In a previous article, I unpacked five reasons to panic about Amazon’s rise and dominance in every category they enter. If we take a step back and gain some perspective, we can see that Amazon is not going to cause an apocalypse in retail or in B2B distribution. While they may put some companies out of business, there is plenty of room for innovative, customer-focused organizations to steal some of Amazon’s best ideas and make them better. Ultimately, it will come down to who will provide the best experience to the customer.
Big Picture: Why I’m not Scared
I like what WarbyParker.com co-founder, Neil Blumenthal said on this topic: “I don’t think retail is dead. Mediocre retail experiences are dead.” Right on. I sleep well at night even when I think about the “death of retail” and the “Amazon-pocolypse”.
Rising Tide: Amazon is the beneficiary of a trend we can all benefit from – more people are shopping online than ever before. By 2020, there will be 2 billion online shoppers. That’s like the populations of both the USA and Brazil becoming a potential customer over the next three years. As a result, global ecommerce sales are set to grow 9 percent to $2.5 trillion dollars in 2018. Amazon will have a disproportionate share of this growth, but not all of it.
Physical Retail is not dying: By 2021, 16 percent of total retail sales globally will happen online. That means 85 percent of retail sales will happen in an offline channel like physical retail stores or heaven forbid print catalogs! What’s more important is that the most profitable customers use multiple channels when shopping; this won’t change. Customers will still want the convenience and product assurance that physical stores provide.
Amazon is not perfect
Amazon’s business model is not perfect. While Amazon may be the fastest growing, it is not the biggest nor the most profitable retailer in the world. At some point Amazon will achieve market saturation and need to deliver profits. At this point, Amazon will face a choice. What’s likely is prices will begin to match competitors or even become more expensive due to Amazon’s significant preference from customers. This assumes Jeff Bezos’ breaks from his now famous Flywheel principle, where lowering prices brings more customers and revenue that you can use to improve operations to become profitable. This will all rest of whether Amazon will become the online version of Costco, where most of the profits from the business are derived from the membership fees rather than selling merchandize.
Amazon Flywheel model
The path forward; Becoming customer obsessed.
The heart of Amazon’s strategy is simple. What they have done can be repeated. They became customer obsessed. They made their sole mission to understand what their consumers want and worked tirelessly and creatively to deliver it to them.
Early in Amazon’s history, when it was primarily an online-only retailer of books, Jeff Bezos’ emailed 1,000 customers to ask them what they want to buy online. He was surprised to find out they wanted to buy many products he didn’t sell including consumer electronics and apparel. This was a defining moment where Jeff Bezos innovated by launching one of the first modern online marketplaces which allows other sellers to connect to Amazon’s consumers.
There’s a critical lesson here regarding being customer obsessed and it’s summarized in how Jeff Bezos defines being customer focused. He says, “If you’re customer-focused, you’re always waking up wondering, how can we make that customer say, ‘wow’?”
Bottom line? Stop worrying about Amazon!
The trick here is to care about your customers more than you worry about your competitors. I’m not suggesting you disregard what competitors are offering but rather shifting your focus to answer the more difficult questions about how to understand what your customers truly want and how your company can best deliver them. Understanding your customer better than Amazon does is the great equalizer.
REI, for example, has taken its instore experience of knowledgeable associates online with its blog and has injected brand authenticity into their marketing by closing all of their stores on Black Friday.
Apple has become one of the most successful retailers measured in dollars per square foot. Not to mention their exceptional in store experience. This has fueled their line extension in selling consumer electronics like headphones and speakers, even drones through their retail footprint. This all helps drive revenue and margin per square foot metrics.
Smaller start up brands like Bolia.com have put digital experience at the center of every interaction including consumers customizing their sofas online and picking up in store and providing rich and immersive experiences in their digital footprint.
In developing their strategy moving forward, brands should take a clear-eyed view of how Amazon will impact their business. The facts about Amazon are true. There are reasons to panic, but brands shouldn’t panic.
An e-commerce or in-store experience shouldn’t seek to be all things to all people, but rather become customer obsessed. Take a cue from Jeff Bezos and his 1,000-customer survey: ask what your customers want, then deliver. That may or may not be two-day shipping, but a dialogue is essential in a world where customer obsession is the key to success.