Is Amazon really the killer everyone says it is?
More retailers are on the brink of death than any time since the Great Recession, according to ratings firm Moody’s. Hundreds of department stores are closing, and once-chic clothing brands are barely treading water — or, in the case of American Apparel and The Limited, recently departed.
Amazon has a stranglehold on the e-commerce market, and there’s no doubt it’s draining a growing portion of real-world sales as consumers take their shopping online.
But many experts argue that the go-to narrative of tech disruption alone doesn’t always tell the whole story.
One is Brendan Witcher, a retail and e-commerce analyst at research firm Forrester. He categorically denies the notion that Amazon can meaningfully explain the flux in the retail space.
“It’s simply not true,” Witcher said. “It doesn’t make sense when you look at the numbers.”
Witcher is referring to the fact that online shopping still makes up less than a tenth of the country’s total retail sales, despite doubling in the past five years, an oft-cited stat from the U.S. Census Bureau.
The figure can be a bit misleading on its face because it’s overly broad for most purposes. For one, it includes gas stations on the retail side, which obviously don’t have any online equivalent. It also lumps together everything from groceries to auto parts and furniture, among which the ratio of online to offline sales varies greatly.
Point taken though. Those qualifiers withstanding, online shopping still remains a relatively small portion of the total market, despite absorbing most of the industry’s overall recent growth. Too small still, Witcher contends, to entirely account for massive industry shifts.
Kirthi Kalyanam, who directs the retail management institute at the University of Santa Clara’s business school, agrees.
“Amazon has certainly contributed,” he said in an email. “[But it] is only one factor.”
In other words, online spending is on track to blow up the retail industry, but it’s not quite to the point where it actually can. Whether or not companies are anticipating and reacting to the threat by closing stores is another matter.
And clearly, even Amazon believes that brick-and-mortar stores of some form will still matter in the brave new world it’s envisioned.
Either way, the real-world industry might be headed towards a bloodbath, Kalyanam said.
“There is a very good possibility of this happening,” he said. “Too many negative forces affecting retail.”
So if Amazon isn’t the only thing driving stores to the cliff, what else is there?
Problem 1: *yawn*
One widely held opinion: A lot of stores are simply too boring.
Say you were blindfolded and led into the middle of a Macy’s, Witcher proposes. Remove the blindfold, and you probably still wouldn’t know where you are; The store is nearly impossible to distinguish from any of dozens of other similar places.
That’s precisely the problem. Very little sets stores like Macy’s, Sears, JC Penny and other vanilla department stores apart from one another.
Retail chains are floundering and it’s not because of Amazon
Success is now less about what’s on the shelves and more about the act of shopping itself, retail pundits say — Is there a chance you’ll discover something new? Do you see a distinct and consistent vibe? Are you actually having fun?
“The problem is that companies still think that the products that they carry matter. Consumers know that they can get a power drill…at any one of a hundred places. The products don’t matter,” Witcher said. “They need to focus on experience.”
Doug Stephens, a consultant who describes himself as a “retail industry futurist,” helpfully takes this idea to logical extremes.
In his forward-looking vision, the evolved new iteration of big-box stores will reach a point at which they provide such a rousing good time that both the brands whose products line the shelves and the customers will pay to be there.
“Imagine if you will, the Best Buy of the future,” he begins, intriguingly.
“It’s a store where Best Buy doesn’t really sell anything. Most of what gets sold is either sold directly from the brand or it’s sold online.”
“But the store is just something that is just absolutely incredible. You walk in, you see products you’ve never seen before, you’re able to see demonstrations and take classes, and you’re able to try things out, and it’s virtually such a great experience that you would pay a membership fee just to belong to it — to be able to go whenever you want.”
The geek squad has a long way to go in that respect.
Problem 2: Too many stores
Remember the halcyon pre-recession days of the mid-aughts? The days of McMansions, Hummers and rampant consumerism?
That was also the peak of a decades-long expansion of retail real estate that left the industry “overstored,” as they put it. Thanks to years of rampant growth, retailers now have one billion square feet more than they need, according to a recent report from CoStar.
“Simply put,” the firm’s director of US research, Suzanne Mulvee, said in a statement, “it all comes down to productivity. Retailers on average are generating fewer sales per square foot than they did during the decade leading up to the recession.”
The amount of new retail real estate construction plunged during the recession, but it’s now inching upwards again — though not at a rate anywhere near where it was before.
Many established companies have significantly more square footage than they are able to fill. Hence, constant waves of store shutterings.
Problem 3: Technical issues
Sure, most retailers failed to jump on the online shopping train before it left the station years ago. But many struggling stores have also slept on in-store technology that could make them more competitive with data-heavy online outfits.
“Everything has changed because of tech,” Witcher said. “But the way we shop in a store has been the same for 200 years. So why would people want to shop there?”
One of the chief advantages that e-commerce companies currently wield over their real-world counterparts are vast troves of detailed data on purchases and shopping habits. But these sorts of capabilities don’t have to be restricted to the internet.
Investment in physical technology to match this strength has picked up in recent months. One of the most notable recent pushes came from Intel, which committed $100 million to developing a web of connected gadgets that would help stores more closely track inventory, collect data on consumer preferences and eventually tailor offerings much like their online rivals already do.
Of course, any in-store tech system will also have to compete with the state-of-the-art one with which Amazon is outfitting its own brick-and-mortar stores.
Problem 4: Outpriced
Many of the retailers that are actually doing well at the moment are successful for one simple reason: they’re cheap.
Discount stores TJ Maxx, Marshalls and Home Goods — all subsidiaries of parent company TJX — have bucked the ennui gripping most of their peers with bargain-bin prices that other stores just aren’t willing or able to match.
The otherwise-failing clothing brand Gap has also been propped up by the sustained success of its low-price property Old Navy.
These stores are successful, according to Witcher, because people know exactly what to expect from them. Customers come in looking to dive into racks full of miscellaneous items and dig up the best deals or discover new products. It’s an experience that wouldn’t necessarily work in an online setting.
Retail chains are floundering and it’s not because of Amazon
“Everyone has tried to play the value game at one point or another,” Passikoff said. “But it’s value in terms of what things cost and what I perceive things to be and what I perceive them to be worth.”
Originally from Mashable