I published this on LinkedIn first, but reposted here for your enjoyment.
Yeah – That is Jeff Bezos laughing. If you’ve ever heard his laugh, it is a generous, authentic, and loud. And Mr. Bezos has a lot to laugh about these days. He is the richest man in the world, and every day, his competition gets a little weaker. Man, it’s like this guy is running downhill for the entire race. Lots of people say that Amazon is competing unfairly – that they don’t need to worry about profit. They are cheating and not playing by the same rules as everyone else.
Almost every publicly-traded retailer mentions Amazon in their earnings call. The President of the United States accuses Amazon of chicanery. Amazon is killing retail, right?
I CALL BS HERE.
AMAZON ISN’T KILLING RETAIL. IT’S KILLING RETAILERS.
And that is a huge difference.
So, let’s take a step back, shall we?
- When Amazon launched, they had NO advantages over a traditional retailer. They had a a hard time getting front-line books AND you had to wait days (or more!) for the products to get to you. It is amazing that they survived.
- As Amazon grew, they continued to maximize the spots where they had some control – selection & price. Bigger selection and lower price. But still, although price and selection are advantages, the whole can’t see it, touch it, get it today or get front-line products gave Amazon a weird, select, long-tail customer appeal. I managed a bookstore during the early days of Amazon, and I can tell you that the Amazon buyer was decidedly LONG-TAIL.
- They didn’t have to charge sales tax – to the consternation of many states and traditional retailers. The retailers claimed that this was unfair. But, in fairness, the traditional retailer incurred fewer last mile costs since they did not ship to the consumer home, but that wasn’t really considered at the time. And catalogers had been exempt from sales tax for years – they weren’t killing traditional retailers were they? This has been the battle cry of retailers for a long time and it was never the reason Amazon grew they way that they have…
- So, Amazon kept on chugging along. Growing the number of SKUs, increasing the speed and transparency of delivery, and controlling the thing over which they had the most control – their margin.
- Compare this to traditional retailers who build locations, and had to maximize their margins in order to have the best location or the most locations. That strategy works best in a slow-moving economic environment where there aren’t rapid shifts in consumer income, demographics, or patterns. It takes a long time to build a store, and every location adds to your fixed overhead. There is a price to pay to enter and exit markets.
- As consumer patterns did shift, and same store growth flattened or declined, retailers responded by building more stores (often fueled by private equity dollars) to keep the dream of growth alive. This exacerbated the problem – the slow-moving build model couldn’t adjust fast enough to an evaporating middle income worker – and the build new stores to grow plan actually slowed the entire retail eco-system down. Bigger ships turn more slowly and all.
- All of that fixed retail overhead put stress on retailers. Margins couldn’t go higher (largely thanks to the internet and it’s wide distribution of previously local pricing data), so retailers starting cutting costs where they could. Staff compensation was one such place. That had a profound impact on the in-store customer experience. The in-store experience suffered as retail turned from a profession where an adult could support themselves (and maybe a family), to a profession of transient workers headed to some other destination. (I am KEENLY aware that I am painting with an overly-broad brush here…but in my time in retail, when I transitioned from a commission-based crew at The Sharper Image to an hourly team at Brentanos (the aforementioned bookseller), staff turnover was triple, and the consumer experience was worse for it.)
- During all of this time, Amazon was focused on “…customer and revenue growth, the degree to which our customers continue to purchase from us…” (That’s from the 1997 Amazon shareholder’s letter…)
- So, we have two paths emerging. Traditional retail is trapped in a high fixed-cost model in an environment that is moving faster than they can. Consequently, they respond by austerity management. Amazon starts with margins as low as they can stand, and then maximize towards growth.
OK – HISTORY LESSON OVER. SO HERE WE ARE.
We have traditional retail deprecating the thing that made it great, and we have Amazon optimizing to customer-focused metrics. So, how does traditional retail respond to stay relevant and vital in the age of Amazon?
It is really, really simple:
1. IT IS ALL ABOUT THE CUSTOMER ALL THE TIME
When you are trapped in a high cash burn world, all you can think about is cash flow, but cash-flow ain’t your customer. For retail that is struggling, you may want to think about how to retrench. How can you get smaller in such a way as to get better at serving your customers, or how can you limit your offerings so that you are of service to your customers?
What you are really focused on is “Why do we exist?” If your answer is shareholders, employees or anything other than “our customers”, you need to think hard until the customer is primary.
Every single action you take, from store design to policy to pricing to staffing should be able to fit in this sentence: “Doing ________________ is worthwhile to do because it allows me to service my customer better by _______________.”
I know that it sounds hokey. But it is what you MUST do in order to stay relevant. As a traditional retailer, or a multi-channel retailer
2. IT’S ALL ABOUT YOUR EMPLOYEES AFTER YOU HAVE TAKEN CARE OF THE CUSTOMER
After your customer is delighted and happy, you need to make your employees happy. Maybe it is by paying them more, or providing slightly better benefits, but it is almost certainly in creating an environment where employees are allowed and encouraged to say yes.
You probably think that you already have that kind of environment. But over my years of working with and for retailers, the employees have the power to say “yes” to management but when faced with the customer, the staff has to adhere to manuals and policy. The floor staff is there as much to protect your downside as they are to maximize your upside.
But when you create an empowered staff who is there to create solutions for your customers, then the customer has an experience that delights them. And delight is a powerful motivator – for the customer to shop again and for the staff to create more delight, because creating delight feels good. And that dopamine surge will bind that employee to your business, which will create better continuity for customers. Those happy employees who can create customer delight with the power of yes are engines that create the virtuous cycle of loyalty and delight.
3. BE RELEVANT & MEANINGFUL – LET’S CALL IT BRANDFUL
There is much that is wrong with the way retailers market today. From constant discounts that are actually the “regular” price to aggressive online retargeting that borders on harassment, retailers have lost some of what made them great. What makes retailers incredible and lasting are curated selections targeted to that retailer’s customer base, and a true depth of expertise in the curated selection. Combined with a relationship fostered by terrific service and targeted and relevant advertising, it isn’t just the front-end offer that drives retail, it is in the repeated experience of the customer who has their expectations met by an expert. The brands that last, from small, family-owned furniture stores to high-fashion houses, have a mix of great offer & expertise that makes them indispensable to their clientele. At this point, it would be difficult to position a retail brand as having the largest selection or lowest price. Those spots are well occupied. In order to be BRANDFUL, you need to attack the market where Amazon isn’t. And while Amazon is astonishing in the breadth of it’s expertise, they don’t own targeted brand space that isn’t focused on price-driven value or convenience. That means your BRANDFUL opportunity comes in creating a connection between you and a community, be it a physical community (like our aforementioned local furniture retailers often do – a retailer that I have worked with in the past, Teppermans, is a good example) or a virtual one, like that aspirational community of adventurers that you find at a retailer like Huckberry. The point is that your brand is uniquely relevant to your audience in a way that can’t be easily replaced. While this word is overused and has lost much of its meaning, in order to effectively protect your market against the pricing and logistic superiority that Amazon might possess, your brand needs to authentic. That isn’t a flabby social media kind of buzzword. It means that your brand has to represent something that is important to your customer base. Undoubtably, this hard at scale, but brands like Home Depot have carved out a hard-working ethos that is empowering to consumers. They marry that with good pricing and consistent front-end offers (interest free financing) to make them attractive. Added into that mix is the perception that they have in-depth expertise to add value to the products they sell. If a brand as large as Home Depot can carve out true authenticity, I believe that you can too. An emergent fashion brand I’ve worked with, Anatomie, has created an authentic presence with a focus on high-fashion travel clothing for women that truly resonates with its audience. They do this with minimal focus on the front-end offer, and maximum focus on it’s position in its client’s wardrobe. From big brands to small, BRANDFUL-NESS is a defensive moat against Amazon.
4. BE PRESENT, AND CREATE A RELATIONSHIP
Many (probably all) retailers overweight their marketing strategies on the bottom of the funnel. The focus on same marketing channel conversion or very near term ROI on advertising dollars creates a Crazy Eddie kind “BUY NOW” ethos that has a certain charm, but isn’t helpful for clients who aren’t ready to buy. (If you aren’t familiar with Crazy Eddie, check out a selection of his 80’s-fabulous TV commercials.) Your consumers fall into three categories – buy now, buy then, buy later. Because we are impatient, we focus on the buy now customer. But what all retailers, online and offline, need to do is create content rivers that can capture each of your types of customers (now, then & later), and carry them to you so the get a flavor of who you are, what you stand for, why you resonate with them, and what your offer/proposition is. (I wrote some more tactical advice on competing and beating Amazon on SellingToTheC.com.)
But from a strategic standpoint, think of your potential customers as if you are starting to date. The first date is for the buy-laters. This kind of marketing is charming, this is full of interesting stories and dreams. It is passionate and dreamy. Maybe this is your blog, or it a video about products that your company thinks are especially evocative of your brand, or maybe it is a video about you and your customers. This can have direct-response elements to it, but remember, this is likely a first date. You aren’t asking to get married, you just want a second date. Be interesting, engaging, real, and show that you are interested in the potential customer. This, done well, takes the potential customer from buy later to buy then. They are a step closer.
The second date is showing your true depth. You show your product and category expertise. This is about the details. How do you present your products? How do you show that you understand that what you sell is part of your customer’s lives rather than just a transaction. This is where you create your value as a potential partner. This is where your experience comes in to play. You know the products and how customers use them. You show your value-added resources – and maybe this is in your blog, too, where you give fashion or design advice. Or maybe this is a buying guide, or maybe the focus of this date is a video where you show your buy-thens what defines quality in your space. Is it the density of the cushion foam of a sofa, or is it the process that your manufacturer partners use when they weave your fabric? This second date is all about sharing what’s important to you. If this resonates, buy thens magically transform into buy nows.
Now, onto the the third date – and we all know what the third date means. It’s time to become a little closer. For most retailers, this is where you try to start the relationship. You go for the close during the first conversation. Some lasting relationships start that way, but most take more time. But the focus of buy now marketing is offer, selection and logistics. Wow – that sounds a lot like where Amazon excels. So how can retailers compete for the buy nowconsumer? It’s because you’ve done a great job of creating trust and intimacy in the buy later and buy then phases. The authenticity of the shared journey from introduction to offer keeps the potential customer’s attention focused on you so that it is easier to resist the charms of Prime Shipping, or same day delivery.
Most retailers are really well-positioned for the 3rd date. They have their search marketing tactics tight, and their exit pop-ups are on point, and the on the floor salesperson has the familiarity of someone you’ve known for a long time. Retailers already know how to do this. Sure you can tweak and refine this part of your experience and see some incremental gains. But your opportunity to muffle Jeff Bezos’ generous and loud laugh comes from your investment in creating the relationship that is ready for the 3rd date.
SO, SMART GUY, HOW DO I STOP BEZOS FROM KILLING ME?
I’ll be honest, if you are a giant retailer with huge fixed costs, a short-term focus and maybe huge private equity debt payments, you might only be in a position to forestall Bezos giggling over your carcass, but you might not be able to avoid it. (Sears, anyone?) There are probably only a handful of retailers that have large enough market-shares in a vertical that would be interesting enough for Amazon to tactically target for elimination. Staples comes to mind – but that is just speculation on my part. For the rest of retail, here is the deal. It all comes down to the 4 steps above – CUSTOMER, EMPLOYEE, BRANDFUL, RELATIONSHIP. None of it is magic or esoteric. The key to surviving in an age where Amazon can do everything better than you can? Forget about them. Stop worrying about them. They are on their path and you are on yours. They can’t do what you can. Amazon has scale and efficiency, and those have benefits that drive loyalty. What Amazon can’t do is create an authentic & intimate relationship with your audience or your employees. Amazon can’t create a meaningful local relationship with your potential clients. Nor can Amazon truly be expert and responsive in a product vertical. Amazon is amazing at transactions. They are perhaps the best 3rd date in history. Your job is to make dates 1 & 2 so memorable that it matters little that Jeff Bezos has that generous laugh.
And while I am not immune to Jeff’s numerous charms, non-Amazon retail matters. I am passionate about helping you make dates 1, 2 & 3 really great. Take a minute to Book a quick meeting and let’s chat. Check me out at timkilroy.com, catch me on Twitter @timkilroy. We can get through this together.