Is Amazon really the big bad wolf?
If you read the propaganda masquerading as ‘news’ about Amazon, you would believe that this ‘big, bad wolf’ will be rolling into town and leaving a trail of destruction in its wake – the retail equivalent of Nagasaki after the bomb was dropped.
Make no mistake, Amazon has one of the best public relations machines in global marketing. How else can you explain a market capitalisation that defies the gravitational effect of actual return on investment and trading performance that affects every other traditional retail on the planet?
Amazon attempts to defeat its retail competitors before it has even entered a market due to fear. But it isn’t a retailer – it is a distribution engine. And it isn’t as successful as its hype. Nobody can deny it has made a huge impact on retail – mainly by forcing traditional retailers to negate their own strengths and play Amazon’s game out of fear, rather than logic or fact.
Traditional physical retail globally accounts for more than 90 per cent of all retail spending to this day. In the United States, online retail sales reached a peak of 8.4 per cent of total retail sales, according the US Department of Commerce at the end of 2016. Amazon has not even reached a quarter of Wal-Mart’s turnover in North America and don’t even get me started on its profit performance. It is a ‘big, bad wolf’ but you need to decide whether your house is built out of straw, sticks or bricks.
In retail, profit performance is determined by two things – the real competitive context and how your business plays to that context. Amazon aggressively entering the market will change the competitive context. Not the least of which is because it will steal media oxygen. It will make pricing absolutely transparent to consumers and expose undifferentiated products and services to price comparison. It will also put pressure on distribution efficiencies. These are the areas you need to focus on in your business.
The biggest impact will be on categories that sell other people’s products with poor distribution platforms, bad stock control and inflated prices. That mainly means mass merchants and department stores, but these sectors have been under threat for more than two decades now.
Despite the bleating of so-called experts, physical retail is not under threat. Six million years of physiological evolution has created human beings that crave physical experience. Virtual retail is a substitute not a preferred option. However, human beings have developed what I call a strong ROT. index (return on time). If physical stores don’t give enough of a positive experience to justify the effort, they will fail. And online is bluffing physical retailers into killing their experiences in order to create a playing field that they are better equipped to win on – one where everything is just about like-for-like products at the cheapest price, regardless of all the other attributes.
Immersive and engaging physical retail experiences with original, branded, exciting products that aren’t available in online stores and are in stock in the right place, at the right time and at the right price will win – and Amazon won’t be able to do a thing about it. But if you open the door and surrender to the big, bad wolf at the first taunt from the bully, then it says more about you than it does about them and it’s likely your house is built of straw or twigs – not bricks.