Amazon Concedes Defeat

I read a lot about the so-called death of brick-and-mortar retail. But if physical retail is dead, then why is Amazon investing so heavily in retail stores?

All I read about lately is the so-called death of brick-and-mortar retail.

In the future, it appears, we will never leave our homes to buy anything. Hovering drones will airdrop this week’s shipment of cornflakes and razor blades. Robotic delivery vans will offload the heavier stuff, such as a 20-pound bag of dog food, on our doorstep.

Malls will be demolished, their concrete slabs and parking lots broken up and carted away. And the land, now free of its income-producing capitalist burden, will be allowed to revert back to wilderness.

And yet…

If physical retail is dead, then why is Amazon investing so heavily in brick-and-mortar stores these days?

The answer points not just to Amazon’s plans for the future, but how the smartest old-school retailers are learning to grow profits once again.

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Meeting in the Middle

As The New York Times noted a few days ago, Amazon CEO Jeff Bezos and company are a busy bunch lately. The online retailer already has a small but growing chain of about a dozen “real” bookstores.

Amazon is also experimenting with a drive-thru grocery store concept called Amazon Go. Supposedly, furniture and appliances might also be part of its brick-and-mortar future.

What gives with all the Amazonian experiments?

A recent study by the global consulting firm A.T. Kearney sheds some light: “Brick-and-mortar is the foundation of omnichannel retailing.”

In other words, if you want to keep selling lots more stuff each year, you need an e-commerce website and a physical store too.

It’s all about the brand experience and the chance to touch and feel the products. That’s true not just for computers (ask Apple how successful its stores are) but for fresh cantaloupes, women’s culottes and living room couches.

But if that’s the case, why are so many old-line retailers — Sears’ recent “going concern” warning just being the latest — in such dire shape?

Until recently, most industry executives saw themselves as simply being in the retail store business.

For them, “disruption” — the code word for innovation in Silicon Valley — meant a cashier who got sick and didn’t show up for work. Amazon, on the other hand, sees itself as an always-innovating tech company that happens to be in the retail business (among other things).

But recently, the smartest retailers are starting to learn.

Old Dogs, New Digital Tricks

For instance, Canadian retailing giant Hudson’s Bay appears to finally be getting serious about online sales after ceding further ground to Amazon.

The chain (which owns Saks and Lord & Taylor — and may soon buy Macy’s or Neiman Marcus) just opened a new Amazon-style all-robotic distribution center in Toronto for its online sales. The group will soon add a similar facility to its U.S. operations. Online sales rose 20% in the fourth quarter (though the improved showing hasn’t helped Hudson’s Bay shares yet — they’re down more than 20% so far this year).

Wal-Mart is another good example. Of course, the chain has been selling goods online for nearly as many years as Amazon.

But even after all this time, Wal-Mart still maintained two mostly separate groups of executives to manage sales for its website and physical stores. No wonder Wal-Mart could never get its online sales to amount to much.

All that changed late last year. The giant retailer realized it needed to get much more serious about digital retailing and paid $3.3 billion for Amazon-wannabe Jet.com.

That wasn’t so much so it could own Jet.com’s physical assets, but for the digital expertise of CEO Marc Lore and his corporate team, who’ve now been promoted into controlling positions within important units of Wal-Mart’s retail empire.

The change appears to be working already — Wal-Mart’s fourth quarter online sales rose 29%.

More recently, the retailer made another interesting change by purchasing a slew of small online retailers with names such as ModCloth (hipster clothing), Moosejaw (outdoor goods) and ShoeBuy.com (Wal-Mart’s answer to Amazon’s popular Zappos).

And finally, Wal-Mart has started testing smartphone-based “scan and go” technology similar to what Amazon is using in its experimental grocery stores. Open the app, and pick up what you need. The app and your credit card company handle the payment. You walk out with your groceries with no waiting in lines.

It’s not going to be enough to defeat the Amazon juggernaut. But such efforts by old-school retailers may be enough over time to stop ceding easy ground to the Seattle company, and maybe, just maybe, slow down its growth.

Kind regards,

Jeff L. Yastine
Editorial Director

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