Breaking the Mold
A Special Report Sponsored by
In a well-attended presentation, Lori Schafer, executive advisor, retail for SAS Institute and co-author of Branded! How Retailers Engage Customers with Social Media and Mobility, and Deborah Weinswig, managing director, retailing/broadlines, food and drug, and home improvement for Citi Research, discussed the opportunities and pitfalls of “Retail Innovation in the Tech Titan Era.” They began with a quick look at the 2012 retail landscape and what it likely portends for the holiday season. It’s not a pretty picture: From April through July, retailers in Citi’s target group were down in year-to-year comp-store sales, causing Citi to downgrade a number of retail stocks. The reasons for this condition have to do with the “empty pockets” period consumers are experiencing, with little discretionary income, selective non-food purchases, low consumer confidence and increased savings rates and lines of credit. (Consumer credit increased 5.3 percent in June compared with June 2011.) “Walmart says they’ve never seen back-to-school inventory — staples like backpacks and pencils — sell through so early,” said Schafer. “Parents are afraid they’re going to run out of money, so they bought early.” Except for the 2008-2009 debacle — and despite better inventory management technology and more cautious buying throughout the industry — the spread between inventory growth and sales growth is the widest analysts have seen in years.
Rise of the titans Retailers are being squeezed by an over-stored landscape, by more demanding, better-educated — and, in many cases, poorer — consumers, and by global economic pressures. In the midst of all this, the Tech Titans — five very large, rapidly growing technology companies — are transforming the entire retail landscape. Amazon, Apple, eBay, Facebook and Google once had their own niches. Amazon was an e-retailer; Apple made and sold personal computers; eBay was an auction marketplace; Facebook was a social network; and Google was a search engine. Now these companies are rewriting the rules — not just for retail but for communications, financial services, entertainment, travel and virtually every kind of technology service. To get a sense of the clout these companies have, Schafer and Weinswig provided a financial comparison of the five tech titans and the top six retailers. (Why six? Ranked on market cap, the list includes Walgreens but doesn’t include Kroger; ranked on sales, the list includes Kroger but doesn’t include Walgreens. The other four are Walmart, The Home Depot, Costco and Target.) Collectively, the retailers have more than three times the total sales of the titans. On every other index, however — market cap, net income and cash — the titans dwarf the retailers. And they’re growing much faster: Five-year (2007-2011) cumulative growth for the six retailers was 20 percent; for the techies, it was 232 percent.
Retail strengths Amazon, the top retailer among the titans, is bidding to become one of the largest retailers in the country. In 2010, it was the 19th-largest domestic retailer; it jumped to No. 15 last year, and its 2012 sales totals will likely move it into the top 10. By 2015, Amazon will do $100 billion in sales, reaching that level faster than any other company in history; by 2017, Amazon is expected to surpass $200 billion in sales. Meanwhile, it is focusing on getting better at what it does. Amazon recently spent $775 million on robotic warehouse systems supplier Kiva “to perfect its logistics and delivery,” said Weinswig. Over the next two years, Amazon plans to open 120 to 150 new fulfillment centers in the United States, with the goal of being able to offer same-day service to everyone in the country. Once that’s done, it will turn to shaving hours — not days — off the delivery time. Amazon, Weinswig said, is intensely interested in the apparel business. “Jeff Bezos wants to compete with the department stores in high fashion. We used to say, ‘They can’t get the brands.’ Don’t kid yourselves. They’re going to major brands and offering to buy on the basis of no markdowns and no returns and they’re saying, ‘We’ll buy your whole line.’”
iPounce Apple has revolutionized every industry it’s entered, including retail. Average sales-per-square-foot in an Apple store approach $6,000, compared with $341 for a typical mall retailer. “They are the best at omni-channel, bar none,” Weinswig said. “When you order online, the product is configured and ready for pickup 12 minutes later. You pay on iTunes, walk into the store, avoid the line and walk out with the product.” This capability has been expanded into a full-bore mobile payment system, iStore. “You can put it on any iOS device, walk into a store, scan a product, pay and walk out with your purchase,” she said. “The receipt will come to you through iTunes — which has more than 400 million customers.” By way of contrast, eBay wants to be a retail partner, and has developed a three-pronged approach to accomplish this. The first consists of marketplaces — essentially, putting outlet stores on eBay. They’ve signed up Last Call by Neiman Marcus, Under Armour and Toys “R” Us, with more expected shortly. In the mobile wallet area, eBay owns PayPal, which is now a payment option at every POS station in every Home Depot store, with 20 more announcements expected by year-end. And x.commerce is an open-channel platform designed to help retailers put together any kind of technical service they need. Facebook is involved in practically every retailer’s social media strategy. The fact that it has more data on individual consumers than any other company also means that it will, when it figures out how to monetize that data, play a major role in the future of market research. “And Google is at war with all these other companies, with the possible exception of eBay,” Weinswig said. It has the most cash on hand ($42 billion) of all the tech titans, which means it can jump in any direction it wants to.
If you can’t beat ‘em ... What should retailers do about these companies? Forge alliances where it makes sense, emulate their effective tactics and don’t panic. These companies aren’t doing anything a retailer can’t do. If there are too many stores, advised the presenters, don’t build more stores. Spend your money on R&D. Use technology to deliver a great experience, such as Walgreens’ mobile prescription refill system: It reminds you when it’s time to refill, makes the purchase effortless and — if you text the store that you’re on the way — will have an associate bring the package to you curbside. In other words, break the mold. The past won’t save you, but the future just might — and nobody owns it… yet.