WILL YOUR BUSINESS SURVIVE THE AMAZON ONSLAUGHT?
125 retailers fell into administration last year and when deconstructing the reasons behind many of these casualties – Toy’s R Us, Maplin, HMV – the name Amazon looms large.
The online retailer is an unstoppable force in retail – net product sales surged 20% last year and 25% the year before – and is undoubtedly stealing many traditional retailers’ lunch.
Amazon is dominant in so many categories that it is most retailers’ biggest competition.
But which type of business are most at risk? Here’s our top three:
DEPARTMENT STORES
The reason department stores exist is to offer a variety of goods across many categories – they are a one-stop shop for whatever the customer wants.
However, Amazon stocks 120 million products, literally at your fingertips, many of which are available for delivery the next day at unbeatable prices.
It’s the ultimate one-stop shop.
ELECTRICAL RETAILERS
The sector has already been obliterated with the demise of Maplin last year and Comet in 2012.
The internet, rather than physical stores, is where most research their electrical purchases and part of that research is finding the best price.
Here, again, Amazon generally wins. Competing with the online giant on price would destroy margins for high street retailers – many of whom already have a higher relative cost base in the first place.
ENTERTAINMENT RETAILERS
Blockbuster, Borders, Zavvi, even online pureplay Play.com – the list of defunct entertainment retailers is long.
This sector was hit firstly by the migration of shoppers online, and then, the digitisation of entertainment with the rise of Spotify, Netflix, Steam and the like. According to the Entertainment Retailers Association, ‘digital’ now accounts for 85% of entertainment revenues, with rental services and subscriptions a sizeable chunk of this – 62% of music sales, 63% of video and 58% of games.
As well as driving the shift online, Amazon is also a major player in the subscriptions market with Prime Video and Amazon Music.
SO WHAT CAN RETAILERS DO TO COMPETE?
1
EXCLUSIVE PRODUCT TO DIE FOR
Make product your differentiator. If you sell products that Amazon doesn’t then you don’t have to compete with it on price.
In some sectors this means investing in own brand, however, where branded goods are crucial – like all of the sectors listed above – this means working closely with the big manufacturers and securing exclusive product deals.
2
AMAZING STORES THAT CUSTOMERS LOVE TO VISIT
Retailers undoubtedly need to close unprofitable and marginal stores in order to survive but the shops they do have should be true inspirational flagships.
Amazon will win out when it comes to price, convenience and range, so make experience, service and discovery of new interesting products your focus.
There’s no one to talk to at Amazon – it lacks humanity. You don’t tend to shop on Amazon without a clear idea of what you’re looking for. Your USP in store is the ability to inspire and engage
3
SUPERBLY ACCURATE AVAILABILITY
If people are going to come to store, they want to walk away with the product they’re looking for. There is nothing more infuriating then being told to look online when you’ve schlepped to store. Retailers need to make sure store stock levels are displayed online – and they’re 100% accurate
4
THE BEST CUSTOMER SERVICE ON THE PLANET
Amazon is a machine but it’s not particularly known for its great service so there is an opportunity for retailers to win customer loyalty through fantastic service. You have to exceed expectations and be sure that your customer believes that you care about them. Amazon cannot provide personalised, one on one service from real people for real people.
Department store John Lewis and electricals etailer Ao.com – which both operate in areas where Amazon is a huge threat – have prioritised this. At Ao.com, call centre staff can spend whatever it takes to fix customer problems fast. If a shopper hasn’t received their order, they can send out a new product, same day delivery – and follow up with a bunch of flowers to say sorry.
When you’re at the receiving end of such treatment, you’re likely to go back to the retailer.
5
TRUST LIKE NO OTHER
Tied into great service is trust. As much as price is important, when it comes to big ticket buys like electricals so is peace of mind. Shoppers want great independent advice – and don’t want to be unnecessarily upsold – and if anything goes wrong with such products, they want to be confident the retailer will rectify it.
Having a reputation for solving problems is sure to create brand evangelists who recruit new customers without you needing to say a thing.
6
CHANGE YOUR MODEL
Amazon’s success lies in reading where customer behaviour is going and being first to react. Is there an opportunity for your business to do likewise?
Ao.com has launched a rental service with customers able to rent white goods for as little as £2 a week in response to the wider consumer trend to rent rather than own. It is likely to benefit as this trend grows.
7
DON'T USE AMAZON AS A MARKET PLACE
Perhaps the most controversial of points, but surely if you give your product away, you are allowing your rival access to your source of competitive advantage. There is a short-term gain but longer term pain from this decision.
Not all retailers will survive the unstoppable march of Amazon but by nailing areas where the online giant is weak, they will give themselves a fighting chance.