Photo: RetailWire
How will smaller rivals survive in an Amazon and Walmart world?
The strong get stronger and the weak either sell their businesses or close up shop. That’s always been the way in retail and a new report by analysts at Moody’s asserts that, in today’s marketplace, fierce competition between Amazon.com and Walmart is creating even more competitive disparities.
“Battles for market share are always difficult for smaller retailers, which generally operate with less financial flexibility than their larger peers on multiple fronts,” said Charlie O’Shea, Moody’s lead retail analyst and author of the report in a statement. “If they engage in the promotional battle, margins will suffer; avoid the promotions, and you risk losing revenue, market share and customer loyalty.”
Even minor gains by the two retailing behemoths can have a profound effect on smaller rivals. In the first quarter, Amazon ($2.9 billion) and Walmart ($2.5 billion) combined to generate $5.4 billion in incremental revenue growth over the same period the previous year. While the combined percentage gains made by the two retailers slowed year-over-year in the quarter, the actual revenue was still more than what many others, such as Michael’s ($5.2 billion), Neiman Marcus ($4.7 billion), Abercrombie & Fitch ($3.3 billion) and J. Crew ($2.4 billion), produce on an annual basis.
Amazon’s effect on its rivals is in many ways, according to Moody’s, more profound than its share numbers. As more and more consumers buy online, rivals are forced to make the large investments necessary to compete for those dollars. Large chains, including Walmart, Target, Best Buy, Nordstrom and Staples, often are judged on their success by “who finishes second to Amazon.”
Others in weaker financial positions have “little chance” to compete online, and drops in revenue make it difficult to meet their debt obligations as they make needed investments to support e-commerce operations.
Part of the issue, according to Moody’s, is that retailers fail to understand their competition. An upscale apparel retailer may see its competition as a similar chain when in fact “meaningful” share is being captured by “tertiary players” such as Gilt, Net-a-Porter and Rent-the-Runway.
Discussion Questions
DISCUSSION QUESTIONS: How do smaller rivals survive in a retail environment dominated by large players such as Amazon and Walmart? Do you agree that retailers that struggle often do so because they are doing a poor job of understanding their competition?
Poll
BrainTrust
Bob Phibbs
President/CEO, The Retail Doctor
Lyle Bunn (Ph.D. Hon)
Strategy Architect – Digital Place-based Media
I would suggest large brands know exactly who their competitors are and anything that can suck up discretionary income before the retailer gets it is a threat. The fix is the struggle. You can’t win with discounts, yet they do. You can’t win with social media distractions, yet they do. You can’t win by cutting staff, yet they do. You can’t win without those shoppers willing to actually leave their car, travel through the rain, the sleet, the cold, the heat to find parking and give your store a chance being treated to a wow experience. And most don’t.
I had the best retail experience ever at an apparel retailer in San Francisco Wednesday. You can read the story of how a salesperson makes the sale rather than accepts defeat in this article: How The Best Retail Salespeople Make The Sale.
Until and unless humanity is brought to the store level, brands will die off — but not everyone wants a faceless, nameless, cold online experience.
I was with you Bob, until you got to the “faceless, nameless, cold online experience.” While the “Cheers” experience has great value at a favorite bar, restaurant or Starbucks, I am not looking for that in a store. In a store (when I go) I want speed and efficiency. Where can I find it and how fast can I get through the checkout?
I recently stopped into a retailer to buy some undershirts. Looking for three for $20. After all, this is a shirt that nobody sees. The sales guy tries to up-sell me on $25-each undershirts. I walked out and went to Amazon (three for $15).
Got it. To you, a shirt is a shirt. To merchants, they are supposed to upgrade because there are differences in fit and finish. The fact that you want the lowest price means you probably do want an online experience where it is price over anything else. My best to you, Gene.
Smaller retailers need to match or improve the service offering of the larger retailers. Today’s key focus is on omnichannel retail. It is still Amazon’s weak point. It is where Walmart is trying to make inroads. Smaller retailers need to be more nimble, adopt retail technology faster and make sure customers can get their branded products faster, easier or more flexibly than from the juggernauts. Omnichannel retail lets a smaller chain focus the customer on the convenience of picking up their items within one or two hours of placing an order, instead of waiting for a few days for the delivery. Plus customers don’t have to worry about shipping fees or being home when the package arrives. It also lets them point to the ease of in-store returns. Ultimately, it comes down to making the purchasing journey and the online/in-store experience a positive one that customers will WANT to repeat. Frankly, great brand products and a great buying experience are the ONLY way to win this battle.
Smaller rivals can compete by offering unique shopping experiences and through excellent customer service. Trying to compete on price with Amazon and Walmart is a slippery slope. It is important to understand the marketplace, perceived competition and where your customers shop, but at the end of the day it comes down to creating an experience that appeals to consumers.
Serving customer needs and wants is the core of retail. Customers want value and they want a rewarding experience that increasingly includes knowledge as an element of product promotion and selection. Where buying and shelf stocking have driven consumer satisfaction, and will continue to, the in-store experience will continue to grow as a differentiator to win traffic and conversion.
Retailers typically believe they not only understand their customer but deliver a great shopping experience. This is contrary to what most shoppers actually experience. The shade of this rose-colored view of the retail landscape is amplified by the chasm between what corporate marketing and merchants believe to be true at the store and actual experience. This is often a case of the retail emperor wearing no clothes! Corporate politics and job protection makes it very difficult for the truth to shine through. One truth is that many retailers do such a poor job of in-store customer experience that it drives shoppers to Amazon. Retailers should focus on “do no harm” first — then innovate, activate, measure and optimize.
So what will it take to survive an Amazonian world? In the words of Sam Walton: “do something we are not doing.”
Smaller retailers have a core asset online doesn’t have (yet) … associates who can deliver the one thing customers crave the most — personalized service. Even larger retailers like Best Buy are proving that the way to profits is through services beyond products that add value to customers’ connected lifestyle.
The number one question for traditional retailers: are staff clerks for stocking shelves and ringing cash registers, or will you invest in staff who will create the differentiated service on a personal level that Amazon and Walmart can’t provide?
Indeed it is more and more difficult for smaller players to survive in this competitive environment. Smaller retailers need to adapt by using technologies to improve their in-store and omnichannel offerings and to improve service. They must empower salespeople on the selling floor to do a better job by identifying the shopper, offering personalized offers and complementing human touch with robust technology.
This is a David versus Goliath story. (And, we know who wins that!) Take a look at Ace Hardware, which once again won a major award for their customer service, beating out all of their big box competitors. Revenue wise, they also excel. They do it by delivering a smaller experience that resonates with their customers. Smaller parking lot, smaller stores, etc. They compete on knowledge. Ace has some of the best and most knowledgeable employees. They don’t just provide friendly service. They also provide helpful service. Smaller or independent retailers need to understand where they are directly competitive with Amazon and Walmart and then figure out where they are different. It’s that difference that will make the difference.
Smaller retailers survive by having unique products, the ability to customize them easily, offering better associate product knowledge and providing better customer service. These are the things that are difficult for the large retailers to accomplish. Competing only on price will be a death spiral for the small retailer.
All retailers need to continually monitor their competition and react to distinguish themselves. Ask Kmart, Sears and a long list of now defunct retailers whether they did so. The answer is probably no. The pace of change in retail will demand continual attentiveness to this issue in the future.
It may seem counterintuitive, but I actually think that smaller retailers are in an ideal position to compete with the behemoths. They have a much greater ability to define and control every aspect of the customer experience, from localized assortments that reflect local preferences to empowered and informed associates in the stores who are trained to deliver experiences that deliver against (and enrich) the brand promise. With the advent of the cloud, technology is no longer available only to the rich, and smaller, smart retailers are winning customers’ hearts — and share — in all corners of the industry.
Retail is changing every day. Even this article neglects to focus on the impact increased online impressions have over simple revenue sales. Large impressions reflect “share of eyeballs” online and this translates into a future increase in revenues. Smaller rivals actually compete better online than in the traditional brick-and-mortar world. It is this online world that is controlled by Amazon, but has hundreds of smaller category e-commerce retail players who can more easily compete and coexist in this new retail world.
Smaller retailers and branded manufacturers survive in this new retail environment in two key ways: One — by understanding how the Amazons of the world play into their overall retail strategy and two — by providing differentiated experiences for their consumers. Customizable products, subscription services, strong loyalty programs and superior customer service are just a few ways that the smaller retailers can “compete” with Amazon. Providing these differentiated experiences typically requires an overhaul in digital technology and smart retailers must be willing to make that investment to stay competitive.
Amazon and Walmart online are animals. Walmart is a retailer with no room for the small guy to participate. Amazon is a facilitator and the smart, small guys can utilize Amazon for their own means.
It’s insane to think that almost all major retail innovations that are being implemented come from Amazon. This is simply a lack of caring about what’s in it for the customer. What will make their experience, whether online or offline, something so effortless and pleasant that they will come back again and again? Unfortunately for the vast majority of the retailers out there they have not combined enough technology with the data they have available to know who THEIR customer is and what THEIR customer wants. You can watch the competition but at that point you’re following the competition. The unique opportunities exists when you go out ahead and create something new in your value chain for consumers.
You could, in addition, introduce highly sought after products, unique to your market, which Amazon may not have but that are popular and rising in their movement.
Another example of Amazon winning out in the retail war: they already have frictionless checkout with their Amazon Go concept. You mean to tell me not one other retailer has thought of this and put the effort to test it? Insane. Here’s a complete write up on Amazon Go technology and how it works if interested.
The other aspect here which should be considered is that a lot of this technology doesn’t have to be super expensive to try out like many of the SMBs make it seem. When smaller online-offline hybrids introduce a framework or marketplace to tie themselves together in the fight, I am not so sure they will win, though there will be some winners who have taken a new approach, such as Bonobos, Nike and Etsy.
Perfect: “It’s insane to think that almost all major retail innovations that are being implemented come from Amazon. This is simply a lack of caring about what’s in it for the customer. What will make their experience, whether online or offline, something so effortless and pleasant that they will come back again and again?”
I worry a lot more about the medium-sized retailer ($10 million – $500 million) than I do about the small retailer (less than $10 million). Smaller retailers have the unique ability to laser focus on a narrow target customer and offer unique merchandise, servicing, positioning, content and promotions. It’s the medium-sized retailers that are caught in the middle, trying to serve broader constituencies without the scale of the bigger players.
Amazon is operating in a 21st century “Platform Economy” paradigm which is a good book to read. Amazon is a platform composed of membership, logistics, cloud services and devices. Walmart has a huge manufacturing/distribution platform to source and stock in stores and online.
Smaller and rival retailers need to establish a platform that can match the level of performance and scalability as Amazon and Walmart. It is not difficult and technology like distributed ledgers is promising but rival retailers have to first acknowledge this is a platform battle, not a price battle.
Retailers are struggling not because they are are doing a poor job of understanding their competition, but because they are struggling to understand their customer.
When I sell anything I have no interest in brand X and stay focused and tuned into the brands I choose to sell. The big box mentality remains fully engaged in selling price with freebies and being the be-all and end-all jack of all trades in present day trends and needs. I have always striven to be the master of the specific market I choose to sell in. I not only wanted the latest and greatest proven methods and means, I wanted to know the future of the market I was selling in and what consumers would react to. I spent all day every day telling everybody I could get in contact with what I knew about the product and service I wanted to share with them. This is a clear and obvious departure from the “Captain Everything” approach the big boxes have. Some call it survival or endurance. I call it differentiation and a means to success. If the 21st century has taught us anything it has demonstrated that there is no tradition in business that remains unchanged no matter what the circumstances.
Opposing your competition is not a strategy. So it’s important to understand them — to a degree. And yet…
Understanding yourself and your consumers is the way smaller retailers can move beyond “survive” and truly thrive. (Remember, for example, the satisfaction shown by shoppers of Ace stores — each essentially a smaller independent store.)
Up against behemoths, the key is to be more meaningful than they ever can be. And, to start, remember that while Amazon is a great place to buy, it’s a bad place to shop. (True of most online stores.)
As a smaller player, how can you be a great place to shop? Succeeding here will bring people into your store, repeatedly and regularly, and lead them to spend more money than they ever would online.
The answer to the following question depends on the DEFINITION of “COMPETITION”. [“Do you agree that retailers that struggle often do so because they are doing a poor job of understanding their competition?”] Competition between stores has evolved from having the best brands and assortments, coolest ads smf best floor sets, to technology driven shopping featuring a vast catalog of digitally available products, anywhere, anytime.
The last e-commerce bus left the station about 4 years ago [last chance to understand the impact of online shopping] when many retailers closing today did not understand how technology would fundamentally change forever the way people shop. The reason? The acceptance of technology driven shopping experiences by consumers was and has been for retailers so very nuanced, many failed to see the slow moving train right before their eyes.
Retailers are not technologists. Retailers hire and depend upon technologists to guide their technology strategy. Unfortunately, most technologists have never been a retailer, built or sold a product or understand the emotional and sensory connection with an individual shopper that elicits the “buy” response. This has turned out to be a terrible disconnect for many retailers shuttering doors.
In conclusion, retailers did a poor job in understanding the impact of technology on their decades’ old retail businesses. The new COMPETITION is leveraging technology to get the customer to the product they love and want to buy, digitally in-store, in-mall and online.
I just wrote a blog about this very topic as it relates to the consumer technology industry. Here is a summary:
Independent dealers have advantages that larger chains don’t have. Independent dealers can be nimble and react quicker. They can capitalize on their their ability to implement programs faster than the larger chains.
• Utilize social media locally to drive traffic to the storefront. Facebook is a great tool for this.
• Provide outstanding customer service and understand the product better than potential customers.
• Host events, seminars and classes at the store to showcase brands.
• Offer free local delivery for a product that isn’t in stock.
• Be a conduit for service and support of the products.
• Create an engaging online presence that is reflected at the storefront as well.
• Offer financing options.
• Help with recycling old electronic products.
They survive the same way retailers — or any company, really — always have: they offer something the competition doesn’t. Although it is currently the bête noire, amazon is hardly a be-all-and-end-all in retailing. Like the department store of yore, it offers a nice, general selection of goods, but is easily outclassed by specialty retailers when looking for something specific.
Or if they don’t survive: the Walmart effect on small town America is well known, at least in folklore, the “real” story probably being more complicated.
Price diversion will be key, hence why the long tail will be good to very discerning (niche) retailers who deeply curate, connect and engage with customers at levels large retailers will find very difficult to credibly replicate.
I think retailers understand who their competitors are. The more important issue is understanding who their customers are and what they really want.
Small retailers can’t compete on price so they need to compete by personalizing the experience or offering custom products that aren’t available at Amazon or Walmart. You can’t compete on commodity items! Successfully competing against the retail giants requires retailers to know as much about their customers as possible. With this knowledge and customer context, small retailers can truly personalize the shopping experience, curate to their customer personas and increase loyalty by exceeding their customers’ expectations.
We’ve been working in the grocery industry for the past 6 years as an eCommerce provider for regional (smaller) grocery players, all of whom are trying to understand how to compete with the likes of both Walmart and Amazon. These are premium, local supermarkets who simply cannot afford to try and compete on price. Instead, they’re pinpointing the areas where Walmart and Amazon are slower to make inroads.
For example, Amazon bid on Whole Foods in order to expand its presence to physical — a move that is going to take TIME. Regional grocers have the advantage of an already established (and customer loved) in-store experience. They now just need to layer on a beautiful, convenient eCom experience to quickly accomplish what Amazon is slowly building. It’s a lot faster to go from physical to digital, than the other way around, so smaller players have the advantage here.
Walmart, on the other hand, while they have a strong omnichannel presence, they don’t have the premium factor, another area where regional players can easily win. In a nutshell, if smaller grocers focus on their strengths and ensure they’re expanding digitally, and we believe they will not only survive, but thrive.
Amazon has succeeded because they have a customer-focused strategy, not a competitor-focused strategy. Instead of looking behind or across at a competitor, and doing their best to match or beat on those dimensions, Amazon considers what customers truly want — sometimes before they even know they want it. The Prime program being the most elegant example of an innovation that consumers wanted but never previously existed.
Investors laughed Jeff Bezos out of the room when he announced Prime.
Amazon is not so far ahead on its core values of Value, Service, and Selection, that its rivals can’t catch up on those dimensions. Amazon has become so big and powerful in those areas, but myopic when it comes to other dimensions. There will always be a chance for disruption if a rival is willing to challenge Amazon on a different dimension. For example, Amazon is a weaker competitor when it comes to product curation, leading trends, and supplier relations. That’s where a competitor could be poised to disrupt Amazon themselves — not on service, selection, or price.
While retailers like Amazon and Walmart are set on serving every customer demographic, the reality is that not every customer will feel that they 100% satisfy their needs. Where smaller retailers can get a one-up on them is focusing on the areas and unique customer preferences that might get overlooked by big retailers. Small retailers have easier control over their entire customer experience. Diversifying their experience to make a customer prefer shopping at their stores, over an Amazon or Walmart, is key.
However, this doesn’t mean that small retailers should focus all of their energy on creating experiences that are so unique and different. There are core parts of the shopping experience that every customer expects across the board with every retailer. Shoppers are practical, and when it comes to their shopping they want value, convenience, and ease at every step from first click through purchase. To keep up small retailers need to do things like optimize their eCommerce site to run as efficiently as possible, increase their flexible payment offering, and maintain competitive pricing.
While Amazon and Walmart can thrive off volume of sales, smaller rival retailers need a different approach to compete successfully. Retailers need to understand where they stand in the market through competitive analysis, but smaller retailers can’t always offer the lowest cost and compete on price. However, they can win by providing value to consumers in other ways. For example, they can provide better customer service, or enhance the in store experience to encourage customers to continue to shop in store, or focus on creating a better omnichannel experience that bridges the gap of in store purchasing and online. Creating a better and unique shopping experience while managing their omnichannel presence effectively gives customers the opportunity to become a loyal customer in store and online.