Walmart Can Crush Amazon

walmart-amazon-pac-man_rd.3I described Amazon a while ago, as “PacMan,” gobbling up everything in sight, including big chunks out of Walmart. Well, that’s about to change. Walmart can literally crush Amazon. Or at least it can put a lid on Jeff Bezos’ mantra: “get bigger faster.” Bezos will have to begin quantifying just what getting “big, bigger and faster” means. And it will also be the moment we’ve all been waiting for when Amazon will have to start turning a profit. At this juncture, yes, Amazon, the great disruptor, has created a new retail playing field, that they alone have been dominating.

But Walmart is finally rediscovering and reinventing the part of its DNA that disrupted the industry and created a unique new playing field half a century ago, which it alone dominated and grew to its near- $500 billion in annual sales (Amazon is pushing for $90 billion). Walmart is rediscovering its once-revered distribution genius, not just as an incremental update and improvement, but rather to reinvent it altogether. And I predict it will reinvent itself by “leapfrogging” over Amazon’s model (which still has miles to go), and will redefine what getting bigger, faster really means. Talk about a breathtaking spectacle. What does a gargantuan $500 billion, 10,000-store (worldwide – about 4500 in the US) company look like getting bigger, faster? [Read more...]

The Great Retail Demassification

deadmall2The Death and Diminishment of Malls and Other Big Footprints

We are on the edge of the Great Retail Demassification. Prior to the “great disruptor” (that would be the Internet), and before the marketplace became ridiculously over-stored and over-stuffed, consumers were well served by massive regional malls (currently numbering about 1200), in which retailers located their stores and to which consumers travelled enthusiastically. To steal a line from the movie, “Field of Dreams,” retail growth strategy during the pre-digital era could truly be based on nothing more than “build it and they will come.” And they did. Fast forward: consumers have every retail store in the world resting comfortably in their pockets, just a key-tap away, wherever they are and whenever they choose to shop for exactly what they want. Why, then, would anyone spend the time and money to travel to, and shop through the malls; or for that matter, any large, impersonal, traditional retailer? [Read more...]

Growth by Foreign Expansion

dm_hebLittle-Known H-E-B Shows the Way

As the post-recession era drags on, the dynamics of retailing are changing, adjusting to the new normal.

As we’ve seen lately in the pages of the Robin Report, some retailers that didn’t fare any too well in the recession are circling the wagons and shedding retail units. Opportunistically, those sites are being picked up by resiient retailers that survived the recession. What we’re seeing is the classic case of the big getting bigger and stronger, and the weak continuing on a downward trajectory. Is it simply survival of the fittest? Or poor strategic planning?

There’s another path to growth that’s increasingly being considered by clever American retailers, namely international expansion. Some retailers have long had a presence beyond America’s borders; McDonalds and Starbucks have led the way. Others are making the leap for the first time or expanding into more countries, including Bloomingdale’s, Urban Outfitters, J. Crew, Ralph Lauren, and Gap.

Yet, one strange anomaly persists in the world of retailing — and stranger still, it concerns the largest and most widespread retailing of all — food retailing, or, to be more precise, conventional supermarkets. [Read more...]

Down by the River…Amazon Style

Basic RGBThe next time you’re cruising the Internet, type in this URL:

Relentless.com

Surprise!

You’ve arrived at Amazon, courtesy of one of the early working names for the site that Jeff Bezos was considering way back when people were still referring to this thing as the information-superhighway. Just as it’s been a very long time since you’ve heard anybody use that term, Amazon has evolved over the past two decades as the dominant online retailer, much to the embarrassment of the rest of American retailing, which should be ashamed of how they let Bezos and company kick their e-butts.

As many wise and learned observers — not the least of whom is the namesake of this noble enterprise, my friend Robin Lewis — have noted, Amazon is far from done in changing the rules of how Americans buy stuff and its continued lack of profitability should be of little concern for the long-term viability of its business model. If most people are coming to realize the enormous impact Amazon is having on the business-to-consumer relationship, it is perhaps less well known how the company is also significantly changing the business-to-business model. It is every bit as radical a transformation.

Three Distribution Revolutions

You can make the case that there have been three major revolutions in the history of supply chain management in American retailing…the Wells Fargo Wagon not withstanding. The first took place in the 1920s when retailers first started to take ownership of their suppliers. Certainly Sears was in the forefront of that movement, owning major stakes in many companies, including ones that eventually became Kellwood and Whirlpool after being cut loose. Sears wasn’t the only retailer to go this route. The famous Fieldcrest towel began life as the house brand for one Chicago department store by the name of Marshall Field.

The second major revolution in how suppliers dealt with retailers came into its own in the 1980s with three initials: EDI. Electronic Data Interchange was championed by Walmart (then still porting the hyphenated Wal-Mart nomenclature). Orders were transmittedelectronically from the store to the supplier, eliminating the infamous order pad that had been the backbone of the ordering process since the days of the general store. With it came unprecedented access to data all up and down the food chain. Suddenly vendors could see what was selling and where and could anticipate their next orders. This transparency trickled down to other retail operations but nobody did it better than Walmart… and many vendors will tell you that’s still the case today. The third revolution in the supply chain came with the institutionalization of the product sourcing process from China. American suppliers were practically on the next plane to Beijing after Richard Nixon in 1972, but it was very much a haphazard process for many years until The Gap turned to a small Hong Kong trading company called Li & Fung to manage its supply chain process in China.

That model of course became THE model, still in use by virtually every company that sources product from Asia. All of these developments have several things in common. Each was initiated by a dominant retailer looking for a more efficient model. Each took place in a time when the scale of business was being significantly ramped up allowing for these greater economies of scale to be effective. And each gave the early adapters a tremendous competitive advantage that often took others decades to catch up.

If you’re starting to think that those conditions exist again in American retailing, you may be related to Bezos… except that as with many things, he’s way ahead of the rest of us.

And Now, the Fourth Revolution

Amazon has created the next great revolution in B2B supply chain management and it is part of the reason why no other retailer will ever catch up with them in the field of e-tailing. Quite simply, Amazon allows a vendor multiple ways to sell consumers under a system that in the parlance of today can only called distribution-neutral. It is this reason as much as its facing to shoppers that makes Amazon invincible.

There are slight twists and turns to all of these distribution models, but put them all together and one thing is unbelievably clear: Amazon is business generations ahead of the rest of retailing in managing the process of getting goods from the seller to the buyer. Walmart and others can talk about using their stores as distribution points and many stores trump the ability of consumers to place orders online and pick it up in their physical stores. These are valiant attempts to compete but they are so far out of their e-league compared to how Amazon manages the process. As with the other revolutions in the supply chain, it will take other retailers decades to catch up and by then it will be too late, the next revolution will already be here.

Relentless doesn’t even begin to describe it.

Consider all the ways vendors can put their products through the Amazon pipeline:

#1. Amazon Owns and Sells
This is the conventional supplier-retailer model where the store orders goods, takes ownership of the inventory and sells it to the consumer. A vendor gets their wholesale price and is then out of the rest of the transaction.

#2 Vendor Owns and Amazon Sells
Suppliers retain ownership of inventory at their facility until Amazon sells the product. The fulfillment of the order is done by the supplier under the auspices of Amazon, which takes a cut of the sale, generally between 15 and 20 percent.

#3 Vendor Owns, Amazon Sells and Fullfills
Again, the supplier retains ownership of inventory until the sale is made but now the product is physically stored at an Amazon distribution facility. This allows for the fast delivery that is a cornerstone of the Amazon strategy yet Amazon never actually owns the goods, adding to their profit margins. Again, Amazon’s cut is 15 to 20 percent but it also charges some fees for processing the actual order. The trade has come to call this model FBA, or Fulfilled by Amazon.

#4 Vendor Owns and Sells, Amazon Fulfills
Similar model except that the vendor is identified on Amazon as the seller through its own storefront. Amazon is still fulfilling and taking its cut but the supplier is getting some identity with the consumer. Goods can be kept at a supplier DC or by Amazon.

#5 Vendor Sells a Third Party, Amazon Fullfills
Yet another variation, the supplier sells its goods to another entity, sometimes an actual retailer, sometimes an online storefront. That seller then shows up on Amazon beyond the control of the supplier. This is often the case when products turn up on Amazon — often at a screwy price — despite the denials from suppliers that they are selling Amazon directly. In the old days, this used to be called transshipping. And while the tendency might be to think of this being smaller stores employing this strategy, you’ll often see online giants like Sears or Wayfair on Amazon, further muddying up the distribution picture.

Warren Shoulberg is editorial director of several Progressive Business Media business publications for the home furnishings industry. He made his first Amazon purchase in 1997 and hasn’t stopped since.

Amazon “Nailed”…For Now

Jeff Bezos was quoted at an Aspen Institute awards dinner, “Invention requires a long-term willingness to be misunderstood.”

Okay Mr. Bezos. However, I must say that my friend and columnist for this publication, Warren Shoulberg, didn’t misunderstand your “invention.” In fact, he nailed it in this issue, at least for now. His article, “Down by The River,” provides a clear and brilliant insight into the breadth and depth of that omnipotent “river,” indeed, sparking the “fourth distribution revolution.” It also sends a strong and provocative message to all retailers, large and small, both online and off: you are getting your “e-butts” kicked, and you might as well concede “game over.”

He suggests that even if you catch up, it will be too late.

Yes!! … But for the 70% on the Ground

I totally agree with Warren about kicking “e-butts,” but what about the share of total retail sales owned by the real butts on the ground? Currently, varying between 70 to 95 percent, depending on the category. That’s a whopping big share flowing through the various physical distribution platforms in this omnichannel new world. So, even if, as Forrester Research predicts, that someday e-commerce may account for 30 to 40 percent of total retail sales, the omnipotent Amazon will not even be a player on the biggest “real butts” playing field, unless …

They Hit the Ground

And if Amazon does go physical, as predicted in my co-authored book, and in many articles in this publication, they will hit the ground running, no — sprinting. I say sprinting because, they will not only be adding a sixth distribution point to Warren’s “fourth revolution,” Bezos will be launching a new “real butt” model that will — well, kick “real butts.”

Using their Pentagon-sized database and the hundreds of huge distribution centers they are now building across the country, I envision small, experiential showroom-like offshoots of those centers, spreading into neighborhoods, and physically and digitally connecting/engaging with each local consumer. Their ‘big data’ already tells them what each of those people desires. And all of the technological gizmos and gadgets currently being tested and tried by the “real butts” will likely be improved and added to by Amazon when they hit the ground.

And They Will

If Bezos is as brilliant as reported, he ‘gets it,’ and knows this is a next phase. The omnichannel concept is not just for brick-and-mortar retailing. And the three-to-four-times more revenue producing synergy created by both online and offline shopping options, is a metric Bezos can’t ignore, to say nothing of the absolute dollars he will be leaving on the real butt playing field if he chooses not to play.

Oh yes, understand one other thing about his “invention:” you may have to wait (not long), but he will play.

In Search of The Future

futureThe Past is Not Prologue

I feel your pain, your anxiety, your confusion. I’m just relieved it’s yours and not mine! You are in the middle of chaos, the “Wild West,” in search of the new frontier, and a future shrouded in fog. However, two things are clear. The past will be no prologue for the transformation your business must go through; and if it fails to transform, it will surely die.

The disruptive, game-changing dynamics of the Internet, all of the new retail and supply chain enabling technologies, globalization, and over-saturated markets continue to drive unlimited and instantaneous access for whatever product or service consumers desire; whenever, wherever, however and how often they so desire. The unprecedented convergence of these dynamics of commerce and a 24/7-consumer is arguably driving the greatest transformation in retailing’s history, which will require innovation and creativity; plus fundamental new strategies and systemic change in our business models to succeed into the future.

To paraphrase Charles Dickens’ opening line in his epic Tale of Two Cities, for this revolution, we are now in the most exciting of times and the most challenging of times. [Read more...]

Delhaize’s New Way Forward – A Blueprint for Retailers?

logo_delhaize_67_cmykChanging markets and disruptive technologies have shaken many retailers to the core. Many are flailing about in all directions in hopes of chancing on a solution.

Barnes & Noble wanted to convert to a technology company, but couldn’t. JCPenney wanted to become a boutique mall, but couldn’t. Best Buy doesn’t know which way to turn.

So it goes for many retailers, including some in the food-retailing sector. Let’s take a look at one company in that industry – Delhaize. More than just about any retail company, it has tried out every conceivable model to reinvent and reinvigorate itself, but eventually decided to return to its core business. That move gave it two clear options for the future. Delhaize is an interesting case study in lessons that other retailers can learn from. [Read more...]

The Death of Mega Brands

P&G’s Tide: Just One Canary In the Mine

Preposterous!!! You must be thinking: “he’s finally gone off his wheel,” when I say iconic brands like Tide, and suggesting that other P&G mega-brands, Chevrolet, Levi’s, Nike, Coca-Cola, Wheaties, Cheerios, Skippy, Ralph Lauren, Gap, and on and on, are going to suffer a precipitous decline in relevance, in sales, and share of market; or drop dead, at the very least.

canary FC_FINALWell, yes, that is what I’m saying, because we are well into what can be called the Consumer Century. So what? All of the mega brand managers and retailers understand the power of the consumer today. Furthermore, most of them believe that classic mega brands are each powerful and compelling enough to win the purchase.

Not a chance. Today, the consumer has the power and is operating on technological steroids bringing mega brand power to its knees. This is due to shoppers’ rapidly increasing power of choice (including price dictation in a world of too many stores and websites, and too much stuff); instantaneous access (ubiquitous distribution); and demand for ever-greater experiences. [Read more...]

The Future of Everything

MakerBot_Replicator2X_high_1In 2011, at the TED conference in Long Beach, surgeon Anthony Atala demonstrated an early-stage experiment that could someday solve the organ-donor problem: a 3D printer that uses living cells to output a transplantable kidney. Dr. Atala and his team take an image of a kidney to create an exact 3D image of the organ, then print the kidney layer by layer based on the patient’s kidney using their own living cells. In seven hours, you have an exact replica, ready to transplant. Given that 90% of the people who are on the transplant list in this country require kidneys, it gives new meaning to supply and demand. Out of all the presenters at TED that year, Dr. Atala made the biggest impression on me. 3D printing is a revolution that will transform our society in ways we can’t even imagine. It will give rise to thousands of new businesses, new ways of distribution, new processes of intellectual property management, and create an entrepreneurial and financial tidal wave that will dwarf the Internet in its scale and disruptive power. [Read more...]

It’s a Bird, It’s a Plane…NO, It’s Amazon

amazon-pac-man_rd.2It’s a state. It’s a city. It’s a country. It’s a movie producer, a real estate broker, a publisher, a wholesaler, a fashion house, a distributor of anything and everything. It’s really anything you want it to be. However, unlike Superman who could be seen and recognized, Amazon is still masked in the fog of the unknown. Nobody knows how to accurately and succinctly describe Amazon. However, since it sells lots of stuff to consumers, it is most often referred to as a retailer, and therefore, traditional retailers’ biggest fear. Described as Pac-Man in a previous Robin Report, chomping up share of market in multiple industries, Amazon is now pushing $80 billion in revenues and growing at 20+ percent a year.

E-commerce start-ups, which display positive growth trajectories, have been more than happy to get acquired, or to merge with Amazon. And the range of such deals over the past many years just confirms the fact that Amazon is an all-inclusive, ‘boundary-less’ world of whatever one might want or need. The list is endless, ranging from drugstore.com, to pets.com, wineshopper.com, audible.com, shopbop.com, foodista.com,and zappos.com. And these are just a few.

Ironically, or brilliantly, Amazon is most often operating with a red bottom line. This, of course, is simply absurd, counterintuitive and unacceptable for most traditionally grounded businessmen, particularly since this has been CEO and Founder, Jeff Bezos’ ‘MO’ from Amazon’s day one. How does he get away with it? Well, Wall Street not only accepts it, they totally understand that it’s an expansion and growth strategy without end, not limited to any product or service category, to any consumer segment, to any geography. It is simply a distribution platform, able to distribute anything and everything to anybody and everybody, at any time, anywhere in the world — and soon to be distributed the same day.

So Bezos continues to take any leftover cash from revenues and throws it at new business launches. And investors have learned to not only expect and accept it, they, well … invest in it.

While Walmart is still the world’s largest retailer, and recently declared that their approximately 4500 stores are indeed, distribution centers, they are so established in the minds of consumers as a traditional brick-and-mortar retailer, selling basic, commoditized ‘baskets’ of products and services at rock-bottom prices, that it would be near impossible to transform itself into the Amazon model.

Having said that, we do not count the Walmart ‘behemoth’ out, do we? Pushing towards $500 billion in sales, with a mere 1% to 2% (roughly $5 billion) of sales generated online, its digital future should be its oyster. However, given its established business model, with a narrower range of product or service avenues for growth compared to the ‘boundary-less river’ of Amazon, I just don’t see a horse race in the future when Amazon reaches Walmart’s size and begins to pull away.

And for the rest of you, regardless of the industry you are in, your product or service category, your position as luxury or discounter, wherever you are located geographically, just simply expect and accept the fact that Amazon is going to be eating your lunch for a long time.

And believe me, Amazon will open physical buildings, commonly called stores, probably sooner than later. Further, those stores, ‘pods’ or showrooms, or whatever you wish to call them, will offer a level of personalization/localization that traditional retailers simply cannot achieve. Why? Because Amazon sits on bigger data than anybody else on the planet — and they know how to mine it.

Good luck.

Not Too Big to Fail?

Consumer Insights From MasterCard Advisors

The Emergence of the Small Store Format

Robin_Report_Sep2013_stock6We’ve heard much talk about the waning era of the “big box.” In 2012, we saw many headlines relating to planned store closures by Best Buy, with similar stories for Sears and Office Depot, among others. More recently, of course, J.C. Penney made mega headlines. In all, from the announcements of just five Big Box retailers, anything from 1100 to 1350 big boxes could be shuttered over the next year or so.

Maybe this is not necessarily a bad thing. In some cases, we are seeing some of that big box space being reincarnated as two smaller stores instead of one. And from this, a pattern seems to be emerging, with growing retail buzz around how to make stores smaller, more selective, highly curated – in short, create a better customer experience.

Jonathon Graub, a principal in the Philadelphia office of A&G Realty Partners, specialists in the strategic consolidation and reassignment of store leases, confirms the smaller store trend. He attributes it in part to the lack of availability of large spaces in prime areas and the speed with which a chain can get to market when it enters with a smaller store format. But we must also factor in the continued growth of online commerce – Internet pureplays which desire a brick-and-mortar presence, while current brick-and-mortar chains may find there’s less need for larger spaces as their online businesses expand. [Read more...]

Opening the Door on Target’s new Threshold

Robin_Report_Sep2013_stock4Perhaps the Dayton family should have come up with another name for its discount department store start-up back in 1962 if it wasn’t prepared for the inevitable – and as-it-turns-out endless – questions raised by retail observers, competitors, suppliers and, oh yes, customers, about whether the store was on Target, had missed the Target, or otherwise was involved in some Target-related activity.

Be that as it may, those are valid questions to ask, more so than ever when it comes to the country’s second-biggest general merchandise retailer’s home furnishings offerings and its new marquee program called Threshold. Officially rolled-out this past spring after some soft teases over the prior months, Threshold is the single-largest private label program Target has ever introduced, and is no doubt being counted on to carry much of the merchandising load for the retailer in the months and years ahead. [Read more...]