We’ve reached the Darwinian era of retail, and there are some surprising factors pushing retailers to evolve. With nearly 7,000 stores closing in 2017, large-scale failure has become nearly normal. But for every department store shuttering its doors, there’s a smaller or nimbler retailer pivoting to stay relevant.
What are the secret weapons of the retail survivors?
Retail has fallen into a rut where following “business as usual” is the fastest way to end up in bankruptcy court. Avoiding reality is much easier than investing in technology and refreshing teams with members who bring viewpoints that challenge the status quo. As legacy retailers scratch their heads trying to find a new path forward, a different group of retailers is taking action.
The winners aren’t sitting by idly, hoping that their loyal shoppers will help them weather the storm, or even increase sales. Amazon manages to have a new headline nearly every day. Have we ever known a retailer that is able to keep itself top of mind day in and day out? And, on top of the frequency, the chatter it generates is substantive and generally positive.
Not to downplay the advances of Walmart and Target, but most can agree that Amazon reigns supreme as the retailer that is continuously pushing the envelope. What allows it to do this is interesting to dissect, as it provides a window into what makes its business so different from traditional retailers.
Why Amazon is different
Amazon appears immune to the current retail climate because it has diversified so much, allowing it the financial freedom to fail fast. Although Amazon is often treated like a tech company, it’s the retail innovations that continue to drastically change the way we shop and search for new products. Despite this fact and counterintuitively, it’s a historically unprofitable area for the company, even though it comprises up to six percent of total retail.
While six percent may seem like a small percentage, remember that at most, overall e-commerce only makes up 12% to 13% of U.S. retail sales. Amazon has the online market cornered, and it will continue to lead as long as it keeps up its nonstop experimentation to find what sticks.
Amazon’s pockets are so deep because of its booming AWS arm. Last year, web services brought in $12 billion, and in Q3 of 2017 alone, it grew 42% to $4.58 billion in revenue. This cash on deck helps fuel the ideas Amazon comes up with daily that just might become the next big thing.
In order to succeed in the new retail landscape, retailers must discover their own cash cow to support innovative ideas that may not be profitable initially, but will later pay dividends. Amazon has been a leader in retail because, instead of just being reactionary, it anticipates where the industry could be going and beats competitors to it. But for Walmart and Target, it looks like their acquisitions will be their saving grace for now.
Fueling retail innovation with acquisitions
While Amazon has home-grown contrarians and idea factories, Walmart and Target are making use of their newly acquired, forward-thinking companies. The new employees they have gained (or will soon gain) have infused the fresh ideas they need to not only survive, but pose legitimate competition for the retailer on track to join the coveted $1 trillion club.
Walmart’s acquisition of Jet.com, Bonobos, and others are well known at this point. Marc Lore and his team of innovators are precisely what Walmart needed to gain a digital edge.
On the other hand is Target, which has more recently started to gain advantages through acquisitions. Its buyout of Shipt gives it an edge in the last-mile delivery game, which Amazon has been dominating.
Evolve or close shop
At its core, retail doesn’t want to change. It’s painful, costly, and difficult to get buy-in from technologically wary executives. The two ways to bypass these issues are to create a culture of innovation from within or teleport that spirit through acquisitions.
In the long run, Amazon is in the prized position and other retailers are merely playing catch up online. But as online and omnichannel retail grow, it’s still hard to believe that in-store retail will ever be dethroned as the consumer favorite. This is why Amazon has put some skin in the physical retail game through its own bookstores, partnerships, and its massive $13.7 billion purchase of Whole Foods.
Retail continues to evolve at a rapid clip, and each retailer that survives this reorganization must determine what its secret weapon will be to get ahead. For Amazon, it’s unrelenting passion for new ideas. Even if it fails, it regroups quickly and always has AWS to fall back on financially. For Walmart, it has been the acquisition of scrappy and category-defining startups focused on turning retail on its head. Target will most likely fall in with Walmart’s strategy.
As Amazon charges forward, aiming to establish roots on the brick-and-mortar side, competitors have to get creative to stand their ground. Over time, their secret weapons will emerge, because their recent moves demonstrate that they don’t plan to back down any time soon.
To compete with Amazon, retailers must get smarter about Influencing Customers Through Infinite Personalization.