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Retail Restructuring: Managing Change in the Age of Amazon

Consumers are driving change in a retail environment fueled by e-commerce.

By Bisk
Retail Restructuring: Managing Change in the Age of Amazon

Retail is no longer a business dependent on prime real estate and brick-and-mortar locations. The Internet has spawned the era of the educated consumer a consumer; with more options than ever before, from what they are able to purchase to how they purchase it.

Large retailers have seen sales at store locations dip significantly as they struggle to compete. As a result, 2016 has become the year of the shuttered big box store. Companies are closing locations in a push for efficiency, trimming those that underperform so they don’t drag down the bottom line. But another response is needed to compete with a player revolutionizing the retail marketplace: Amazon.

With easy-to-use interfaces on both web and mobile platforms, speedy fulfillment at distribution centers located around the country and innovative delivery methods boasting a speed that makes overnight delivery look like snail mail, Amazon has completely disrupted the way that traditional retailers can think about doing business.

In a marketplace fueled by convenience, consumers are driving change more than executives in the boardroom. The online marketplace is the primary factor fueling innovation and convenience in retail, causing companies to refocus their efforts to drive up profits by polishing online platforms and shipping processes to expedite the delivery of products to their customers.

In business circles, the phrase “change is constant,” has become all too familiar. Its relevance, though, is undeniable.

E-commerce isn’t just important, it’s become critical for survival in the retail space, regardless of whether a business is selling clothing, office supplies, sporting goods or all of the above. Of those who have taken notice, Walmart is expanding its online presence, pursuing ways to merge their online efforts with their massive number of store locations in order to gain a competitive advantage that at the moment, cannot be rivaled by any retail outfit operating physical stores.

Merging Online with In-Person

In October 2015, Walmart announced its intention to expand online grocery sales to 20 states, providing customers with what it calls a “click and collect” service for their grocery shopping needs in which the customer shops online for groceries and schedules a pick up time at a nearby Walmart store location. An employee is then assigned to deliver the order to a customer’s car upon arrival.

“We are excelling in pure e-commerce, but what Walmart can do that no one else can do is marry e-commerce with our existing assets to deliver a seamless shopping experience at scale,” Walmart’s President and CEO of Global E-Commerce Neil Ashe told analysts after the announcement. “We're layering new digital capabilities over the store experience to make shopping faster and easier. Walmart has always given customers low prices and now we're also giving them the gift of time.” 

Walmart is simultaneously revamping its strategy behind its brick-and-mortar locations. The old way of thinking was to smother the competition by having more store locations than anyone else, but that is no longer sustainable. The retail powerhouse announced in January 2016 that it would be closing 269 stores around the world in an effort to re-evaluate company efficiency.

In the case of Kohl’s, which plans to shutter 18 stores in 2016, the retailer is two years into a three-year, $4 billion plan aimed at turning around declining in-store sales numbers by relying on predictive marketing analytics, e-commerce and mobile platforms. When the company devised the plan in 2014, in-store sales had levelled off or declined in preceding years while Kohl’s e-commerce sales had increased by 21%, according to Internet Retailer researcher Mark Brohan.

The company has invested billions in online distribution centers, and as of August 2015, was focused on rolling out its own version of a buy online, pick-up-in-store program. The omni-channel approach is important in that it generates brand engagement and offers customers the chance to shop online, but more importantly according to Kohl’s executives, the program helps drive additional sales in-store due to what they refer to as “attachment sales” – selling items that complement a customer’s online purchase – that have created a 20-25% increase in overall revenues.

Walmart, who is looking to battle Amazon on the packaging and shipping front, predicts that their “click and collect” program drives up additional sales just by offering options. The company estimates that someone who only shops in Walmart stores spends, on average, $1,400 a year, while those who shop exclusively online spending significantly less. But when customers shop through multiple channels, the result is an increase in spending to an estimated $2,500 per year.

The Store isn’t Gone Yet

The challenge for some retailers is to battle the likes of Amazon for an online presence, while not losing focus on keeping up with their competitors on the ground.

Sports Authority, once a top player in the sporting goods retail space, is a tragic example of failing on both fronts. The company’s inability to create an online platform that could deliver is part of what has led to closing stores and filing for bankruptcy. But it’s just one part of the problem.

According to an interview with Moody Investment Services Vice-president Michael M. Zaccaro in the Denver Post, Sports Authority was unable to cope with new competitors in the outdoor and sports gear market that offer an in-store experience not imitated online. 

Technology has allowed customers to become educated to some extent about products on their own. What makes alternate retailers such as Bass Pro Shops or Lululemon significantly more effective is specialization – in other words, a staff that can share in-depth product knowledge a consumer can’t find with a quick Google search.

“[Sports Authority employees] are not product specialists,” Zaccaro told the newspaper. “Consumers these days who are into sports and outdoor activities want specialized products. Just like Macy’s and other generalized big-box stores, Sports Authority have found themselves in trouble. When's the last time you walked into a Sports Authority store and felt like the employee treated you like (they were) an owner? That just doesn't happen. You're going to get someone who will ring you up and show you to the right aisle."

In the modern American retail landscape, managing the change to an omni-channel marketing approach may be the key to survival.

The names of companies who have failed to implement such an approach are now closing stores. Some of America’s biggest retail players historically such as Sears, Macy’s, Walgreens and Staples will all close a number of stores in the next year, leaving behind a wave of laid off employees and empty store fronts. Where they go from here largely depends on their ability to embrace a multiple channel strategy and increase convenience behind their offerings.  

Category: Supply Chain Management