Why It’s Not Just Amazon’s Fault
I’ve spent some years now listening to everybody bemoan Amazon’s impact on retail. Sometimes, it almost sounds like they believe that if there was no Amazon, everything at retail would be fine. As I’ve written, that’s not the case. Here’s an excellent article from somebody who agrees with me. It repeats some of what I’ve said in the past, but also puts some better numbers on the source of our retail travails. Hopefully, I don’t think it’s excellent just because he agrees with me.
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Sorry Jeff, I just don´t buy that very much. Today you can get a “smart phone” which does just about everything an I phone will do for a couple hundred dollars. Whether its android or not, smart phones are getting cheaper by the day, and Apples monopoly is just about finished really, on the smart phone market. And Amazon is a big player, and getting bigger, and other platforms competeing with Amazon are coming along. So yes online has really put the retail business on the back foot. The problem with these new retail platforms is that there is an ever increasing sense of getting things cheaper, and cheaper, so in effect we have a deflationary cycle going on, so people wait to buy what they want at a cheaper price. And right they are, as why go and buy at full price, when it´s going to get cheaper buying it online, or waiting for sales to pop up. The whole retail cycle is in a self destruct mode, and shoppers are smart, waiting for the right moment to buy it cheaper, more and more through online channels. So it´s an all out war on pricing, and the online channels are winning, but the brick and morter are guilty too, as they are discounting product continuously, and once the shopper realizes this, they wait to buy it cheaper. The only way to finish this is to throw discounting, for the most part away, do away with online sales of it´s product, if it in any way influences their sales negatively, and better all around to toss online sales if you can´t control the price anymore.
Hi Bruce,
Thanks for disagreeing. I love it when that happens! But in this case, I’m not sure we do. One of the things the article focuses on is that we’re over retailed as a country, and I imagine you agree with that. The effects you are describing are essentially the result of being over retailed aren’t they? With regards to cell phones becoming a commodity, I agree. That seems to happen with most to all consumer electronics products. Still, his point that we’ve spending a bunch of money on stuff we didn’t spend as much on not that long ago seems valid to me. Cell phones, okay, but also internet connections, various other electronic devices, higher housing, medical expenses, student loans. And this when income for most of the country hasn’t risen much over the last decade or more. And I also think it’s true that we just aren’t as apparel focused as we once were. Because we can’t afford as much is partly the reason, but also we don’t seem to care as much. Personally, I think economic constraints explain a lot of it.
I’m not sure deflation is a bad thing. Seems to me that a market economy is, by it’s nature, has some deflation build in as competition drives businesses to make things better and at less coast. Are you concerned that your computer is cheaper and better? I don’t see us as being in the kind of big deflationary cycle you describe, which could be a problem. The possibility of such a cycle is what keeps the Federal Reserve awake at night.
Thanks,
J.
Hi Jeff, thanks for the responce. Yes the age of the “smart phone” has changed everything. I just look at my son, and see that he depends on the smart phone for everything, and shops nearly everything there also. And thats our new consumer. He doesn´t like malls, or the time it takes to go through one, especially when he´s offered more choice at the push of a button.
The cost of the smart phon are decreasing at a very fast rate, and yes we have a lot more “other” costs today, and family income hasn´t really been rising either, and in fact may have gone down in real terms. The middle class is a disappearing act, and thats what made America great!
We are difinitely also being over retailed, and online has increased exponentially, the availability and choices we have. But it has also done something else. It has increasingly fractured the traditional market, and caused prices to fluctuate much more, with deflationary tendencies- heck it´s a free for all.
My question here for the retailers, and manufacturers, is this what you want the future to look like? I am not sure, but a friend told me a story about a famous anatomical shoe/sandal brand, and that they do not retail on Amazon, and any retailer they supply, and who sells on that platform, will never receive another shipment of that brand. Guess what happened? Their sales went up! Thats what I would say is good marketing. They have taken the product out of the channels which were driving the price down, and limited the availability. I mean you are always going to want something more if it´s harder to get. In salemanship it´s called the “take away”. All of a sudden you want that product even more, and are even willing to pay more for it. What deflation does and means, (and why the federeal reserve stays awake at night because of it, and why it has pumped so much printed money in to fighting it), is that consumers are switching off or puttting off buying, as they perceive that the price will go down tomorrow, so why buy today? And the whole picture of retailing today looks like one big gigantic free for all, with discounting evereywhere, online and in Brick and mortar, so it´s no wonder the market is so bad anymore. Manufacturers and retailers need to limit the supply, and channels where their product is sold in. One thing is for sure, there is no easy way forward for brands and retailers.
I believe also that “malls” are going to need to reinvent themselves in order to survive. They need to be entertainment centers, retail centers,and have a lot of “wow” in them. Because the future online platform wars are just starting. Amazon, Alibaba, with Walmarts, and a bunch of others throwing in the kitchen sink.
Thanks
Bruce,
Every retailer and brand is different of course, but taking a high level look at the industry we have too much retail, too much non-differentiated product, and customers without enough money to buy as much as they used to. At a high level, it is that simple. As far as controlling your distribution, I’ve been pushing that approach for about ten years. Focus on the bottom line- not the top- so we seem to be in violent agreement. I agree with you as well about malls are going to have to reinvent themselves. That’s ongoing and the survivors will be the ones who do it best. There are too many malls. The survivors (malls, brands, and retailers) will have strong brands and balance sheets and tend to be larger players. Remember, with power in the hands of the consumer, it’s costing sellers more to reach and satisfy those customers even if they don’t buy more. “Omnichannel” is the word legacy retailers use to sound like they have a strategy, when what they really have is too many stores, in the wrong places, with the wrong configuration.
Thanks,
J.