November 2, 2018 Sunnyvale / CA / USA - Amazon headquarters located in Silicon Valley, San Francisco bay area
The changing of the guard at Amazon. After more than a quarter of a century at the helm, Amazon’s founder CEO Jeff Bezos is handing over the reins to former AWS boss Andy Jassy. In this interview with BBC World, I discuss with Sally Bundock the two key challenges that Jassy will inherit – the threat of regulatory action to curtail Amazon’s dominance and ensuring that Amazon does not go from disruptor to disrupted in the future.
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Big media day yesterday covering the news that Amazon has debuted its checkout-free store concept in London.
This is watershed moment for U.K. retail. Amazon is known for disrupting the status quo, raising customer expectations and forcing competitors to raise their game. Remember Amazon is a tech company first, retailer second. The big question is – does Amazon really want to become Britain’s biggest supermarket or perhaps it’s more lucrative to license this tech to… everyone else? Either way, Amazon transformed the checkout experience online and will now do the same in-store. Goodbye, friction!
Fort Collins, CO, USA - March 31, 2020: Brown bags with groceries and fresh produce delivered to house from Whole Food Market and order through Amazon Prime. Online shopping during coronavirus pandemic concept.
What is the secret toAmazon’s success in a nutshell? A relentless dissatisfaction with the status quo. Love or loathe it, we have to credit Amazon for stamping out complacency in retail. Fast and free delivery, one-click shopping, user-generated reviews, checkout-free stores, voice shopping, the list goes on. If Amazon didn’t exist, shoppers today would be far more tolerant of mediocre retail experiences.
Covid-19has further fuelled its appetite for disruption. This week Amazon hit the nuclear button. By offering free delivery of groceries, Amazon is capitalising on a once-in-a-lifetime opportunity to acquire market share. This is the boldest move it has ever made on this side of the Atlantic, and the worst possible news for the supermarkets who were finally getting comfortable with online deliveries in the middle of a pandemic.
Picture this – a radical new grocery concept designed to revolutionize how Americans shop. The store is much smaller than your typical supermarket, around 10,000 square feet and stocking an edited range of just several thousand products. The store doesn’t feature banks of traditional checkouts; instead it’s a heavily automated and efficiency-driven experience. There are no bakeries, butchers, or any of the counter services you’d find in most supermarkets.
Nope, I’m not talking about Amazon’s latest cashierless grocery format, Amazon Go Grocery, which launched in Seattle this week. I’m talking about the now defunct Fresh & Easy, Tesco’s failed attempt to crack the US grocery market.
In my latest piece for Forbes, I explore 3 key learnings for Amazon:
How can retailers compete with Amazon? This is the question that my co-author Miya Knights and I get asked most since publishing our book earlier this year.
First, let’s address the myth that Amazon is a retailer. It’s not.
Amazon is a technology company with deep pockets, an appetite for disruption, and a constant dissatisfaction with the status quo. Amazon is a fierce competitor not only because it is infatuated with its customers, but also because it has the advantage of playing by its own rules, shunning short-termism and other traditional constraints faced by public retailers.
From a CX perspective, Amazon has made online shopping completely and utterly effortless. The ability to access millions of products and have them magically turn up on your doorstep the same or next day is pretty powerful, and Amazon has gone to great lengths to ensure that the experience is as seamless as possible. They continue to reduce friction by shortening the path to purchase – this will be a key focus in the future as Amazon relies more heavily on its own devices to funnel purchases through to its platform.
Ultimately, it’s the ease of buying through Amazon or, as Miya often says, it’s how Amazon sells rather than what it sells that distinguishes them from their peers.
Amazon is the ultimate friction killer, but that inherently makes them somewhat of an experience killer. Amazon is functional, it’s transactional. It’s great for ‘buying’, but pretty awful for ‘shopping’. So how can retailers remain relevant in the age of Amazon?
Firstly, there is an element of keeping up with the Joneses. Most of Amazon’s innovations catch competitors on the back foot, leaving them in the undesirable position of reacting to rather than leading change. Ceaseless innovation from Amazon raises customer expectations which in turn leads competitors to raise their game and ultimately results in a better experience for the shopper. What would retail look like if Amazon didn’t exist? In a nutshell, customers would be far more tolerant of mediocre service.
No one can out-Amazon Amazon, but retailers must prioritise investment in the areas where Amazon is genuinely disrupting customer expectations – frictionless e-commerce experience, delivery speed and choice, voice shopping, auto-replenishment, checkout-free stores and, increasingly, a digitally enabled instore experience.
That’s just basic hygiene. The real opportunity for bricks & mortar retailers is to focus on WACD – What Amazon Can’t Do. That’s experience, curation, discovery, inspiration, human touch, community. It’s time to inject some personality and soul back into stores, to make them desirable places to visit, places worth ditching our screens for.
Amazon taken the touch and feel out of shopping and there is a massive opportunity for retailers to distance themselves from this by offering customers an immersive, memorable experience that simply can’t be replicated online. But this requires a titanic cultural shift and an entirely new set of skills from store associates who must transition to become genuine brand ambassadors. Stores must go well beyond the product, beyond the transaction. They must become places to eat, play, work, discover, learn and even rent stuff. In the future, retail space will be less about retail.
In summary, there is no single formula for competing with Amazon but retailers can take lessons from the tech giant itself by starting with the customer and working backwards. Think of your stores as assets and not liabilities. Reposition them as fulfilment hubs to cater to growing demand for same-day delivery and instore collections, while potentially beating Amazon to the chase by addressing the ticking time bomb that is returns. The instore experience must be frictionless to emulate the convenience of buying online, but also experiential to differentiate from Amazon’s transactional nature. The rise of Amazon will also make for strange bedfellows – collaboration, in some cases with Amazon itself, should be viewed as an essential component of retail strategy in a bid to stay relevant to customers.
This post originally featured on RingCentral’s blog.
We all know it’s only a matter of time beforeAmazon Go reaches UK shores. Trademarks have long been registered, the rumours have been flying and, havingdebuted in New York Citylast month, it’s fair to say that Amazon has an appetite for urban expansion.
This explainsSainsbury’s recent scramble to open the first till-free store in the UK, a PR coup ahead ofAmazon’s inevitable incursion.
And they’re not alone – pretty much every grocer from Tesco to Marks & Spencer is trialling scan-and-go technology, self-ordering kiosks are now the norm at McDonald’s and Argosquietly launched its first self-service digital store last month. Time is the new currency.
Checkout-free shopping will particularly cater to busy city workers on their lunch break and it will undoubtedly hit travel retail hard – till-free will become the norm in airports and train stations five years from now. But is this really the future of retail?
The customer experience is paramount, but today ‘frictionless’ often translates as ‘soulless’. Most shoppersstill value human interaction in-storeand, as we’ve witnessed with self-checkout, there will be resistance among some shoppers to do the heavy lifting themselves.
Source: Sainsburys
Take the new Sainsbury’s trial, for example: for a store that’s all about reducing friction, there’s certainly a lot of it initially as shoppers have to download the app and get used to scanning QR codes.
Let’s not forget that, a few years ago,Morrisonsscaled back its self-checkout ambitions in response to customer feedback. There has been a lot of hype about automation, but when it comes to responding to disruption, retailers must not lose the human touch.
Defending cash
Checkout-free stores can be controversial. Not only because they will accelerate the number of retail job losses (according to the Office for National Statistics, 25% of supermarket checkout jobs disappeared between 2011 and 2017), but also because going cashless can be seen as discriminatory towards customers without bank accounts or smartphones.
This summer, Philadelphia will be the first US city to prohibit cashless stores, and a growing number of cities are considering a similar ban. Amazon has had little choice but to begrudgingly adapt, and its shiny new Manhattan store is the first Go branch to accept cash.
Lastly, we must acknowledge the elephant in the room: theft. Today, it feels unnatural to bypass the checkout, and Amazon says it takes customers several visits before they no longer feel like they’re shoplifting.
But theft is a genuine concern and was one of the reasons Walmart shelved its scan-and-go programme in the US last year, with a former executive joking that the scheme should have been simply called “‘go’ because the customers can’t seem to ‘scan’ anything”.
The biggest retailer in the world is now embracing a mobile point-of-sale solution. Equipping more staff with handheld devices so shoppers can pay on the spot is a solid compromise – you still provide a frictionless checkout experience while taking the onus off the customer and alleviating concerns over shrinkage.
I don’t doubt that the digital store is the future of retail or that checkout-free shopping will appeal to certain customers and shopping missions. But consumer adoption will be slow, and they will never replace manned checkouts entirely, which is why the hysteria over till-free stores is unwarranted.
Automation is coming but, in the process, retailers must ensure they don’t kill the experience they are working so hard to improve.
According to Next’s CEO Lord Simon Wolfson, a partnership with Amazon is one of the ways they can stay “relevant” to shoppers.
And I have to agree. In the UK, Amazon is the 5th largest retailer. Nearly 20% of retail sales now take place online and, although we don’t have official data, I would estimate that Amazon accounts for 40% of that spend.
So how do you evolve?
How do you repurpose your physical space? I’ve said time and again that stores need to become: 1) frictionless; 2) experiential; and 3) a hub for fulfilment. Ticking that last box, hundreds of Next stores will now allow shoppers to collect their Amazon parcels instore through a new program called Amazon Counter.
It’s not dissimilar to Amazon’s US partnership with Kohls, which has been wildly successful and is now being rolled out across the entire store estate. Kohl’s stores however also handle Amazon returns and I imagine this will come in time as they look to address what is very much the Achilles heel of e-commerce.
Meanwhile, in France, Casino recently announced plans to expand its partnership with Amazon by adding 1,000 collection lockers to its supermarkets. Next isn’t the only one willing to dance with the devil.
Co-opetition: it’s only the beginning
Co-opetition was a key theme throughout our book. In Chapter 2: Why Amazon is Not Your Average Retailer, we wrote:
“In the future, more retailers will run on Amazon’s rails. Retailers themselves are increasingly content to overlook the huge competitive threat posed by Amazon to take advantage of their physical and digital infrastructure. Some may consider it playing with fire – certainly retailers like Toys R Us, Borders and Circuit City would. They were among Amazon’s very first ‘frenemies’ in the early noughties when they outsourced their e-commerce business to the giant – all three have since gone bankrupt. But we believe more retailers will cozy up to Amazon if it helps them to achieve greater reach (marketplace), drive traffic to stores (Amazon pop-ups, click & collect, instore returns) or improve the customer experience (same-day delivery, voice-activated shopping). The unique dual role of competitor and service provider is becoming more apparent by the day. ‘Co-opetition’ is a key theme for the future.” [Berg & Knights. Amazon: How the World’s Most Relentless Retailer will Continue to Revolutionize Commerce, p23, Kogan Page.]
Later in our book, Miya and I predicted that Amazon would team up with a retailer like M&S or Debenhams; Next is actually a far better fit so consider this a coup for Amazon.
More than half of Next’s sales now take place online and a good chunk of those are collected instore. They recognized early on the importance of repurposing their stores to cater to today’s ‘on-my-terms shopper’.
Despite falling like-for-likes, Next is yet to embark on a radical store closure plan. They understand that the store’s role is no longer purely about selling and that having a strong physical presence is an incredibly valuable way to engage with shoppers, let them try stuff on, collect and return orders (as evidenced today) and also offer an experience they can’t get online. I’d argue prosecco bars and hair salons may be a step too far (Debenhams is closing its instore gyms, anyone surprised?) but certainly coffee shops and collaboration with other retailers like HEMA, Paperchase, Mamas + Papas is the way forward for a high street retailer like Next.
Amazon is not a credible fashion destination
Next’s willingness to partner with Amazon is also a sign that they don’t see them as a threat, despite Amazon building up its own arsenal of fashion brands. Never underestimate Amazon, of course, and I certainly don’t doubt that they can sell ‘clothes’ but I just can’t see them cracking ‘fashion’. But more on that another day.
It’s been a busy 8 weeks since our book was launched…
I often get asked what the book covers, what’s our hook, and, without fail, ‘is it available on Amazon’?
So I’ve decided to round up some of the interviews, podcasts and general discussions that Miya and I have had over the past two months, including today’s interview on tech TV channel Disruptive Live.
Hope it gives you a flavor of the book. And, yes, it is available on Amazon. 😉
The phrase ‘the Amazon effect’ brings to mind images of boarded-up shops and retail bankruptcies.
We think of the 2,700 stores that shut or the 80,000 retail jobs that disappeared in the UK in the first half of 2018 alone. E-commerce, and Amazon in particular, is often positioned as the death knell for the high street.
I don’t buy into the ‘retail apocalypse’ narrative, but it must be acknowledged that this is a period of unprecedented change and naturally as spending shifts online, fewer stores are needed.
This isn’t rocket science, it is just about following the customer. Over the past five years, online sales of non-food products in the UK have doubled. Now, nearly 20% of all retail sales take place online. Today, people are ubiquitously connected. They live online. They have access to billions of products right at their fingertips that turn up on doorsteps, often free of charge, the very next day.
Online shopping has become utterly effortless, and that has shaken bricks-and-mortar retail to its core. 2018 was the year that retail chief executives finally pulled their heads out of the sand and acknowledged that there is an oversupply of retail space and there is retail space that is no longer fit for purpose.
Blaming Amazon
Amazon is an easy scapegoat. After all, it’s thought that around a third of UK e-commerce sales go through Amazon’s platform (in the US, it’s closer to the 50% mark).
And, after years of chipping away at the high street, Amazon is now among the top five retailers in the UK. Not many retailers can match ‘the everything store’ on range, convenience and, perhaps to a lesser extent, price. Not many retailers have 100 million customers around the globe willing to fork out roughly $100 annually just for the privilege of shopping with them. Not many have embedded themselves into the shopper’s life – and physical home – in the way that Amazon has; a testament to the strength of its ecosystem.
But it is also true that not many retailers have deep pockets like Amazon – it spends more on R&D than any other American company. It is able to constantly throw ideas against the wall because it has been afforded the luxury of long-term thinking – and not paying a whole lot of tax hasn’t hurt. Business rates account for less than 1% of its sales (for comparison, Debenhams’ bill as a percentage of sales is almost 4 times that amount). The playing field has been tilted in Amazon’s favour since day one and I believe retailers are right to call for legislation to be rewritten for the digital age.
High street woes go beyond Amazon
But the industry’s problems run deeper than Amazon. Retailers continue to grapple with the dangerous combination of rising costs and soft demand which has created considerable pressure and particularly exposed some of the weaker retailers with underlying issues, such as Toys R Us.
Real disposable income growth has been weak for a good decade and now the big unknown that is Brexit is added to the mix. In a similar vein to the weather, Brexit may be a convenient excuse for retailers reporting weak results, but it’s clear that shoppers will rein in spending during times of political and economic uncertainty.
What else is behind the high street’s woes? Although ‘the Amazon effect’ is often cited, what about ‘the Aldi effect’ or ‘the Primark effect’? There are a handful of very agile bricks-and-mortar disruptors that are weeding out the complacent incumbents.
We are at the beginning of quite a fundamental shift in consumer values, as shoppers prioritise spending on experiences over simply acquiring more material goods. Are we perhaps nearing ‘peak stuff’?
In any case, it’s clear we are at the intersection of major technological, economic and societal changes that are profoundly reshaping the retail sector.
So it’s not all Amazon’s fault. In fact, in many ways Amazon has been a force for good. It has stamped out complacency and made everyone raise their game, all to the benefit of the customer.
What would retail look like if Amazon didn’t exist? In a nutshell, consumers would be more tolerant of mediocre service.
Amazon’s technology roots and passion for invention are what sets it distantly apart from rivals. Many of Amazon’s past innovations can, in fact, be easily forgotten because they have simply become today’s normal. Think back to the late 1990s: online shopping used to be quite a laborious process. Amazon cut the friction out by launching one-click shopping, personalised product recommendations and user-generated ratings and reviews.
Delivery, meanwhile, wasn’t always fast and free. Prime significantly raised customer expectations, leaving competitors with little choice but to invest in their own fulfilment capabilities. Amazon went on to tackle one of the biggest barriers to online shopping – missed deliveries – with the 2011 launch of Amazon Lockers. Today, virtually every major Western retailer offers click-and-collect (though Argos was perhaps unknowingly ahead of its time).
Most of Amazon’s innovations catch competitors on the back foot, leaving them in the undesirable position of reacting to rather than leading change. So what is ‘the Amazon effect’, really?
It’s Tesco rolling out same-day delivery nationwide.
It’s M&S trialling scan-and-go technology, allowing shoppers to skip checkout queues ahead of an impending Amazon Go launch in London.
It’s Waitrose delivering groceries directly into your fridge.
It’s Asos allowing shoppers to ‘try before they buy’.
It’s Zara shoppers collecting their online orders through automated pick-up points in-store.
And this is a global battle. ‘The Amazon effect’ is Ocado finally securing a string of international deals, as the Amazon-Whole Foods acquisition accelerates demand for online grocery shopping.
It’s Carrefour partnering with Google to launch Lea – its answer to Amazon’s Alexa voice assistant. In the US, Walmart offers customers a far superior experience today thanks to Amazon breathing down its neck. The retailer has even had a name change: after nearly half a century as Wal-Mart Stores, in 2018 the world’s largest retailer dropped Stores from its legal name to reflect the new digital era.
Amazon has impacted all aspects of retail, and now everyone is scrambling to either keep up with or distance themselves from the online behemoth. The link may be slightly more tenuous but it could even be argued that ‘the Amazon effect’ is Debenhams adding gyms and beauty bars to its stores. It’s John Lewis sending staff to theatre training and democratising personal shopping. It’s Next putting hair salons and Prosecco bars in its shops.
The opportunity
High street retailers are recognising that for all its perks, shopping on Amazon is still quite a functional, transactional experience. It has taken the touch and feel out of shopping and there is a massive opportunity for retailers to distance themselves from Amazon’s utilitarian image.
There is an opportunity to inject some personality and soul back into their stores, providing an immersive, memorable experience that simply can’t be replicated online. It’s about WACD: What Amazon Can’t Do.
This is why in the future, stores won’t just be a place to buy but also a place to eat, play, work, discover, learn and even borrow stuff. Retail space will be less about retail.
In summary, Amazon is almost singlehandedly redefining retail, at least in the Western world. Yes, there have been casualties and the industry should brace itself for more short-term pain as it reconfigures itself for the digital age.
But this is retail Darwinism, it’s survival of the fittest. It’s evolve or die. Amazon’s existence has weeded out those underperforming retailers who can’t deliver on the basic principles of being relevant to their customers or standing out from rivals. But those left standing will be stronger for having reinvented themselves in the age of Amazon.
Tonight, I had the pleasure of attending the launch of Amazon UK’s latest bricks & mortar experiment – ‘The Home of Black Friday’ pop-up in Shoreditch.
This is the second year that Amazon has opened a temporary showroom in a bid to raise awareness of the 10-day discounting bonanza that is possibly now only trumped by the retailer’s very own artificially created shopping event – Prime Day in July. But I digress.
Love it or loathe it, Black Friday has become a permanent fixture on the UK shopping calendar and we have Amazon to thank for bringing it across the Atlantic back in 2010.
Three Black Friday observations for 2018:
1) More like Black November. Black Friday is getting longer: Amazon, Argos and Debenhams are just a handful of retailers running week-plus long events. Consolidating the bulk of your Christmas trade into 24 hours tests even the most advanced supply chains. Doug Gurr, MD of Amazon UK, mentioned tonight that one of the reasons Amazon has extended Black Friday in recent years is to “take out some of the pinch points”, operationally speaking. So, although spreading the event out over a couple of weeks might dilute the sense of urgency traditionally associated with Black Friday, it should ultimately result in a more streamlined experience for both retailer and consumer and, ideally, lead to lower returns rates. Previously, many shoppers who got caught up in the one-day frenzy would end up with buyer’s remorse and by the time the returned product made its way back onto the shelf (particularly for an online order) it would have to be further discounted.
2) Promotion fatigue/consumer scepticism. Consumer group Which? is warning shoppers not to get “duped by dodgy deals” since last year nearly 9 out of 10 Black Friday ‘bargains’ were cheaper at other times in the year. I’d like to think most consumers today are savvy enough to understand that Black Friday is mainly a lot of noise, with a few genuine bargains the mix. According to PWC, half of UK consumers are not interested in the event at all this year with 11% warning they would intentionally avoid shopping altogether.
3) But peer pressure… Despite the many harmful effects of Black Friday – erodes margins, pulls spending forward, dilutes trust and credibility, etc – it’s equally risky to shun it altogether. This is the only time of the year when retailers genuinely have a captive audience. There is an appetite to spend, a reason to loosen purse strings, and not many national retailers are brave enough to miss out on the potential sales. B&Q is the only genuine exception I can think of (even Next took part last year). On paper, M&S is shunning Black Friday again this year but they have been running 20% off sales for Sparks members. Limiting the deals to loyalty cardholders is a more subtle approach, but a blanket discount can be just as effective when it comes to driving footfall.
Amazon’s ‘The Home of Black Friday’ pop-up
As with most of Amazon’s bricks & mortar experiments, The Home of Black Friday pop-up has very little to do with shifting product. In fact, it would be a stretch to call this a shop (to be fair, Amazon doesn’t). It’s a showroom designed to humanize the Amazon brand, to tempt shoppers into the retailer’s very sticky ecosystem, get them engaging with the app and ultimately driving adoption of its various devices. If you’re interested in why Amazon is pushing so heavily into bricks & mortar retailing, there’s a whole chapter dedicated to exactly this in my upcoming book which launches in just six weeks!
The Home of Black Friday is located at 3-10 Shoreditch High Street, London, E1 6PG and will be open to the public from 22-25 November.
I don’t buy into the ‘retail apocalypse’ narrative, but it must be acknowledged that this is a period of unprecedented change and naturally as spending shifts online, fewer stores are needed.
