Amazon, the Omnichannel, and the Impact of Retailers’ Brick and Mortar Legacy

On April 24th, the Seattle Times ran an article called “Amazon’s Imitation Game.”  It starts by describing how Amazon has knocked off an aluminum laptop stand by Rain Design that had been selling on Amazon for 10 years at a price of $43.00.  Amazon started selling a similar product last July for around half that price.

On Amazon, you can see various Rain Design products including a number of laptop stands and you can see the Amazon knock off at around half price.  Amazon Basics, the article tells us, includes low price copies of a number of an increasing number of products (900 right now including 284 added in 2015).

Amazon, the article tells us, also sells “1,800 plus products” under its own apparel brands.

It’s not like we can complain too loudly about house brands, as every industry retailer has them and many brands have been willing to produce special makeups for larger retailers.  And no doubt pretty much all of us have some Kirkland brand product we bought at Costco.

Serendipitously, I had a conversation with a company a couple of days ago who has kind of an ultimate specialty product, but one that would make a lot of sense for Costco.  They approached this company and one of the things they said was, “Oh, we’d really like to carry your item.”

Not, “This is how we’d merchandise it,” or “Some of our people have used it and really loved it,” or “Tell us how to sell it.”  Just “Give us your item.”  For a variety of reasons, (the use of the term “item” may have been the tipping point) this company fled into the night.  Good decision I thought at their stage of development.

Anyway, what Amazon is doing seem to me to be, so far, the highest and best expression of the idea of the omnichannel.  Let’s not get too excited yet, but it’s just occurred to me that I might finally be figuring out why I’ve had such a hard time coming to terms with the concept of “omnichannel.”

Among the reasons Amazon has been so successful is that they didn’t start with and, until recently, didn’t have, any brick and mortar stores.  When a brick and mortar retailer talks about the omnichannel, they typically say something like, “Giving the customer access to us however, whenever and wherever they want it.”   By definition, because they have brick and mortar stores, that access includes brick and mortar.  I mean, what choice do they have?

But Amazon didn’t have brick and mortar and still doesn’t have much.  Does that mean they aren’t giving their customers access to them “however, whenever and wherever they want it.”  Is Amazon not an omnichannel business?

I’ve written that one definition of success in the omnichannel is generating enough incremental sales so that you don’t cannibalize your brick and mortar business and also pay all the expenses of having an online business.  How’s that going for our retailers?  A weak economy and too much retail space have certainly contributed to all the bankruptcies and store closings we are seeing (Aeropostale looks like it might be next up).  But I’m pretty sure that without online sales and the transparency/commoditization it creates things wouldn’t be so challenging.

A brick and mortar retailer starts out having to be reactive as they figure out what, exactly, to do with the stores they have.  They may find they have too many (certainly seems to be a lot of that going on), some are in the wrong place, and the size and configuration of others needs to change.

I made the comment a while ago that brick and mortar retailers need to be more reactive now rather than proactive because they have to follow and respond to their customers.  I suggested there was danger in following the customer too far.  I think that’s still correct.

What I hadn’t figured out at the time is that while it may be the correct thing to do, it’s also completely defensive.  In the fastest changing retail environment we’ve ever seen, a brick and mortar retailer has to begin not by asking what the environment requires, but what they can do given stores they already have.

They have to define “omnichannel” as including brick and mortar, whether it’s a good idea or not.  To be clear, I don’t think brick and mortar will go away, and it’s part of the omnichannel.  Some retailers will succeed and some fail, because that’s the way it’s always been.  But the number of products that technology is making it possible to buy online keeps expanding (in some cases to my surprise) and I don’t think we’re done.

Six months ago, my wife and I bought a new mattress on line from a company with no stores that’s set up just to sell mattresses.  I so did not see that coming.  But we saved $600 and love the mattress and, by the way, the experience.  We kind of decided that lying on a bed in a store for two minutes didn’t tell us anything about whether we’d like sleeping on it or not.  A lot of mattress stores are going to be closing.

Amazon didn’t have to start with a legacy of brick and mortar stores.  They weren’t reacting to the emergence of the internet and online selling; they were building a business based on it.  Okay, they were hard working, insightful, persistent, creative, lucky and somehow got investors to not care if they made much of a profit (that’s the part I really don’t understand).  But there were no limitations on how they could envision their business model.

They built that model around customer metrics, the ability to scale, and distributional efficiency.  They weren’t influenced in their business development, by an existing group of brick and mortar stores.  Now, with those customer metrics, and the ability to slice and dice them well in hand, they’re in a position to try and create the right kind of brick and mortar stores in the right way, in the right place and with the right configuration and products.

They’ve got no long term leases on stores that may be in the wrong places, be too big or poorly configured or of which there are just too many.  With the data they’ve got, they’re unlikely to put the wrong kind of store with the wrong kind of product in the wrong place.  If they do, they’ll know it fast.  And as they open more stores (or choose not to) the data they gather is going to get better and improve their brick and mortar process.

Traditional retailers are trying to do the same kind of data collecting and parsing and some will be successful.  But they begin with the legacy of their existing store base.

The omnichannel is, indeed, giving the customer access whenever, wherever, and however they want it.  Amazon has the chance to proactively figure out what that means.  Traditional brick and mortar retailers have to reactively and defensively figure out how their store legacy fits into that.  Am I crazy to suggest that Amazon’s biggest advantage is that for the longest time it wasn’t an omnichannel retailer?

Damn, no wonder we’re seeing so many retailers go the way of the dodo.