Update: The Amazon Tsunami

No matter what segment of retailing you are in or what merchandise you are selling, every retailer is keeping a wary eye on Amazon. As we sure do. 

But, the Thursday, April 7 edition of The Wall Street Journal had an update on Amazon that, once again, can take your breath away: "Amazon’s Fashion Secret: Full Price", by Suzanne Kapner.

According to Kapner: “Dozens of brands now sell directly to Amazon, including department store stalwarts such as Nicole Miller, Calvin Klein, Kate Spade, Lacoste and Levi Strauss. And, just recently, Ralph Lauren shoes."

Why is this happening? For brands, Amazon offers growth – now without having to discount – at a time when department store sales are sluggish. 

Indeed during one 21-day time period (Jan. 28–Feb. 17), “Including sales by third parties, Amazon had higher average prices than Macy’s and Kohl’s on 69 items of women’s and men’s clothing and shoes.”

Of course, some department store executives still cling to the idea that Amazon will not be prepared to deal with returns. Hmm. Amazon has proven time and again that operational and logistics issues are not a deterrent.

Moreover, Kapner reports, “Amazon has advantages [for the brands] that traditional retailers are finding hard to match, including analytics data that help brands target shoppers by letting them know which styles and sizes sell best by region, and more sophisticated pricing.”

Ahh yes, “dynamic pricing”. Amazon’s unmatched analytics (and algorithms) allow much more responsive pricing than department stores.  For Amazon, price changes occur online, without having to be matched in hundreds of stores across the country. 

In fact, during that same 21-day time period, “Amazon changed prices 9.2 times on average per item, while Macy’s changed prices 2.1 times and Kohl’s did so 1.5 times.”

"Of course, Amazon will not depend on the brands for its growth; it is making many other inroads into fashion. It has acquired online sellers of designer brands, hired talent, launched a flash sale site, improved its presentation (its photography studio in Brooklyn creates magazine-like spreads for its site), created its own private-label products, and launched a live fashion show that streams each evening on the web."

But the key value persists: Amazon continues to relentlessly seek and capture the real prize, more and more customer data. Their stated goal: "turn the art of retailing into the science of retailing."

Can this tsunami be thwarted? Hmm.

Well, others have been. Think Kresge, Montgomery Ward, several "big box" specialty stores, many department stores, Sears, now maybe Wal-Mart. 

Stay tuned......

The Lure of Retailing for Manufacturers

According to a recently published eBook by Channel Advisor*, branded manufacturers are wondering: "Should we complement the traditional model of selling solely to wholesalers and retailers by selling directly to consumers?"

And the encouraging advice offered to these suppliers by Channel Advisor?
  • "The short answer: Yes, you should."
  • "Luxury brands, apparel brands, household product brands – they're all joining the party."
Meanwhile, The ROI's recent survey of retailers (see all results here) confirmed that manufacturers are seizing this opportunity. Indeed, this prompted some retailers to write:
  • "We need less on-line competition from our vendors." 
  • "Vendors selling directly to the consumer is a huge problem." 
No question, this is a sensitive issue for retailers, and often a frustration

But is it really a problem? 
    Keep in mind that, over the years, many manufacturers have tried it and failed. Not all, but many. They think that retailing looks so easy! 

    But, success in retailing requires a special mix of skills that very few manufacturers can accumulate.
One seasoned specialty store retailer we know exclaims, "Whenever someone says to me they want to open a store like mine, I say 'Great! You should do it!'"

Why so encouraging? He knows that only the pros can make retailing look easy, and work well.

Perhaps those manufacturers tempted to heed Channel Advisor's advice should also be reminded of this old saw: "The best way to make a small fortune in retailing? Start with a large one!" 

Manufacturers selling direct to customers is a genuine frustration. But.... 

*"Branded Manufacturers: Should You Sell Direct?"
Channel Advisor eBook

The Case of the Missing Customers

We're heard from several very experienced retailers this past week that sales and in-store traffic have just dropped off since early February. Altogether spooky.

Indeed, 6 out of 10 respondents to our recent survey of retailers reported that customer counts (transactions) are down so far this year.

What's going on? Where are the customers? 

We can only speculate, but our suspicion: the 2016 Presidential campaigns continues to dominate the news in unprecedented and relentless fashion. Every day, the news is full of more uncertainty and disruption. 

And this democracy-in-action upheaval is taking a toll on retailing. This year, there is no "business as usual"!

  • In a nation whose favorite spectator sports are auto racing and football, it's no wonder that this politcal spectacle has commanded our attention: When and where will the next collision occur?
  • In this case, a "collision" is, distractingly and potentially, a major change in how our country is run, and how it is perceived around the world.
In fact, it seems to us that no "news item" in recent history has ever been more captivating. It not only is being watched; it is being stared at, mouths agape! 

Our hypothesis: You bet, most customers are distracted. And concerned. And spending less confidently. Aren't you too?

Your Shoppers Deserve to Know You Better

We hear it over and over. "Good business citizenship" matters to shoppers. They vote with their feet, their wallets, and their hearts, and increasingly choose those retailers who "do the right thing", whether it's how they source product, hire and pay employees, reduce environmental impacts, etc.

Followers of The Retail Owners Institute® know that one of our beliefs is that "Retail is a mirror of society."  And independent retailers, especially, are often in the forefront of "good business citizenship".

So, why not let your customers know?  As Joe Kefauver wrote in Retailing Today*:
  • "Is there a fun way to let people know how many employees at a certain location have gone from entry level to a management position?
  • "Can a company creatively communicate how many volunteer hours or non-profit dollars a certain establishment contributed to the community over the past year?
  • "How is a given unit and its larger company talking about the use of its culture of opportunity to help leaders in a city solve problems?"
These are the things that independent retailers do day in and day out, without perhaps even realizing how special they are!  And especially in today's world, these are your competitive edge!

  • Many of you are using social media to promote sales events, new product arrivals, etc.
  • You already are finding how to convey your store's personality when it comes to your merchandise.
  • Why not also use it to share how you do business? That is what increasingly matters to your customers.
  • As a retailer, you likely are one of the civic leaders in your community. It's okay to let people know.

* "What retailers can learn from Uber's playbook", Guest Viewpoint by Joe Kefauver. Retailing Today, February 3, 2016.

About Those Wal-Mart Store Closings

Perhaps you also have noticed the recent announcements that Wal-Mart will be closing 269 stores, 154 of which are in the U.S. In several breathless pieces about this announcement, much attention was focused on the negative impacts the closings will have on their respective communities. Perhaps so.

Maybe the spirit of The Retail Owners Institute® is misguided, or we're looking through rose-colored glasses, but we can see opportunities galore! Consider this:
    For every $1 million in sales that a closing Wal-Mart was doing, there's $500K of volume for each of two new or expanding merchants. So, closing a $10 million store might sprout 20 small businesses right down old Main Street!
    In most communities, there are several good merchants already. We can imagine those folks stepping up quickly to help fill the vacuum a closed Wal-Mart created by adding stores without adding much administrative overhead. One good bookkeeper can handle more than one store. Same with POS systems, for example.
    Or, a Wal-Mart closing can prompt new retailers, who can take advantage of the many in-the-cloud resources to reduce admin costs and introduce new retail concepts to a community.

Take That, Chicken Little! The Sky Is NOT Falling!

See, there well could be great opportunities out there. At least for those who are not distracted by the negativity. And retailers, more than most any other group of business owners, are incredibly optimistic. 

Before You Ask About the Economy....

Like us, many of you are watching with concern as the U.S. stock market starts the year in free fall, and the media pours kerosene on the fire. Additionally, the commercial world is wondering if China’s more modest growth is an aberration or the new normal.

For owners of retail operations, who were smashed by the recent Great Recession, these dark clouds are not welcome at all. And if consumer confidence were to plummet, so would sales, most likely. That would be painful!

Let’s be perfectly clear: we are called a lot of things, and answer to some. But we are NOT economists! Whew! 

But, before you ask, here is our amateur opinion of this downtown:
  • It won’t last long.
  • By the fourth quarter, most of the world’s economies will be feeling robust.
  • And independent retailers need to be prepared to take advantage. Hunker down now, but be ready for the rebound. 
My, aren’t we the cheery optimists?!

Oh. You want to know how we reached that glossy conclusion? Fair enough.

First, the remarkably depressed oil prices (a major contributor to balance sheet erosion worldwide) were caused by a glut of oil backing up. Finally, that glut will subside in order that suppliers can raise prices. Too much pressure to do otherwise.

In much the same manner, several other “gluts” are undergoing better management.
  • Consumer goods at deflationary prices is simply not sustainable economically. Third world producers are learning that, finally.
  • Millions of immigrants upsetting the economies of many countries. Those very countries will, we like to think, exert their diplomatic and political muscle to correct some of the reasons that cause the fleeing, beginning to reverse the flow. There are some sound leaders, after all!
  • Millennials worldwide are coming forward, and will influence economies, elections, the environment, and stability like no generation before. They’ve watched their parents and grandparents botch things up. They are one glut we all can applaud!

So, before you ask, we’ve offered our crystal ball gazing. Now, what’s yours??

Is This Bias in Pricing? Shrewdness? Or Just Being Clueless?

We were struck by this December 22 Washington Post column headlined "Why you should always buy the men's version of almost anything." 

According to reporter Danielle Paquette, the New York City Department of Consumer Affairs found that "Controlling for quality, items marketed to girls and women cost an average 7 percent more than similar products aimed at boys and men." 

Sounds preposterous, right? But, consider these specific examples from stores such as Target, Walgreens, Club Monaco, Levi's:

  • A red scooter for boys costs $29.95; the same scooter in pink "for girls" costs $49.95. 
  • Other gendered toys: Raskullz shark helmet $14.99;  Raskullz unicorn helmet $27.99.
  • Playmobil pirate ship $24.99; Playmobil fairy queen ship $37.99.
  • Personal care products: Schick Hydro 5 razor cartridges in a blue box, $14.99; Schick Hydro "Silk", in purple packaging, $18.49.
  • Apparel: Women's clothing costs from 24% to 28% more than men's at some specialty stores that sell both. 

Other specific examples abound in reports from the State of California, the University of Central Florida, and the Yale School of Management. 

So, What's Going On Here?

  • Is this a shrewdly intentional pricing strategy, reflecting what customers will pay? You know, "Price is not a function of cost."
  • Is it an historical artifact? "Well, we've always charged women for any alterations; men get tailoring for free. That's just the way it is."
  • Is it a reflection of decisions by the manufacturers? "Our retail prices are markups based on our costs from the vendors."
  • Or, is it all a conspiracy theory run amok? "There is no conscious effort to charge women more than men. That's just in how you sort the data. Pricing is very complex and dynamic."

Just a Caution

Before you dismiss it all as a "conspiracy theory" in search of a cause, do you even know whether any seeming patterns of gender bias (or other bias) might exist in your store's pricing?

  • It may behoove you to do some inquiries! Today's technology should readily yield some answers.
  • Then, be sure to show the findings to an array of folks. They may see "patterns" that could be construed as intentional.
  • Are there some appearances of "persistent surcharges" for ANY group of customers? Appearances DO matter!
  • And, IF there are such appearances, what should you - or could you - do about it?  

Ahh. Just another issue that only the owner can resolve. Maybe it should go to the top of the list of your New Year's Resolutions! 

Alert! The Amazon Books Store Is Just the Start

We have watched the opening of Amazon's first bricks-n-mortar specialty store with great interest. And here is our conclusion: Brace yourself!

In fact, we anticipate an onslaught of entire shopping centers of Amazon "specialty retail stores". (Zappos Shoe Store, anyone?!) All using the same data-centric efficiencies Amazon is testing at Amazon Books, its just-opened bricks-n-mortar bookstore.

  • Whether apparel, electronics, sporting goods, kitchenware, jewelry, hunting gear or whatever: Amazon has incredible customer data.
  • Now, imagine a center full of separate Amazon "specialty stores" of categories specifically tailored to that particular market: hunting and fishing gear in some places; hiking and backpacking gear in another market.

Breath taking, isn't it? But that is our prediction: "Earth's Biggest Store" will find you and others who shop like you, (or your customers and others who shop like them) and set up its own specialty shops.

Talk about target marketing! 

A Little Background

In early November, in a prominent location – complete with a brick facade – in an upscale shopping center in Seattle, Amazon opened the "real wooden doors" on Amazon Books, its bricks-n-mortar bookstore.

Hmm. Actually, Amazon Books has far more in common with Amazon.com than with bricks-n-mortar bookstores.

  1. First, it is VERY data-centric. The books they carry, Amazon says, "are selected based on Amazon.com customer ratings, pre-orders, sales, popularity on Goodreads, and our curators' assessments." And it's hyper-local; it represents the tastes and preferences of the readers in that local market.
  2. Second, they have inoculated themselves from price competition from "the web": all prices in the store are the same as on Amazon.com.
  3. Third, they are constantly gathering customer data. No prices are displayed at Amazon Books. Want to know the price? Just scan the barcode below each book. Be sure to do so with your Amazon app; for convenience, you know.
  4. And, it's true; they do not take cash! Yet another typical cost they have eliminated.

In our view, what they have opened is a new kind of category killer, but in a very small footprint.

  • They are using their vast storehouse of data to offer only the best turning inventory, to a targeted, localized market.
  • And, they have the pricing advantages that come from size. They are "earth's biggest bookstore", after all.
  • Their pricing is dynamic; e.g., $16.25 today, $17.85 tomorrow. What will it be next week? That's the marketplace dynamics in action. 
  • Their pricing also could be targeted to the particular shopper as well, based on that person's history with Amazon. Remember, the only way to get price info is by scanning with your Amazon app. ("Don't have one? We can set that up for you right now!")
  • And, it certainly continues Amazon's relentless pursuit to turn "the art of retailing into the science of retailing." No more need for judgment calls from the high-salary buyer; just follow the data! (The data isn't temperamental the way some buyers can be, either!)

Coming Soon to a Neighborhood Near You?

The issue is this: with its vast 20+ years of customer data, Amazon is showing its ability to again reinvent retailing. 

We believe they are poised to roll out collections of Amazon Specialty Shops. Each shop is targeted to that particular market, as is the mix of shops in a given center.

All, of course, would be highly data-driven, and able to exploit the same cost efficiencies that Amazon is testing at Amazon Books. 

Talk About a Time Crunch!

Well, the calendar seems to be wreaking a little havoc for retailers this year. 

First, Labor Day was “late”; that is, on  September 7 instead of the 2nd or 3rd.

  • That meant that the Back to School shopping that often occurs in August was pushed into September.
  • Plus, it was delayed even further by today’s shoppers, who seem to prefer “grazing” – our name for the tendency to shop closer to need – instead of concentrated shopping trips.

Next, looking ahead: Thanksgiving this year is also a little "late", on November 26. And, Christmas is on a Friday.

Why does this matter? Because Christmas Eve is just four weeks after Thanksgiving!

  • This means the fewest number of weekends - three! - between Thanksgiving and Christmas.
  • But, with Christmas Day on a Friday, that allows 2 full weekend days for those after-Christmas sales and returns.

Who Will Be Impacted?

Which retailers might be affected the most by these calendar-based realities? Online merchants!

  • It’s very likely that in a time crunch, customers will choose to do more of their shopping online, which puts increasing pressures on online merchants to meet delivery-by-Christmas schedules.
  • And this is happening as some of these larger retailers are facing difficulties finding seasonal workers for their warehouses.
  • Turns out that with employment rising, there simply aren’t as many folks willing to accept the demands of a warehouse job on just a short-term, seasonal basis. Hmm. Christmas shopper beware!

Meanwhile, even if your retail operation is more bricks-n-mortar than online, this calendar crunch still may affect you. Here’s how.

  • Seasoned retailers have observed that in-store shopping surges as each delivery-guaranteed-by-Christmas order date deadline is passed.
  • Make sure you know what those key deadlines are. Be prepared to reap the most benefit. Be proactive in scheduling your staff in anticipation!

All in all, the rest of 2015 promises to be pretty hectic!