We often hear from new retailer clients that Amazon is hurting their business, and “How can we compete successfully now that Amazon is seemingly everywhere?” The answer to this isn’t cut and dry because it depends on the retailer, the product offering, and the target consumer.
Competing with Amazon is no small task. Amazon has a 15-year, $100+ billion infrastructure head-start on the rest of the online retail industry, coupled with talent, technology, innovation, competitiveness, and consumer obsession. No retailer exists today that appears able to beat Amazon in the business it essentially created. But that’s not to say that other companies can’t survive and thrive. Below are a few thoughts that may help shed some light on the subject.
One place to start is to recognize that not all retailers have to look like Amazon when it comes to value proposition. Things like immediate delivery, no face-to-face selling process or human touch, and the lowest commodity pricing aren’t for everyone. Take Nordstrom for example, a healthy share of their customers purchase goods online, but many customers seek the interaction with a seasoned sales person. In fact, many people use the complimentary Nordstrom styling service, which you cannot get online. The same can be said for jewelry. Who would want to purchase something from Tiffany & Co. without getting the “white glove” Tiffany’s in-store experience? The retailer that has an intimate and trusting relationship with its customers knows what its customers will and won’t demand. The key is to know your customer. Know what matters to them and why. And leverage a value proposition that satisfies that need.
Amazon offers a massive and proven platform for brands to feature their products, but it isn’t the only game in town – retailers can compete with Amazon by leveraging other marketplaces as well as their own branded presence. Recently Lord & Taylor announced it would make products available on Walmart.com. That’s a relationship few saw coming! Walmart is working to increase its market share by offering high-end fashion. In fact, many of the biggest retailers sell unrelated goods from different brands on their marketplace as a means to expand their offerings. This especially works for retailers seeking the ability to scale quickly, reach millions of consumers, and maximize flexibility.
Another option to stay competitive online is to outsource some or all of the fulfillment process to a 3PL (third-party logistics) company. There are many reasons why retailers choose 3PLs to execute fulfillment. First, a professional fulfillment company can likely do the work better, faster, cheaper, more predictably, and safer than most retailers. 3PLs offer the ability to scale up or down as needed, which is especially important for busy times like the holiday shopping season. Retailers also don’t have to make the capital investment in fixed costs such as real estate, material handling equipment, transportation, or commit to their own labor. Lastly, 3PLs offer speed-to-market that a retailer couldn’t get if it chose to self-perform. Using a 3PL may also mean you aren’t giving sales data to a competitor by using their online marketplace.
Fifty-nine percent of Millennials, the largest consumer group, still believe a nearby physical store presence is important when making online purchases. An established network of well-operated, strategically-located retail stores that provide a compelling consumer experience is something that an online retailer will not easily be able to equate. Amazon’s recent purchase of Whole Foods expanded its network to 460+ store locations, which was a strategic deal that now lands them among top grocery stores nationwide, while also offering a physical store platform for their products. But even an established network of this size can’t compete with the existing infrastructure of stores that have been around for decades providing in-store experiences for years. Regardless of how quickly Amazon expands its Whole Foods footprint or buys another physical retailer, it will be a small percentage of the store networks of Walmart, Target, Kohl’s, and Best Buy, for instance. Leveraging a store network at scale, with an engaging offering, is increasingly a powerful weapon.
If You Can’t Beat ‘Em, Join ‘Em
Partnering with Amazon may deliver an extremely high click rate and offer sales volumes a retailer may not be able to achieve quickly or without great cost. Take Instant Pot for example, the company decided to use Fulfillment by Amazon for shipping and it was a huge win for them! The machine is now the top item on Amazon Wish Lists and Wedding Registries with a national reach.
I will close with this – yes, it is extremely difficult to compete with Amazon, but it can be done through various strategic channels and a well-planned network to deliver products. Not all consumers want to buy online. Statistically most people still want an experience – to pick-up and touch items before purchase. Retailers who differentiate by creating a unique consumer experience will find success.
Cushman & Wakefield’s newCommerce initiative can help retailers determine the best course of action in today’s evolving retail landscape. To learn more, please visit: www.cushwakenewCommerce.com.
Ben Conwell is Senior Managing Director and Practice Leader for Cushman & Wakefield’s eCommerce and Electronic Fulfillment Specialty Practice Group for the Americas. He is based in Seattle, Washington.