Amazon as awesome or apocalyptic is a trick question. The answer requires a distinction of Amazon being awesome or apocalyptic to whom and why. If you were to simply answer the question at face value, the answer would be both. Disruption 2.0 refers to Amazon’s latest stealthy (or not) attempt to disrupt the world of physical retailing. But this time, I don’t think they know what they are in for. Maybe that’s why Jeff Bezos opted out of the Chief’s chair.
Consumers would say Amazon is awesome for all the obvious reasons. In fact, according to Survata, 49 percent of consumers go to Amazon’s site first in their shopping journey. Convenience, speed and value (both perceived and real) are its great differentiators, which vaulted Amazon into the leader of total ecommerce sales in the U.S. at about 40 percent, according to eMarketer. In terms of Amazon’s “endless aisle,” they carry about 350 million products. For context, Walmart offers about 35 million (and climbing) on its site.
Many pre-ecommerce traditional brick-and-mortar retailers viewed the meteoric rise of Amazon, and other “digital pure players” pulled into its jet stream, as apocalyptic, potentially eradicating the entire industry. Of course, that horrific specter soon gave way to a great awakening across all of retailing that a new era had arrived, one which Amazon arguably created. The new digital retail model was one the legacy world had to either adopt or die trying. So, Amazon’s disruption of the strategic and structural ecosystem of an entire industry is an understatement. I call it an apocalyptic event.
Pause and Reset
Actually, the brightest minds running brick-and-mortar retail, such as Walmart and Target, hit the pause button on apocalyptic thoughts. They reset their vision of a physical and digital integrated model as a game changing opportunity. In fact, most of the brick-and-mortar leaders came to realize that their integrated model had a huge advantage over Amazon’s digital-only platform. Put simply, the combination of physical and digital is the most cost-effective way to accomplish the two most important functions in retail: customer acquisition and distribution.
Think about the physical presence of Walmart’s roughly 4500 locations, which puts a store just ten miles away from 90 percent of the U.S. population. Then understand that each store is both a shopping destination and a distribution center for shipping a customer’s online order or for order pick-up, either inside or curbside. And when shoppers pick up in the store, 85 percent of them make additional impulse purchases, according to Business Insider. While numbers vary, shoppers who have the choice of shopping online and in store spend anywhere between three to five times as much as those who have only one sales platform. And of course, there is the human touch, social engagement and experience factor, which is impossible to deliver online.
My reason for restating what has become the obvious for the majority of retail leaders who have these integrated models, is that when Amazon opened its first Amazon Go test store in 2016 without a lot of fanfare, it caused a lot of industry head scratching about what they were doing. Some experts foresaw this move as an early and ominous sign that Amazon realized the advantages of the integrated omnichannel model and by scaling up in the brick-and-mortar world, they could continue be the great disruptor of all and even destructor of many.
Then there was the acquisition of Whole Foods, which generated more head scratching. Where was the fit? Was this a strategy tossed against the wall to see if it would stick? Why grocery? I even wrote that if Bezos wanted to become a major player in grocery (early on he said that Amazon should become dominant in two categories: apparel and grocery), why wouldn’t he just acquire Kroger? In pursuit of apparel, I suggested why not acquire Kohl’s. In fact, with a market cap of over a trillion dollars, Amazon could take over and acquire dominant players in any industry.
After all, Walmart acquired Jet.com (and its digital knowledge and skills) to strengthen its initial path into a stronger ecommerce presence. Once it learned what it needed to, it folded Jet into Walmart’s brand.
So, why wouldn’t Amazon just want to acquire its way into the physical retail world (including its management expertise) instead of building it from scratch (with the exception of Whole Foods)?
Disruption 2.0 – 3600 Physical Stores?
So, what’s up with Amazon? I’ll tell you what’s up. Of course, Bezos, and the genius he is, gets it, and likely got it from the beginning of Amazon. He has always known that the integrated omnichannel model is the future for retail success. Spoiler alert: I believe the strategy they seem to be employing to build a national omnichannel is flawed.
Consider this: In what seemed like an under-the-radar, random test in 2016, Amazon opened a 4-star in one place, an Amazon Go in another, an Amazon bookstore here and an Amazon Pop Up there. But think about it. Was it actually using a stealth strategy to perfect new innovative models, which would be followed by massive rollouts of physical stores across the U.S.? The answer: Exactly! At least that is what they think and intend to do. But in my opinion, it is an objective in search of a strategy.
In a recent Forbes article, Adam Ifshin, a board member of the ICSC industry trade group said, “Amazon is on track to become a gorilla in the bricks-and-mortar retail business with eventually as many as 3600 physical stores. There’s only one company in ecommerce that matters and its Amazon. And what are they doing? They are trying to become Walmart.” Again, I agree with that as their objective. But their strategy is: Try this and that and see what sticks.
For the record, here’s the tally so far:
- Amazon 4-star: 31 locations; small stores, locally curated, 4-star ranked items.
- Amazon Go: 26 locations; convenience stores, fast food, no lines, no checkout.
- Amazon Go Grocery: 2 locations; no checkout lines
- Amazon Books: 24 locations; after having wiped out thousands of bookstores in its early years.
- Amazon Pop Up: 7 locations; shops with rotating and updated brands.
- Amazon Fresh: 5 locations; fresh food, low prices.
- Whole Foods: 500 locations.
Whole Foods aside, 95 physical footprints with no commonality, is not even worth talking about — if it were any entity other than Amazon. But it is Amazon. So, that’s why we are talking about it. And given Mr. Ifshin’s view that Amazon could become a gorilla in the brick-and-mortar industry, I believe this should be another wake-up call for everyone, after the first alarm, which was Amazon’s birth. So, wake up. Be alert. Talk about it. Because it is Amazon. And it could be disruption 2.0
Walmart, Are You Scared Yet?
I’ve written several articles over the past five years about Walmart’s rapid transformation of its entire ecosystem to a platform embracing technology — including AI, data analytics — and its leap forward in ecommerce using Jet.com as a catalyst. I have said so many times that the real number-one retail gorilla in the world, Walmart, will become (if not already) Amazon’s biggest headache. They have already perfected the integrated, omnichannel model, and while Amazon races to scale its 595 locations (in search of a strategy), to get to Ifshin’s 3600, Walmart is not going to be sitting back passively with its current 4500 locations. Nor will Target or any of the other successfully transformed, omnichannel legacy retailers sit idly by.
Amazon’s Flawed Strategy
So, assuming that Amazon from day one envisioned its future as a fully integrated digital and physical model, it’s hard to understand its unusual snail’s pace to get there. I believe their random hit-and-miss process, testing here, experimenting there, and what seems to be a wobbly start with Whole Foods, is an indication that their strategy is uncoordinated at best, or doesn’t exist at worst. In either case, the slow implementation is flawed.
The industry talks about the necessity today for agility and speed. Almost everything that Amazon has achieved, including its speed to scale — with the exception of its physical store strategy — could be lauded as exemplary in agility and speed.
Maybe they should have been watching Walmart more closely to learn from their incredible agility and speed in acquiring Jet.com as its way into the digital world. It was an intelligent decision to buy instead of spending billions of dollars and years to build.
Back to my original question: Why wouldn’t Amazon acquire Kroger and Kohl’s to achieve an overnight dominant presence in grocery and apparel? In the process, they’d have thousands of distribution centers (stores) for both categories. Then they could test and innovate to their heart’s content all day long.
Here’s a more audacious idea. With Amazon’s market value, why don’t they just cut to the chase and acquire the biggest and by many measures, arguably the best retailer in the world? Walmart watch out.