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The battle for retail (or why Amazon acquired Whole Foods)

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The battle for retail (or why Amazon acquired Whole Foods)

Retail is at war. On one side of the battleground sit historic brick-and-mortar stores, built from the ground up to become titans of industry.

On the other, ecommerce insurgents brandish low prices, greater convenience and a digital-first marketing strategy. Both are fighting for that precious middle ground between physical and digital [1]. But who will be the victor?

Image by Walmart Corporate on Flickr, available via CC BY 2.0 [2]. Image has been edited.

The flag-bearers of this industry-wide clash are two of the biggest names in retail: Amazon and Walmart.

Walmart are one of the most recognizable brands in US. With nearly 12,000 stores worldwide – operating in 28 countries including the US, Canada, Mexico, the UK and in Southern and Central America. They are the world’s largest company by revenue (around $480bn as of 2016) and employ some 2m workers.

Although their access to cheap third party products is nowhere near that of Amazon’s, their size alone make them a force to be reckoned with. And crucially, they have something that Amazon want – a distribution network, allowing them to access customers locally and deliver things like groceries.

Facing off against them are digital-first retailers like Amazon. Starting life as an online bookstore, Amazon gradually diversified into electronics, clothes, toys and furniture. Today, they sell everything from e-readers to cloud infrastructure services.

Initially their growth was driven by lower prices and the increased convenience of remote shopping. However, they have typically relied on distribution centers outside major cities, which means increased costs and complexity over the ‘last mile’ of the journey to the consumer – limiting the scope for certain products.

Both seek the prized middle ground between physical and digital – with a compelling online experience that helps drive offline sales, and vice versa.

Of course, there is a huge downside to all this. It has spawned the most diabolical portmanteau ever witnessed by mankind. A word so barbaric that it must be whispered softly, lest it rend the earth in two. That word is… phygital [3].

May God have mercy on our souls.

Both companies have made claims to the promised land already

Walmart’s acquisition of online retailer jet.com [4] for $3bn in June was a clear statement of intent. As well as bringing a successful ecommerce brand into the fold, the merger saw jet.com’s founder Marc Lore appointed head of Walmart’s US ecommerce. The effect was significant: Walmart’s ecommerce sales rose by 63% in Q1 2017; compelling evidence of the potential for success with the right hands and the wheel.

Image courtesy of Bloomberg [5]

Amazon, not to be outdone, acquired high-end grocer Whole Foods just a month later for $13.7bn. There has been much speculation on Amazon’s ultimate strategy in this area. Francis Nicholas, Group Digital Director for Nomad Foods [6], gave ClickZ his thoughts on this acquisition at eTail Europe [7] last month:

‘[Amazon] could now say ‘I have inventory now in over 500 locations in the US’. That allows them to roll out their Amazon Prime Now and Amazon Fresh models; that might be the real ultimatum. Or it might be: ‘how do we create a true multichannel solution like the bricks-and-clicks guys – Walmart etc?’ Or it might even be a pure-play angle with Amazon Go…I think they’re going to do a lot of testing, and use it as their hub to get geographical coverage over the country.’

The benefits are clear 

One thing is for sure: digital and brick-and-mortar [8] both have a real role to play in customers’ lives. For other online retailers who have made the shift from ecommerce to physical stores, or vice versa, the benefits are clear.

Traditional retailers like Target, Walgreen’s and Neiman Marcus have all recently bolstered their digital offerings in an effort to drive additional revenue. Pharmaceutical company Walgreen’s have focused heavily on mobile – over 60% of their traffic [9] is now on smartphones and their mobile app. In this context, mobile is used as to complement the in-store experiences, with the app offering features like prescription transfers and refills by scanning your phone.

For ecommerce businesses, product showrooms have the potential to deliver the benefits of a fully operational physical store at a fraction of the price, needing fewer staff to maintain, and no POS system to manage. Men’s fashion brand Bonobos [10] have adopted this strategy, opening ‘Guideshops’ where customers can come and try on clothes, speak to an assistant and order products to their house.

This delivers huge benefits to the customer – allowing them to ensure the clothes they want to order actually fit, obtain free style advice and get a location to return any unwanted clothes.

The Bonobos website explains how the Guideshop system works

An alternative strategy for ecommerce businesses is to simply transition the online brand proposition to a brick-and-mortar store which actually stocks products and allows customers to purchase them. Eyewear retailer Warby Parker [11] have taken the approach, announcing earlier this year that they’d be opening an additional 25 brick-and-mortar locations in the US in 2017.

“I don’t think retail is dead. Mediocre retail experiences are dead,” said their CEO Neil Blumenthal in an interview [12] with The Wall Street Journal.

What does the future of retail look like?

In the short-to-medium terms, traditional retailers will adopt digital ways of working to help improve back-end efficiency as well as the front-end user experience – cutting costs and delivering a seamless in-store experience [13].

For ecommerce retailers, access to data will drive greater levels of personalization – helping to solve the problems associated with customers not being able to ‘touch and feel’ the product.

Ultimately, this is great news for users. The retail experience of the future will be simple, affordable and highly personalized. What’s not to like?

Related reading

Vector graphic of a smartphone or tablet screen superimposed on some office buildings. A person in a Superman outfit is flying across the screen, with a speech bubble icon and a location icon around him.

References

  1. ^ middle ground between physical and digital (www.clickz.com)
  2. ^ CC BY 2.0 (creativecommons.org)
  3. ^ phygital (www.clickz.com)
  4. ^ jet.com (www.clickz.com)
  5. ^ Bloomberg (www.bloomberg.com)
  6. ^ Nomad Foods (www.nomadfoods.com)
  7. ^ eTail Europe (www.clickz.com)
  8. ^ brick-and-mortar (www.clickz.com)
  9. ^ over 60% of their traffic (www.umbel.com)
  10. ^ Bonobos (bonobos.com)
  11. ^ Warby Parker (www.warbyparker.com)
  12. ^ interview (www.wsj.com)
  13. ^ in-store experience (www.clickz.com)
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