The World’s Most Dangerous Retailer

Amazon is setting itself up to take over the retail industry. Let’s start with a few facts:

  • In April 2017, 80 million Americans (or an astonishing 63% of the US households) were subscribed to Amazon Prime; that number has grown by 38% in a year.
  • Between 2010 and 2016, Amazon has grown by $64 billion, which is more than the 2016 combined revenues of Nordstrom, Macy’s and Sears.
  • In 2016, 55% of online shoppers began product discovery at Amazon, up from 44% just a year before.

Traditional retailers have an existential choice to either gradually lose ground to the ever-evolving algorithm or innovate and disrupt the game.

Amazon has:

  • An engine that gets progressively better at understanding our daily needs;
  • Voice-controlled tools (Alexa, Echo Dot) that use that knowledge to push relevant Amazon own products;
  • Access to cheap capital to develop novel ways of selling (Amazon Dash, Amazon Go).

Amazon promotes the best deals based on price and customer reviews. How many of us would prefer a familiar brand to Amazon’s own, if the latter was cheaper, looked/felt similar and had a five star ranking from enough users? The company has already become either a leader or a serious player in a number of product categories.

The question as to whether the retailer will crossover into bricks-and-mortar has been answered by Amazon Go, which may seem like a one-off vision poster, but how long will it take Amazon to iron out teething issues and orchestrate mass roll out? Why would it stop at groceries? With virtual accounts linked to Amazon credit cards – would the company go into banking? According to Accenture, 31% of consumers worldwide would be up for it.

Brands with no distinctive ideology would probably be better off cashing out and investing in Amazon stock.

New Path for Bricks-and-Mortar

Traditional retailers have an existential choice to either gradually lose ground to the ever-evolving algorithm or innovate and disrupt the game. Here are some of the touch-points that would certainly benefit from an upgrade.

 

Ideology

Brands need to do more than develop generic stories, attempting to make their corporate entities relatable. To get a critical mass of customers to withstand the temptation of opting for a better deal, brands will have to acknowledge that they are in a war for survival, formulate distinctive sets of principles that sincerely reflect their values and let those principles permeate their every action. Those, who have none, would probably be better off cashing out and investing in Amazon stock.

If voice is to become the channel of robot-to-human communications, face recognition will drive the message content and format.

 

Environment

With a rebooted ideology in mind, the new generation of environments will not be about keeping stock for see-now-buy-now transactions. The stores will become clubhouses, where everyone is welcomed, but quick registration is encouraged.

Members will be offered advice and entertainment relevant to the business – e.g. a workout or a cooking lesson. There will still be products to purchase, it just won’t be enough to lure people in. It would also make sense to learn from the Internet’s best and offer express delivery for those who prefer not to carry bags.

While today digital privacy is considered a luxury, in the near future customers will be able to either sell their data or keep it under lock and key.

 

Technology

Between virtual assistants running our lives & retail communications and our Internet data collected & traded by various businesses, some sort of social contract 2.0 will be agreed on for all parties to co-exist to mutual benefit.

For one, it will make consumer data trading transparent. While today digital privacy is considered a luxury, in the future customers will be able to either sell their data or keep it under lock and key. Retailers will provide good incentives for the former – personalised experiences, more efficient journeys and discounts.

If voice is to become the channel of robot-to-human communications, face recognition will drive the message content and format. Does the customer look stressed and in need of quick assistance or in the mood to be taken on a journey?

Personalised interactive communications will introduce an element of gamification and allow bespoke customer journeys – so that in-store experiences could be very different for different people.

Behaviour

In-store staff will become the key differentiator, offering unbiased expert advice and a variety of additional services – from beauty tips to tailoring. Commissions will be replaced with different KPIs, measuring customer satisfaction.

With low paying jobs going to robots, the remaining personnel will be more informed, empowered and supported by a members database, instantly providing information on the customer, the products he may be interested in and anything relevant to the context of their use (e.g. John Smith bought a fishing rod a year ago / here are three products he should be able to handle / the weather around the nearest lake on Saturday looks good).

The “client is king” mantra will be dusted off – businesses will sincerely try to provide anyone, who walks into their store with the best experience possible – before, during and after purchase.

The membership in a brand club will no longer be associated with promotional spam, mediocre deals and a generic birthday card.

 

Communications

Since the majority of retail will move online, customer expectations will be driven by highly personalised digital promotions. Product communications will move away from same-for-all posters towards personalised messages appearing on a user’s device as he walks through the store.

Unlike the majority of current attempts in the field, the messages will be worth giving consent to receive – they will be relevant, simple and offer instant discounts based on a number of factors.

Personalised interactive communications will introduce an element of gamification and allow bespoke customer journeys – so that in-store experiences could be very different for different people.

Looking at the data, disruption seems inevitable; the question is – who will reinvent brick-and-mortar retail – an established specialist or a maverick from another industry with a fresh perspective.

 

Self-perfection

Finally, all aspects of ideologically-charged brand experiences will be managed by self-learning AI, becoming better (smoother, more relevant) with every transaction made and customer served.

The membership in a brand club will no longer be associated with promotional spam, mediocre deals and a generic birthday card – in order to survive, traditional retailers will have to offer the best of all worlds – the passion of the brand, the warmth of physical interactions and the efficiency of IT infrastructure.

There is a good chance that in the decade to come our high streets will look very different from how they look today.

 

The End is Nigh

Whilst it may be comforting to think that traditional retail has been around since the dawn of time and the situation is less dire than suggested, L2 have calculated that the commercial landscape in a sector changes drastically when it reaches 20% of e-commerce penetration.

Toys and consumer electronics have recently passed that milestone in the US, marked by Toys ’R’ Us layoffs and RadioShack bankruptcy. Sporting goods and apparel are expected to get over the line (also in the US) within the next 12 months.

 

Epilogue

Looking at the data, disruption seems inevitable; the question is – who will reinvent brick-and-mortar retail – an established specialist or a maverick from another industry with a fresh perspective. The good news – these are great times for businesses with an appetite for the extraordinary.

More good news, not as much for the retail community, but for some of the urban dwellers – there is a good chance that in the decade to come our high streets will look very different from how they look today. In just a few years, a “Saturday trip to town” may stand for a lunch, followed by an art exhibition in the building that used to be a shopping centre. Although some of us will surely prefer to stay at home and do some shopping.

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