Everyone is talking about retail apocalypse. Is retail dead? Is brick and mortar dead? If we look at the recent bankruptcies, we might agree that brick and mortar retail is on the verge of collapse and that e-commerce is poised to take the reins of retail. Albeit this looks like the trend, I don’t believe brick and mortar is dead, nor e-commerce will dominate the retail landscape. Rather, what we are seeing today is a game of strategy and those who do not adapt will perish.
Before deep diving into what is going on in the retail landscape, it is important to understand history and how retail strategies have changed throughout time. A lot of people think that e-commerce started around the dot-com era, but I differ. I believe that the predecessor of e-commerce, minus the internet started with the retail behemoth Sears. Today Sears is a history of distraught, tangled up in a strategy debacle. But this what not the case prior to the 1970s. In the late 19th century, Sears flourished, understanding consumer needs and preference. During that time, the United States was a far-flung, underpopulated nation. More so, ample people lived in rural areas, which meant that access to retail locations was scarce and prices were high due to the lack of competition. Sears understood this and developed a catalog business for those in rural America. As Mr. Schrager poised,
“The catalog was “really the Internet of the day — a place where anyone, at any time, in any place could take a look, say, ‘Oh my gosh, I need that’ — and get it.”
By the 1930s, again, the American consumer preferences changed, and Sears molded its strategy of opening stores in urban areas, becoming the most convenient retailer for those in urban areas as well as rural areas, with their catalog business. By the 1960s, Sears again adapted their strategy to ever changing consumer tastes, by opening sub-urban stores, fueling the post-war sub-urban growth in the United States.
To understand today’s retail environment, it is important to understand history and understand that today “retail apocalypse” is not a battle of brick and mortar versus e-commerce, but rather this a pure game of strategy. The retail landscape is changing, and those who do not adapt will not prevail.
In today’s retail landscape in the United States, Walmart is the undisputed leader in terms of revenue at USD$486B (2016), while Amazon is not even half, balking at a USD$136B (2016). Yet if we look at market capitalization, which is how the stock market the company is “worth” based on future earnings, Amazon leads the way. Does the stock market something that we don’t? I guess it all boils down to the same issues faced by Sears, this is still an issue of strategy not e-commerce versus brick and mortar.
If this is the case, why is Amazon now entering the brick and mortar? Amazon is simply following an omnichannel strategy. As HubSpot defines omnichannel strategy as, “the ability to deliver a seamless and consistent experience across channels, while factoring in the different devices that consumers are using to interact with your business.” During the heyday of Sears omnichannel meant being both on mail in catalog as well as brick and mortar. Nowadays, omnichannel means having online and physical presence, and Amazon is following suit. But it not only means just having presence in the two channels, but rather levering upon data and providing the customer the products when they want them and how they want them.
That is why Amazon has entered brick and mortar (among other reasons) to provide customers to what they want, when they want it. But what do customers want? For one they don’t want to wait in line, as such, Amazon has created Amazon Go, which levers upon advanced cameras and machine learning, so you can just pick any item and leave the store without having to wait in line. Amazon acquisition of Whole Foods, I would argue serves for three purposes in the future, to lever upon data, specifically customer insights, to implement Amazon Go platform and convenience, and to use physical stores as a bridge for local e-commerce deliveries.
Amazon is following a rather unusual path, e-commerce towards physical presence. So how do the established brick and mortar players such as Walmart, Target, among others compete in this competitive world.
As EVP of Global People Division at Walmart, Jacqui Canney, talked in class last week, Walmart, is transforming itself as a digital company, first by transforming from within and empowering those at the organization with the tools necessary to become a digital business. I guess it makes total sense as to why they bought Jet.com recently or bonobos, shoebuy, and the list goes on. It’s clear that in this age, businesses must mature and become present in both the e-commerce and brick and mortar space, like Walmart has done.
Walmart has also entered the mobile payments space. Interestingly, Walmart pay is close to surpassing Apple Pay in terms of transaction. One of the main reasons for this is because of the seamless experience customers have at Walmart when using Walmart Pay. This payment method is also seamlessly tied to the Walmart Savings Catcher, if a customer finds a cheaper offer, the system automatically issues a coupon for the difference.
Today’s retail environment is not a competition between e-commerce nor brick and mortar but rather a competition for the best omnichannel retail experience. As a Doug McMillon CEO of Walmart states,
“Our goal is to be able to serve our future customers. To do that, we need to build a strong and capable e-commerce business—but also to strengthen what we’re doing in stores. Customers want to save money and time and have the broadest assortment of items, and we think that by bringing e-commerce and digital capabilities together with the stores, we can do things that a pure e-commerce player can’t.”
Today’s world is about providing the best customer experience and convenience and that means playing both in the digital and physical landscape. Those who do not realize soon enough, will perish.