business news in context, analysis with attitude

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.

This week's topic: Why is is important for companies to approach today’ marketplace with a new mindset.

And now, the Conversation continues…

KC: I was intrigued the other day by a quote from Alibaba CEO Daniel Zhang, who said, in explaining his company’s decision to invest in a Chinese big box store chain, that “physical stores serve an indispensable role during the consumer journey, and should be enhanced through data-driven technology and personalized services in the digital economy.” This struck me as an almost perfect distillation of what omnichannel retailing is all about - it is understanding that not only aren’t physical stores going away, but in fact they can play a greater role in the customer experience if they factor into their operations some of the things that online retail should do well, which is translating in-depth customer understanding into relevant and resonant experiences that are keyed to what the shopper wants and needs at any given moment, not what the retailer’s infrastructure is geared to give him or her.

Tom Furphy:
I agree. Probably the strongest competitive feature of Amazon is personalization and their use of specific customer data to serve that individual customer. Every shopping session on Amazon is different and is tailored to the individual user. Based on past purchases, browsing/clicking history and search terms used, the platform is adept at putting the right, small number of the millions of products available in front of the shopper. This allows them to discreetly serve individual needs at scale. Contrast this to traditional retail, where the store is configured exactly the same for everyone. And most staff are not adequately trained to truly cater to the individual needs of most customers.

Physical retail would certainly benefit from the technology advantages of e-commerce. Although it’s much easier said than done. Laying data over the physical experience means that your customers should have access to technology that allows them a richer product discovery experience. They should be able to use technology that understands them and tailors information, offers and capabilities to their needs. And it should reward them for their loyalty.

Retailers should use technology to better connect and personalize their shopper experience. They should use the technology to better understand their customers and then to tailor information and curation to their needs. Maybe a nutritionist could see their nutritional goals and purchase history. Perhaps a chef could recommend variations on a recipe to avoid certain foods the shopper doesn’t like or may be allergic to. Or, when customers are tendering routine purchases through the front end, the app should recognize the frequency and cadence of the purchase and offer auto-replenishment of the items to save the shopper time in the future.

KC: You sent me a Gizmodo article the other day that observed that Amazon’s retail success has led it to “expand into film and TV production, web hosting, publishing, groceries, fashion, space travel, wind farms, and soon, pharmaceuticals, to name just a few. It’s a new kind of company, the likes of which the American economy has never before seen and is legislatively ill-prepared for.” I agree with all of that, and we’ve made the point here before when traditional retailers try to compete with Amazon online, they’re working not just against a retailer, but an ecosystem that does things like buy NFL streaming rights just as a way to get more people to its site, where they are likely to buy something, anything.

To me, that means that traditional retailers - and this probably applies to the food business more than any other industry - have to figure out how to be “category killers” (to use an old but appropriate phrase) to a greater extent, and with greater passion and expertise than ever. If they don’t do that, they are giving up a core advantage and allowing Amazon, which is mostly in the commoditization game, to set the rules in a way that it is most likely to win. Would you agree? Are you seeing anyone out there who you think is doing an exceptional job?

Yes, I would agree. No, I don’t think anyone is doing an exceptional, and maybe not even an adequate, job.

Amazon is a force. They are a massive engine of disruption and are innovating for shoppers in so many ways. Along the way they are absolutely commoditizing the historical basics of retailing. In competing against and killing many traditional “category killers” they have become the ultimate “customer servers”.

I don’t see any exceptional retailers out there that are properly positioned to serve the next generation of shopper and protect themselves against Amazon. However there a few who are slightly less vulnerable to Amazon disruption and commoditization. Retailers such as Wegmans, HEB, Dorothy Lane, Stew Leonard to name a few. Those that have raised the bar on service and experience, it will be more difficult for Amazon to overtake them. But that doesn’t mean that even these retailers can rest on their laurels. They have to up their digital games and offer a range of capabilities. Or they will become less and less relevant over time.

KC: The good news for those retailers is that I think they understand that they can’t rest on their laurels. My friend Norman Mayne, of Dorothy Lane Market, likes to say that a reputation is a wonderful thing to have, but that it only reflects what you did yesterday … and that today, you have to do it all over again.

Just to go back to Alibaba for a second … the story we had recently about it investing in bricks-and-mortar retailing made me wonder if it is likely that it could made a similar investment, or do an outright acquisition, in the US. They don’t really have a US profile outside the business pages, but they’re a lot bigger than Amazon and a move on some US company - like, say, Ahold Delhaize - would give it an immediate platform from which to grow and upon which they could experiment. Y’think this makes any kind of sense? In some ways their model - providing a platform to third party retailers as opposed to doing actual retailing itself - is the complete of Amazon’s and closer to what Google is doing. It just seems to me that a strategic move, coupled with a willingness to really learn the US market, could create a major player here in fairly short order.

I think it could make sense. They could certainly provide a robust technical / e-commerce underpinning to an omni-channel operation. Where Amazon crushes Alibaba in the US is in customer penetration. With nearly 2/3 of households Amazon Prime members, Alibaba would have a lot of ground to make up and could not bring that scale advantage to a retailer. Also, Amazon is a pretty formidable force as a marketplace competitor to Alibaba. I just read a stat that Amazon has added 3,000 third party merchants per day so far in 2017.

Since they’d be starting with such few customers, Alibaba would have to adopt the retailer’s customer data base to be able to leverage any kind of scale. However, if they were to do that, they could likely create a compelling retailer offering relatively quickly. That could be great for their partner, and would be difficult to compete with for others.

The Conversation will continue…

KC's View: