‘It’s data with heart. We’re taking the data we have and we’re creating physical places with it.’
Jennifer Cast, vice president of Amazon Books, 20151
We’ve seen how Amazon’s technology innovation and first-mover advantage have given it the edge online with the development of its e-commerce services and functionality, as well as in the home, through its various hardware devices and Alexa voice assistant. Here, Amazon has used digital shopping tools applied with AI-based capabilities to remove the friction from online shopping and personalize the experience with tailored recommendations. So much so, that the ease with which Amazon can enable shopping online and delivery right to you for free the next day, or within two hours with Prime Now, has fuelled constant debate over its role in the impending death of the store. We’ve already declared our view that physical retail is far from in terminal decline, and the majority of sales are still being completed in stores.
We would, however, contend that over two decades on from Amazon’s Day 1, chain retailers have as much to learn from the way Amazon is bringing its digital automation and innovation skills to bear to bricks and mortar retailing as Amazon has to gain by mastering the physical sales territory that traditional chain retail has dominated for over 40 years. We will argue that the lessons Amazon still has to learn about retail are based on the very advantages of the physical store it has tried to overcome online: the ability to touch, feel and try; the instant gratification of being able to walk out with purchases immediately; and the chance of human interaction delivered by competent customer service specialists and knowledge experts. These physical advantages are precisely why so many sales are still fulfilled instore, even if ordered online, and it is the major reason why Amazon has had to make the inevitable move offline with its bookstores, Whole Foods purchase, Amazon Go and Amazon 4-Star, if it is to sustain anything near its current levels of growth into future. The impact of blended online-to-offline services also features heavily in our examination of Amazon’s fulfilment strategy in Chapter 13. But for the purposes of our look at how the store of the future may develop, its operators could certainly learn a thing or two from Amazon and its e-commerce counterparts about making the physical shopping experience a more attractive one that is not fraught with crowds, queues or empty shelves.
Ironically, Amazon’s move into bricks and mortar also reveals the skills it so desperately needs that are prized by physical retailers: marketing and merchandising a brand or multiple brands within a finite space and the art of curation through seasonal and sale events, as opposed to the ‘endless aisle’ search results associated with the Amazon.com shopping experience; the buying, planning and forecasting required to maximize product and staff availability while minimizing inventory exposure and customer throughput time; and the ability to surprise and delight through the overall experience instore. It is these inherent physical store advantages, applied with skill, that retailers need to channel and develop to compete with Amazon, and which can all be blended, enhanced or augmented by digital automation.
As we shift our focus into the store, we see both how Amazon is taking a lead in bringing digital automation and innovation to bear on common tangible retail friction points, such as product selection and checkout, and how its competitors are exploiting their bricks and mortar presence through technology deployments that can also enrich the customer experience to overcome the Amazon effect. In this context, we will look at how Amazon has influenced the search, browse and discovery stages of the typical shopping journey and, in this way, where other retailers can use similar blended digital tools in their stores to learn from and capitalize on both Amazon’s e-commerce and burgeoning physical retail impact.
We need to take a step back to understand why the traditional store, with its purely transactional focus, is under threat. Many consumers in the first wave of e-commerce development discovered the internet and online shopping via PCs and laptops with the effect that e-commerce sales have grown and eaten into traditional stores and their footfall. A 2017 US survey2 found consumers split into three groups: those who prefer to shop online (32.5 per cent), those who prefer instore (29.70 per cent), and a combination of both (37.8 per cent). Over half (52 per cent) said their main reason for shopping online was convenience and the ability to price compare, as well as a wider choice of merchandise, free delivery and returns, and access to more detailed product information and customer reviews. But they don’t like the fact they can’t interact with the merchandise to assess size and fit or quality and freshness, and that they have to wait for delivery, which may be missed or unsuccessful.
All over the world, though, the current and next waves of consumers are discovering e-commerce via mobile first, where there are no physical boundaries to where you can shop online. When you add social media, mobile payments and apps into the equation, retailers have had to develop – some say transform – their digital presence in order to compete. They have certainly been sure to capitalize online by launching their own e-commerce channels. Some have even begun to join these up with online-to-offline services, such as click & collect. But this is why mobile apps and other mobile-enabled areas of digital automation also have a central role to play in the store of future, for their ability to bring the speed, convenience, transparency and relevance associated with the online shopping journey in customers’ hands directly into the store.
Yet again, though, when it comes to mobile, Amazon has a head start; nearly half of all Millennials have their Amazon app accessible on their home screen, according to a 2017 survey conducted by a US media analytics company.3 Further research conducted among consumers in the US, UK, France and Germany in 2017 found:
Amazon’s online dominance in the markets where it operates will continue to exert heavy influence on the online research phase of any shopping journey, regardless of where the shopper’s search takes place, as well as potentially stealing that sale from a physical rival. However, thinking about the two-thirds of shoppers who like to shop exclusively instore or in combination with online, the popularity of ROBO – research online, buy offline – or ‘webrooming’ as it is also known, favours the physical retailer. Nearly half (45 per cent) of consumers that bought a product instore in 2018 said they had first researched it online. The same survey, conducted by Bazaarvoice, revealed the product categories most impacted by ROBO were appliances (59 per cent), health, beauty and fitness (58 per cent), and toys and games (53 per cent). These were followed closely by electronics (41 per cent) and baby merchandise (36 per cent).5 So, it could be said that a retailer may lose as many sales online to Amazon in the search phase as it may win instore via the ROBO trend.