Winning in the Age of Amazon

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1.  Four Ways to Compete and Win Against Amazon

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 2017 it generated revenues of $178 billion.   Long known for its focus on growth over profits its investments are paying off.  Amazon’s net income more than doubled in the first quarter of 2018 to reach $1.6 billion.  While still relatively small it is telling that Amazon’s profits are driven by its non-retail businesses: Amazon Web Services and 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.   From providing customer service that keeps customers coming back for more to using artificial intelligence to figure out what customers want, these retailers are winning.

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 in order 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.  300 advisors across the US travel to customers’ homes to provide the service.  

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. Best Buy also provides support for appliances and tech devices even if the product was purchased outside of Best Buy. Subscription services are a great way to provide recurring revenue and provide an incentive to purchase additional products and services.  With over 100 million Amazon Prime members, Amazon can attest to the benefits of this type of program. In 2017 Best Buy’s comparable sales were strong, up 5.6% over 2016 and in the second quarter of 2018 comparable sales were up 6.2%.

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 feel 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 80 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 the 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, made nearly $1 billion in 2017 and has nearly three million active customers in the US.  In the third quarter of 2018, Stitch Fix's net revenues were up 29%. 

3. Risk or opportunity? Kohl's embraces change by partnering with Amazon

Kohl's put 1,000 sq. ft. Amazon Smart Home Experience stores in 10 of its locations in October of 2017. At these stores customers can buy Echos, Fire TVs, Kindles and more.  During the same month 82 Kohl's stores began accepting returns of items bought at Amazon.  The goal of these initiatives for Kohl's is to increase traffic.  Kohl's comparable sales, in the last two months of 2017 after they launched these initiatives, rose 6.9%.  In the second quarter of 2018 Kohl's revenue was up 4%.  

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. 

 Source: Kohl's

Source: Kohl's

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 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.  

The shipping battles continue with Walmart offering free two-day shipping on orders over $35.  Unlike Amazon Prime where two-day shipping is free as part of the membership there is no subscription fee to access Walmart's service.  Finally, in an attempt to compete with Amazon’s Prime Now free two-hour delivery service (only on selected items), Walmart offers curbside grocery pick up at 1,200 stores and an additional 1,000 stores will be added by the end of 2018.  Walmart’s strategy is working, its US eCommerce sales grew by 44% in 2017. In the second quarter of 2018 Walmart's US eCommerce sales were up 40%.  

Call it personalization or enhanced customer service what the strategies from Best Buy and Stitch Fix have in common is the focus on an individual customer and their specific wants and needs.  It may sound easy to execute but it is not.  The retailers that are able to do this have an advantage.  As Walmart and Amazon continue to battle it out in delivery the fallout is new industry standards that are challenging to meet.  Finally are the risks of partnering with Amazon worth the rewards? Only time will tell. Out of all of this the customer is the clear winner which is good for everyone.

2. What Alibaba Can Teach Retailers About How to Compete Against Amazon

When thinking about how to win in the age of Amazon retailers can take a look at Alibaba, China’s eCommerce giant, for inspiration.  While Amazon is often seen as the leader it is actually Alibaba that has made a number of telling first moves.  eCommerce penetration in China is 15%, higher than the 9% penetration rate in the US and 7% in Canada. Alibaba’s tmall.com site captures 51% of China’s retail eCommerce sales and despite its success Jack Ma, Alibaba’s founder, believes the future of retail is tied to bricks and mortar. 

In 2015 two years before Amazon’s purchase of Whole Foods Alibaba opened its futuristic Hema grocery stores. Since then Alibaba has invested more than $9 billion in bricks and mortar retail. With a focus on innovation Alibaba’s foray into bricks and mortar has been anything but conventional.  It has focused on convenience, personalization and digitizing stores and in the process Alibaba is reinventing the customer experience.  Here are four examples that provide compelling insight into the future of retail.

1. Your smart phone = personal shopping assistant

Alibaba opened its first Hema supermarket in 2015 as part of its “New Retail” strategy. New Retail according to Ma is “the integration of online, offline, logistics and data across a single value chain.” It is an initiative aimed at connecting online and offline retail and digitizing stores in order to provide a better customer experience. 

In Alibaba’s Hema supermarkets customers shop using the Hema app on their phones.  They can scan a product’s QR code and get product information, cooking instructions, nutritional information, and recommendations for complimentary items.  Products also have digital price tags that are updated in real time. When customers are finished shopping they pay using Hema's mobile app which is linked to Alipay.   Alipay, founded by Alibaba, is an online payment app that has more than 500 million users.  It is the world’s largest online payment platform with more users than PayPal. The Hema app also remembers shopper buying behavior and leverages machine learning to make personalized product recommendations for customers.

2. Just when we thought delivery couldn’t get any faster

One of the key features of Alibaba’s Hema grocery stores is that online orders of groceries can be delivered in 30 minutes if the delivery address is within three kilometers of a Hema store. In April of 2018 Alibaba announced that customers can also have groceries delivered at any time of day through Hema’s new 24-hour grocery delivery service.  Alibaba found that 80 million customers were visiting its taobao.com and tmall.com websites between 12 am and 4 am and most of those customers are women over the age of 30.  Night owls now have an even better reason to stay up late.

3. Buyer’s remorse, a thing of the past with try before you buy service

In June of 2018 Alibaba launched a “try before you buy” service for customers shopping for fashion on tmall.com Alibaba’s business to consumer website. Customers can order up to seven items and have them delivered to their home. They can try those items on and keep the ones that they like. The items that customers do not wish to keep can be returned for free and the ones they do keep are charged to their Alipay account.  Customers must be part of Alibaba’s loyalty program with advanced standing and have a certain credit score to be eligible for this service.  Amazon has a similar service called Prime Wardrobe. Alibaba plans to expand the service so that customers can reserve items to be tried on in-store when they arrive.

4. Is a cashless society a matter of if or when?

Most people in China’s major cities pay for purchases using their smartphone.  Shoppers pay using either WeChat or Alipay the country’s most popular mobile payment platforms.  Alibaba launched Alipay in 2004 to resolve issues of trust in the payment process between buyers and sellers. People use it to make payments across Alibaba’s eCommerce platforms but also to make payments for everything offline from dinner at a restaurant to clothing at a store to a taxi ride.  With more than 500 million payment accounts such a popular payment platform provides Alibaba with rich customer data.  China is much further ahead than the US in this area, Chinese consumers spent $6 trillion on mobile payment platforms in 2016, 50 times the amount spent in the US.   One of the popular features of Starbucks' mobile app is the link between payment and its loyalty program.  It is telling that Starbucks, a retailer, has the number one mobile payment app in the US ahead of the payment apps provided by tech companies, Apple and Google.  

5. Facial recognition - a new way to make purchases

An Alibaba affiliated company launched “Smile to Pay” at a KFC location in China in September of 2017. At self-checkouts customers place their order using a kiosk. Then a camera imbedded in the kiosk’s screen scans the customer’s face.  Facial recognition payments technology is then used to verify the customer’s identity. Customers also enter their phone number into the kiosk as a safeguard against fraud.  Customers must be registered with Alipay, Alibaba’s mobile payment app to facilitate the transaction. The technology is offered at a tech heavy concept store.  According to Joey Wat, Yum China’s president the store is targeting “young, tech savvy consumers who are keen to embrace new tastes and innovations”. 

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A woman uses Smile to Pay at a KFC in China

 

Photo credit: Alibaba

Mobile is a large part of the shopping experience in China.  Alibaba has gone as far as saying the shopping experience in its Hema stores start when the customer downloads the Hema app.  Instant gratification through fast shipping and an always available delivery service is also a key priority.  Finally, retailers that look more like tech companies, leveraging big data and technologies such as artificial intelligence are winning.

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3. Five Recent Amazon Launches You Should Know About

Amazon is growing so fast it is hard to keep up.  Since launching its eCommerce site nearly 25 years ago in 1994 Amazon has grown in ways few would have anticipated when it first started out.  It is hard to remember the early days when you could only find books on its website. Now Amazon has nearly 200 million monthly website visitors, 100 million Amazon Prime members and 2017 revenues of $178 billion.  What is Amazon’s formula for success? According to Jeff Bezos himself:

“If you want to get to the truth about what makes us different, it’s this, we are genuinely customer centric, we are genuinely long term oriented and we genuinely like to invent. Most companies are not those things. They are focused on the competitor rather than the customer.  They want to work on things that will pay dividends in two or three years, and if they don’t work in two or three years they will move on to something else.  And they prefer to be close-followers rather than inventors, because it’s safer. So if you want to capture the truth about Amazon, that is why we are different. Very few companies have all of those three elements” – Excerpt from the book, The Everything Store by Brad Stone

True to form Amazon can’t stop inventing and reinventing itself.  Many of its recent product and service tests and launches reveal that it is fixated on making shopping as convenient as possible.  Amazon is also focusing on improving customer service in ways that are making competitors such as Best Buy rethink their strategy. Here are five moves that Amazon has made within the last 12-24 months that you should keep your eye on. 

1. Not home? Not a problem.  In-home delivery is for you

In October of 2017 Amazon launched an in-home delivery service called Amazon Key. On the day of a customer delivery the customer receives a message asking them to either block or watch the delivery while it takes place.  If they choose to block the delivery the customer can select a standard delivery option. Customers must have a Prime membership and an Amazon Key Home Kit which consists of a security camera, a smart door lock and the Amazon Key App which customers can use to unlock their door from anywhere. According to Amazon this is not an experiment, it will be part of the shopping experience going forward. Amazon recently expanded Amazon Key to include the option of having purchases dropped off in the trunk of a customer’s car.

2. Need your tech questions answered in person? Amazon has a solution

Amazon is now providing an in-home service to customers who need help setting up a smart home.  As part of a service that was launched in early 2017 called Alexa Smart Home Consultations Amazon offers free in-home consultations where Amazon experts answer all smart home customer questions, demo Alexa devices and provide an assessment of which smart home products are the best fit for the customer.  Customers can also get smart home products installed by Amazon for a fee. These services are expected to challenge those provided by Best Buy’s Geek Squad which played a critical role in Best Buy’s turnaround.  

3. Shopping has never been easier with the echo look

Amazon launched the echo look in April 2017 “to help you look your best”.  It is a handsfree camera and style assistant.  Using the hands-free voice commands the echo look takes a photo of a customer’s outfit or takes a 360 degree view in a video clip.  The key feature is Style Check which can analyze two different outfits and provide the customer with an opinion on which outfit looks best. It provides insight into fit, styling and current trends.  It does this using machine learning algorithms.  It also provides recommendations for complimentary items which can of course be purchased at Amazon.  It looks like Amazon is trying to automate your best friend.    

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The echo look can take photos or a  360 degree view of your outfit

Photo credit: Amazon

4. Buyer’s remorse a thing of the past with Prime Wardrobe

Amazon launched Prime Wardrobe a “try before you buy” service for clothing, accessories and shoes in June of 2017.  Customers can order three or more items, receive them and then try on items at home before purchasing anything.  Customers can then schedule a pick-up for the items they do not want, for free, of course. The service is free to use with a Prime membership.  In comparison, Stitch Fix charges a $20 styling fee per box of clothing but customers can put the $20 toward anything they keep.  However Stitch Fix provides a personal styling service powered by AI and reviewed by human stylists to determine the clothing items that are sent to customers. 

5. Faster than ever delivery with Amazon Prime

In February of 2018 Amazon launched even faster delivery options for grocery items. Amazon now offers free 2-hour delivery on orders over $35 for Whole Foods customers in selected areas. Customers must have a Prime Now membership. Deliveries are made from Whole Foods stores in certain markets and the service will be expanded across the US.  Launched in 2014, Prime Now is an exclusive service for Prime members and offers delivery of tens of thousands of items across categories such as groceries, packaged consumer goods, household items and even restaurant food.  Prime Now also offers members one hour delivery for $8 on orders over $35.  

By looking at all of these initiatives it is clear that Amazon continues to blur the lines between online and offline retail.  Super-fast shipping is tapping into what seems to be a near universal need for instant gratification.  See it, have it right away. No waiting.  Amazon also realizes as much as customers love the self-service aspect of the internet there is no substitute for great service in person.  It underscores the fact that the best digital strategies have both online and offline components.  Although the echo look feels a bit gimmicky it, along with Amazon Prime Wardrobe, demonstrate Amazon’s continued focus on the apparel category. Amazon only trails Walmart in apparel sales in the US and is expected to claim the top spot in 2018.

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