Going up against Amazon is like taking a knife to a light saber battle
It’s hard to escape the news regarding the digital transformation and how it is impacting retail as we knew it. In the US, there are ever increasing reports of more store closings and shopping malls grasping for tenants to fill empty space. While Amazon grabs the headlines as the poster child for ecommerce, what is not so apparent to the average customer is why it is so hard for traditional stores to compete. Once you peel back the layers to reveal the battle of “bots” and other emerging AI, it is apparent that most retailers are trying to compete in the new “star wars” of retail by bringing a pocket knife. Question is whether Amazon is invincible?
Why this is important: Nothing is fair in love, war or retail. Amazon and large retailers are deploying technology that makes it impossible for many retailers to compete. To survive, tomorrow is “day one” to find something to differentiate value.
The hidden secrets of “digital” that make Amazon an imposing force
Yes, Amazon is an incredible innovator. Yes, they focus on infrastructure and the long term. And yes, Amazon has the best ecommerce platform worldwide. The culture of Amazon innovation is growing revenue at such a pace, that Amazon is now worth the value of 2 Walmarts! But, just what is it that gives Amazon such an incredible advantages?
The whole is greater than the sum of the parts. While consumers tangibly see good values, convenience and gold standard services, they don’t see what’s going on behind the scenes. Many of Amazon’s individual components are well known and discussed, robotics in distribution centers for example. Many of the individual “components” like distribution can be replicated to some degree by competitors, especially one with deep pockets like Walmart. The key differentiator for the very top competitors like Amazon integrated physical and digital strategies comprising a total ecosystem that creates a huge barrier of entry for other retailers.
Here are three case examples that collectively represent formidable barriers for traditional retailers, especially those with a bricks and mortar heritage.
1. Battle of the Bots
“Bots”, are as the name implies, are essentially automated functions to do specific tasks at incredible speed and accuracy. Robotics if you will, but not always physical or mechanical. One type of bot is essentially a “web crawler” that goes online to scan prices of individual items across thousands of SKUs. So, why is this important strategically? Pricing online is extremely competitive. The difference of 50 cents over a million units can make or break ecommerce profitability.
Walmart had its own bots checking Amazon prices several million times a day. According to an article in Fortune, Amazon was able to block Walmart’s pricing bot for months. This is the epitome of the kind of star wars battle between retail goliaths being fought in digital space. And, the importance cannot be overstated for traditional retailers:
Amazon’s “mastery of the complex, behind-the-scenes technologies that power modern e-commerce is just as important to its success. Dexterity with bots allows Amazon not only to see what its rivals are doing, but increasingly to keep them in the dark when it undercuts them on price or is quietly charging more.”
Pricing bots are just one digital example of the integrated ecosystem of technology and systems that Amazon and Walmart have in their omnichannel arsenal. Smaller retailers simply do not have the resources to recreate this strategic infrastructure.
If a retailer does not know what IFTTT is, they have already lost more than half of the battle. IFTTT stands for “If This … Then That”. It is essentially AI (Artificial Intelligence) applied at a simplistic level to automate choices and actions. IFTTTs can create algorithms that can enable customers to make a purchase based upon a predefined set of criteria like price point, quantity left on hand, or even weather conditions.
Amazon deploys a host of IFTTTs online, incorporates them into Alexa, and engages customers through Dash buttons. But, Amazon is not the only retailer deploying IFTTTs in retail and supply chain automation. According to a Tom Furphy interview in Morning News Beat:
“Today Tesco is using IFTTT for a number of automated tasks. Their applets can automatically order products if they meet a certain price, they can add burgers to a shopping basket based on the weather, or they can set a reminder to add certain items to a basket at a certain time. They are also using IFTTT to allow customers to use Google Home to add items to their basket.”
Many traditional retailers might scoff and say that their customers don’t need or want IFTTTs. But, in today’s omnichannel world, consumers increasingly expect their retailers to match the convenience and services levels provided by Amazon or a Tesco. IFTTTs create convenience, and even more pressure on competitive pricing driven by real time pricing criteria by empowered customers.
FBA = Fulfillment By Amazon. Plain and simple FBA is supply chain disintermediation. Amazon’s current genius is using its Marketplace to recruit retailers and brands to sell their products on Amazon’s ecosystem. As part of Amazon’s “turn key” solution, the Marketplace products are Fulfilled By Amazon.
The genius and value of FBA cannot be understated. Amazon’s own fulfillment costs for Prime are in the billions. By incorporating the Marketplace sellers into FBA, Amazon gains logistical volume, efficiencies and resources to continue to build state of the art systems. Amazon is taking FBA to new levels of picking up products at manufacturing locations, and delivering them direct to the consumer’s home … thereby disintermediating distributors and most of the traditional supply chain.
Is Amazon world domination inevitable?
There are many more components of Amazon’s holistic ecosystem. But just considering Bots + IFTTTs and FBA creates a huge strategic advantage that even Walmart is struggling to compete with. Other than Walmart, there are only a handful of retailers with deep enough pockets to be able to overcome the barrier to entry and invest billions in this kind of infrastructure creates huge competitive advantages.
There is little profit to be made in ecommerce today without efficiencies and massive scale. Amazon didn’t turn a profit for years. And, the cost of replicating multiple components of Amazon’s ecosystem to be as competitive is virtually insurmountable. In addressing the question of Amazon’s dominance, many betting when, not if.
What can traditional retailers do?
The first thing smaller traditional retailers need to do is shed the historical baggage of selling products at a price. Their future lies in creating engagement and relationships with customers. To do that, retailers must leverage what Amazon does not have much of yet: stores and talented staff. You can bet Bezos has a strategy for why he plans to build 2,000 “stores”. Traditional retailers already have stores and staff … they need strategies to leverage them.
Bottom line: Bezos’ mantra is tomorrow is day one, but he states that they are working on 2024 right now. Driverless cars and delivery will be a reality by then. What will it mean when customers have driverless cars and delivery? Will they still go to stores? Chances are most retailers haven’t even thought about what driverless means to store design and “parking lots”. You can bet with certainty that Amazon is already planning a holistic ecosystem to leverage it.