Published on: March 9, 2016
Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.
And now, the Conversation continues...
KC: Tom, I have two different things I'd like to chat about this week..
Last week's bankruptcy at Sports Authority strikes me as just the latest example of a bricks-and-mortar business being unable to compete in a digital world. But as I think about that business, I'm trying to think about how I would've done it differently. After all, they sell a lot of sports equipment - like clothing and shoes for various sports and equipment like baseball mitts - that I would think of as requiring one to try them on before buying. But of course, that still means that there is tons of other stuff that doesn't require seeing and touching to buy, plus there is the matter of showrooming, in which people look at the equipment in the store and then look for a better online price. Like I say, I'm not sure how I would've solved the problem if I'd been in Sports Authority management. If you were, how would you suggest competing … and what are the parallels with other retail venues, like the food business?
Tom Furphy: I would think of a store not as a place to store inventory for customers to peruse and purchase, but as the ultimate showcase for products. It’s not about product access, it’s about product experience.
Embrace showrooming. It’s an advantage over online competitors. Make the store the must go-to place to try products in as “live” an environment as possible. For Sports Authority, that could mean pulling most of the inventory off the floor, perhaps keeping one or two units of each item on the floor for demo purposes. With all the room created by having less inventory, I would create experiential stations throughout the store – room to throw and catch a ball, space to swing a bat and make contact with a ball, space to chip golf balls, cast a fishing pole, or pedal a bike on a trainer. I would enable experts from the manufacturers to come into the store regularly for “demo days” to showcase products and interact with customers. I would have a robust mobile app that allows my customers to order the products they are trying, right then when they’re inspired. The inventory could sit in an efficiently organized backroom for immediate pickup (better responsiveness than online competitors), or it could be available for delivery in a couple of days (same responsiveness as online competitors).
To help support the economics of this model, I would develop creative funding strategies with the manufacturers. We should be valued by them for providing a compelling demo environment. Whether the shopper buys from us or from an online competitor, we are adding value. But we would fight to get the sales with a great site/app experience and comparable pricing. I would also automate as much of our shopping experience as possible. Our website and app should provide a great experience to enable product discovery and easy purchase. Any replenishable items should move to a subscription platform. We would focus on the shopper and strive to deliver an unbeatable proposition of experience and efficiency.
The parallels to the food business should seem obvious. Stores that win in the future will make the purchase experience for non-differentiated products as automated as possible via website, app and/or subscription. The perimeter of the store will expand to enable richer customer experiences. The produce department can parallel the farmers market, full of product experts. The fish monger or butcher will get out in front of the counter directly engaging with shoppers. Stores will teach cooking techniques to inspire shoppers to expand their boundaries. The experiential opportunities in the food business are almost limitless. This is where the industry incumbents, with stores, have the best opportunity for differentiation over online competitors.
KC: Some of what you describe as being an ideal food shopping experience could be seen at Providore, the European food hall-style store in portland, Oregon, that I wrote about a few weeks here on MNB (it can be seen here), though at this point without the online component - when I saw it, in so many ways it seemed like a 21st century food shopping experience, albeit seen through the prism of a traditional European format.
As far as Sports Authority goes, I agree with you ... though I think what you describe probably seems counterintuitive for traditional retailers. At Sports Authority, in so many ways, they seemed to adhere to a "pile it high, sell it cheap" philosophy that was completely non-differentiated. It also is interesting to see in the Wall Street Journal this morning a story about how Dick's Sporting Goods - which was prominently mentioned in news reports as a company that could take advantage of Sports Authority's issues by adding locations and attracting its customers - had a weak fourth quarter and is looking as short term issues as it tries to make both its stores and website more relevant and vibrant. I'd suggest that they start by reading your comments...
But let's move on to another subject...
There have been several stories in recent weeks about former Amazon executives being hired by companies like Target and Instacart. I've always felt that as influential as Amazon is, it actually is more so because of all the former Amazon employees who worked there and then, for a variety of reasons, moved on to other corporate jobs or entrepreneurial opportunities. Would you agree? Is Amazon (and other, similar tech companies) the ultimate training ground and recruiting target for companies looking for great people with a 21st century retail orientation?
TF: I think there is some truth to that, but it is not as clear as you might think. Certainly, former Amazonians have a deep appreciation for the power of e-commerce. They understand what it takes to engage a shopper digitally and get them through to purchase. They appreciate the power of intelligence and personalization. They understand the nuances of the supply chain and all of the levers that are required to make e-commerce transactions profitable. They have plenty of scar tissue from experimenting and failing, then iterating until something works. They are bold. They believe that today is Day 1, they have bias for action and they seek team conflict in making decisions.
That all works incredibly well inside Amazon, where the culture fosters (actually demands) it. However, in many corporate cultures, that can be caustic. Today you see certain former Amazonians thrive in corporate environments, while others bounce around. Those that thrive are sensitive to bring in just enough of the Amazon DNA to make a positive impact, but are sensitive to balancing that with the current culture. Those that bounce around tend to come in, cause a bunch of churn, and then move on because they are not a fit. Generally, if someone had career experiences prior to Amazon, they likely have a better appreciation for culture and are better suited for a corporate climate coming out of Amazon.
As far as employees leaving Amazon to go on to become entrepreneurs in their own rights, the result is also a mixed bag. I was speaking with a venture capital investor the other day about this topic. His take is that he has not had much success in backing former Amazonians. He has observed that many people that are trained in the Amazon way, perform best as a cog in the Amazon machine, and that it is hard for them to thrive independently on the outside. While they can be entrepreneurial inside the support system of Amazon, they are not nearly as effective on their own without the safety net.
I can see his point. It seems like many of the best former-Amazon entrepreneurs – like Jason Kilar of Hulu or Nadia Shouraboura of Hointer – had either run their own companies before Amazon or were in Amazon so early that they had a direct hand in building the Amazon machine.
KC: That makes sense. It seems to me that while it won't always be workable, one of the things that business leaders have to understand is that if you bring someone on with the goal of getting them to disrupt from within, you actually have to let them disrupt, though I totally get what you're saying about how, if not well managed, this can cause cultural tumult that can be counterproductive. But I guess my message to retailers generally is that if you can make it work, it's worth the effort ... because if you don't disrupt from within, there will be people who will disrupt you from the outside. And the technical term for those folks is "competition."
The Innovation Conversation will continue ...
- KC's View: