g. by assigning a $ value to each feature). Soft goods may be more elusive.
BlackBeltRo Kumar said:
The concept of omni channel retailing being forwarded by Darrell Rigby late last year in the HBR article and earlier research in 2010 by Cisco around the concept of "mashops" are instructive in this regard. Consumers are seeking the best of both the brick and clicks channels. As is always the case, there probably isn't one strategy that fits all categories. Retailers need to look hard at each category and figure out the best possible way to get conversion when the shopper is in the store or at home.
One of our retail clients is planning for full price transparency for their products and is developing a strategy that will increase conversion by delivering superior education about the product, service and in-store shopping experience.

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