How Best Buy, Walmart and Other Retailers are Competing Against Amazon
This is the first part of a three-part series on how retailers can compete better with Amazon. This article focuses on four companies that have implemented winning strategies. Part Two looks at Alibaba and how its tech. investments provide insight into what the future of retail will look like. Part Three focuses on what recent product and service launches from Amazon say about its future priorities. You can read Part Two here and Part Three here.
From its humble beginnings as an online book retailer to the everything store Amazon continues to evolve. It is the first search engine that consumers use when searching for a product. It also has 200 million monthly website visitors and in 2018 it generated revenues of $233 billion. Long known for its focus on growth over profits its investments are paying off. Amazon generated record net income of $10 billion in 2018. It is telling that Amazon’s profits are driven by its non-retail businesses: primarily Amazon Web Services as well as advertising. In spite of Amazon’s growing dominance there are a number of strategies that retailers are using to thrive in the midst of dizzying change and innovation.
1. Customer service – the gift that keeps on giving at Best Buy
To compete more effectively with Amazon Best Buy recognized that it needed to improve its customer service. After Best Buy’s CEO, Hubert Joly, joined the retailer in 2012 he increased the quantity and quality of Best Buy’s store labour and trained employees in new categories such as virtual reality and smart home appliances to provide better service.
Best Buy also realized that with the fast pace of technological change that customers needed help determining what products to buy. In recognition of this in September of 2017 Best Buy expanded its In-Home Advisor program to all major markets in the US. Customers using this service can get advice for free on which technology products to buy and how they should be installed. Over 500 advisors across the US travel to customers’ homes to provide the service. By the end of 2018 these advisors provided more than 175,000 consultations. The revenue generated per order for Best Buy from these interactions is much higher than from online or in-store.
Finally, Best Buy launched a subscription service nationwide in April of 2018 called Total Tech Support. The service costs $199.99 per year and allows customers to receive unlimited Geek Squad support across several touch points including online, in-store, over the phone and through Best Buy’s app. Service is available 24/7. Through this service Best Buy also provides support for all of the tech within a customer’s home even if the product was purchased outside of Best Buy. One million customers signed up for the service by the end of 2018. Subscription services are a great way to provide recurring revenue and provide an incentive to purchase additional products and services. Best Buy’s same store sales increased by 4.8% in 2018.
2. Stitch Fix – taking personalization to the next level
One of Amazon’s strengths is the depth of its product offering. But it is also one of its weaknesses. The sheer depth of its offering makes the customer experience on Amazon rather impersonal. Personalization, the ability to provide customers with more tailored experiences can be difficult to achieve. However, Stitch Fix, the online personal styling company has done a great job of using artificial intelligence to provide personalization on a mass scale.
To get started with Stitch Fix customers complete a detailed online questionnaire. The questionnaire covers a wide range of areas to provide an understanding of the customer’s style, size, price preferences and how often they need new clothing for various occasions (i.e. work, dates, events etc). It employs over 100 data scientists with Phds in areas such as math, neuroscience, statistics, and astrophysics. Using over 85 meaningful data points provided by customers, merchandising algorithms based on artificial intelligence are built and used to make personalized clothing recommendations for each customer. Then, enter personal stylists who add an essential human touch. They can override the recommendations made by the algorithms.
Customers then pay a $20 styling fee (no subscription is required). Five clothing items are sent to the customer and if they like them they can keep them, if they do not, they can return them for free. Stitch Fix, founded in 2011, generated $1.2 billion in revenue in 2018 and has nearly three million active customers in the US.
3. Risk or opportunity? Kohl's embraces change by partnering with Amazon
In October 2017 Kohl's started putting 1,000 sq. ft. Amazon Smart Home Experience centres in its stores. There were 30 Amazon store within-a-stores within Kohl’s in 2018 where customers could buy Echos, Fire TVs, Kindles and more. In a recent earnings call Kohl’s said that it will transition away from this concept to focus on a “more robust wholesale relationship” with Amazon. This will lead to Kohl’s selling Amazon branded products in over 200 Kohl’s stores in a dedicated space.
100 Kohl's stores also accept returns of items bought at Amazon. Speaking about the returns pilot, Michelle Gass, CEO of Kohl’s said: “I think the most important thing that we're seeing is how excited our customers and the Amazon customers are about this service. It's really unique, takes a lot of the hassle out of returning items, it's free, they don't have to package it.” The goal of these initiatives for Kohl's is to increase traffic. Overall, in 2018, Kohl’s comparable sales were up 1.7%. Kohl’s stores in the Chicago area where most stores were part of the Amazon pilot have performed better than Kohl’s stores across the US. For example, new customers were up 10% in Chicago vs. 1% in the rest of the US.
Partnering with Amazon is not without risk. Toys “R” Us signed a 10-year deal with Amazon in 2000 to be the exclusive vendor of toys, games and baby products on Amazon.com. Not long after the deal was in place Amazon decided it wanted more competition on its website and allowed other vendors to sell on its site. Toys “R” Us sued Amazon in 2004 for breach of contract and a settlement was reached in 2009 where Amazon paid the retailer $51 million.
4. Walmart is trying to beat Amazon at its own game
Walmart is running headfirst at Amazon, or at least it is trying to. After suffering its first decline in sales in 2015 since 1970, Walmart entered into attack mode. It purchased a host of eCommerce businesses including Jet.com for $3 billion, Bonobos for $310 million, Eloquii for $100 million and ModCloth for between $50 million to $75 million. In addition to getting Marc Lore, an eCommerce visionary, out of the Jet.com transaction these brands allow Walmart to cater to a more upscale consumer that might typically shop at Amazon.
Walmart is also making a concerted effort to drive more traffic to its website by adding more third-party sellers. Since Walmart’s marketplace is not as crowded as Amazon’s individual sellers have a better chance at getting noticed. Between 2016 and 2017 Walmart went from having 10 million items on its website to having 50 million. Lord and Taylor products are also sold on Walmart.com now.
Finally, in an attempt to compete with Amazon’s Prime Now two-hour delivery service (only on selected items), Walmart added curb-side grocery pick up at 1,000 new locations in 2018 and now the service is available at 2,100 stores. Walmart’s strategy is working, eCommerce sales grew by 40% in 2018.
Check in weekly for articles on digital transformation and customer experience innovation to learn what strategies businesses are using to accelerate their sales growth.
From time to time ads may appear below.