retail news in context, analysis with attitude

Quartz has a story suggesting that Amazon's proposed $13.7 billion acquisition of Whole Foods is symptomatic of the retailer's ongoing efforts to sustain its success, and resist what some would characterize as an inevitable business cycle leading to decline.

"The wheel of retailing," Quartz writes, "first proposed in 1958 by Harvard business professor Malcolm McNair, describes a cycle in which retailers start out by offering low-cost products to attract customers, often through an innovation that allows them to undercut more established competitors. As they grow and attract more customers, these retailers raise prices, allowing them to widen their margins and expand. As they raise prices, they become vulnerable to lower-cost competitors, starting the cycle anew."

The story goes on: "Amazon has avoided getting caught in the wheel by constantly expanding into new sectors. By moving beyond books and into general merchandise, then onto fields as diverse as web services and entertainment, Amazon remains a perennial upstart, never taking on the characteristics of incumbents. The company has also never enjoyed the fat margins described by the wheel, instead sacrificing profit for continual growth.

"Buying a store nicknamed 'whole paycheck' may not be an obvious choice for a low-cost strategy, but cementing its move into groceries gives Amazon yet another sector in which to harness its innovation and technology. The company’s long-game plan of offering streamlined grocery delivery undercuts incumbents by saving families something more valuable than money - time - which could be crucial in a grocery sector where margins are razor-thin."


Bloomberg has a story about how Amazon's approach to technology is likely to impact Whole Foods' approach to distribution.

"In negotiations, Amazon spent a lot of time analyzing Whole Foods' distribution technology, pointing to a possible way in which the company sees the most immediate opportunities to reduce costs, said a person familiar with the matter who asked not to be identified because the issue was private."

Bloomberg goes on: "Experts say the most immediate changes would likely be in warehouses that customers never see. That suggests the jobs that could be affected the earliest would be in the warehouses, where products from suppliers await transport to store shelves, said Gary Hawkins, CEO of the Center for Advancing Retail and Technology, a Los Angeles nonprofit that helps retailers and brands innovate. As Amazon looks to automate distribution, cashiers will be safe-- for now ... Amazon sees automation as a key strategic advantage in its overall grocery strategy, according to company documents reviewed by Bloomberg before the Whole Foods acquisition was announced."

A friend of mine told me that he thinks it is a fundamental misreading of the situation to suggest that Amazon believes it is buying a sophisticated distribution system in its acquisition of Whole Foods. Rather, he said, it is buying the potential of one."


• And, The New Yorker has a piece worth reading about the deal, suggesting that what Amazon really has done is create "the world’s most efficient order-fulfillment system."

An excerpt: "It hasn’t always been obvious that Amazon would transform the feeling of everyday life. At first, the company looked like a bookstore; next, it became a mass retailer; later, for somewhat obscure reasons, it transformed into a television and movie studio. It seemed to be growing horizontally, by learning to sell new kinds of products. But Amazon wasn’t just getting wider; it was getting deeper, too. It wasn’t just selling products but inventing a new method of selling; behind the scenes, it was using technology to vertically integrate nearly the entire process of consumption. This integration is Amazon’s real product."

And, it is what Amazon almost certainly wants to bring to Whole Foods and the bricks-and-mortar environment.

You can read the entire story here.
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