How retailers could end the war with Amazon
Amazon has been eating the business and the margins of retailers for more than a decade now. And the digital behemoth is nowhere from stopping its hegemony as the company is now trying to literally enter the homes of the consumers with its service Key that enables the delivery inside their homes. Department stores are more than ever challenged to provide a new consumer experience and revisit the way they distribute products from CPG companies. As the post from bestseller’s Blue Ocean authors suggests, those companies should change their way of thinking to prevent them from fighting each other for small shares of the business left by the likes of Amazon and Alibaba. Indeed, the market has changed and now is time to understand that department stores are sitting on an untapped potential: the distribution has become more and more complex due to the digital channels and that is their chance!
What we know:
Traditional distribution channels have been disrupted by the emergence of digital channels that are better performing due to (1) a large investment of the latter in the logistics and (2) the new purchasing behaviors that are born from it. Amazon and the likes are massively investing to create relevant tools to drive products from warehouses directly to the end customers, bypassing the need for consumers to drive to department stores and experience modest to poor in store value added services. In addition, Amazon is developing services such as Echo, Dash button, Prime, among others, to create the new best-in-class shopping experience when standard department stores and retailers are bleeding customers and don’t invest in the right direction. Indeed, instead of challenging Amazon, Alibaba, and specialized digital distribution leaders, they should focus on building the expertise on managing the multi-channel distribution, including the digital distribution channels. Because it is where they can create value.
Why you should care:
Amazon and specialized distribution channels are now the experts in logistics and customer care since the online shopping experience is all about how fast consumers will receive their products and how to deal with shipping problems. Purchasing shoes online is the essence of this expertise and Zappos has been the first one to crack the code by providing a 30-day free returns and exchange policy that turned their company into the industry leader that Amazon acquired. To compete with such incumbents on the logistics expertise is of no use. But as the competition on online distribution has increased, department stores and retailers should understand that the complexity has created an incredible opportunity to become the leader in distribution (not logistics) if they can become the premium partner for CPG to build their distribution over all the range of available channels, including both physical and digital stores. Why? Because department stores and retailers already own the massive physical data that the digital leaders are trying to acquire by launching shopping devices like Amazon Echo and Google Home. If you add to them the data coming from the digital distribution channels, you can provide CPG companies what they want: a single point of contact to manage their sales pipeline.
What to do:
The first stage is to update the data consolidation process to facilitate the consumer profiling, including the CLV calculation and the up and cross-selling potentials. Here I am talking about how to harness the intelligence that is dormant in the sales receipts. As seen in the different consulting missions I had the chance to deliver for clients, close to none has set up a relevant process to easily tap into them to extract the required intel that would enable a powerful CRM for the end customers and generate services that are desired by CPG companies. The second stage is to build the platform to collect and consolidate the sales data coming out of the digital channels and with the physical stores data. It would then enable a global understanding of the customer journey without having to rely on the still not reliable analysis coming from startups that promise end-to-end and cross-device customer journey data. This global understanding would become the cornerstone of an updated offering for retailers and department stores based on the capabilities to target the consumers at the right time at the right place. Doing so would also reposition the online shopping websites and marketplaces into tools and services to ship products when they are not in the physical stores, and solve the retailer’s issue with becoming digital distribution experts.