It seems like “the future of retail” is one of the most talked-about topics whenever the retail industry is discussed. There are hundreds of articles about retail trends: the past, the current state and what is going to happen going forward. Is brick and mortar dead? Yes, no, maybe? Is e-commerce going to consume all things retail and be the only way to shop in the future? Yes, no, maybe?
Just last week we saw where Circuit City is coming back with an aggressive brick-and-mortar retail strategy. Among all the discussion and speculation around brick and mortar versus e-commerce, two retail giants are looking to improve their weaknesses and leverage their strengths. Walmart, the overall retail sales champion, had over $500 billion in worldwide sales in 2014. While Walmart has a huge e-commerce business, most of us probably think brick and mortar first whenever their name is mentioned.
On the other hand, whenever online sales or e-commerce is mentioned, our thoughts probably go to Amazon because, basically, that’s all they do. And they do it very well. Currently, when all retail sales are added up, Walmart generates about six times more sales volume than Amazon. In fact, there are eight other retailers between Walmart at number one and Amazon at number nine overall. But, Amazon is clearly number one in e-commerce retailing by an almost a 7 to 1 margin over Walmart. Most projections envision Walmart hanging on to the number one spot in bricks and mortar and Amazon continuing to lead in the e-commerce space.
So why the intense rivalry? Obviously Walmart, already the undisputed leader in brick-and-mortar retail sales, would love to overtake Amazon in e-commerce. But where does that leave Amazon? They may have an insurmountable lead in online sales, but they are currently a virtual nonentity in brick and mortar. What’s the right strategy for both? The key word here is omni-channel retail, the business model that uses a variety of channels in a consumer’s shopping experience. Brick and mortar and online sales are two of the primary pillars of an omni-channel approach. Thus, it behooves Walmart to grow their existing online business.
For Amazon, the challenge is different. It’s true that Amazon has a few brick and mortar locations, now concentrated near college campuses and focusing on the technological and textbook needs of students. Some convenience store retailers now offer Amazon “lockers” as well. But an aggressive entry into brick-and-mortar retail has never been part of their publically announced strategy. However, physical stores could help Amazon face two of the major challenges in their current online business model: impatient consumers and lost packages. Consumers want immediate gratification. That doesn’t happen, even with two-day delivery, and it doesn’t happen at all if a package is lost in transit.
So, is aggressive entry into the brick and mortar space in Amazon’s future, even if they haven’t publicly talked about it? The speculation has been intense. A mall developer was recently quoted in the Wall Street Journal as saying that Amazon is looking to open up to 400 physical retail locations, initially concentrating on books. Then a semi-retraction statement was issued, saying the person quoted did not “intend to represent Amazon’s plans.” Amazon has declined comment, but others are anonymously quoting sources saying that Amazon is “indeed” planning a bricks and mortar expansion. And that seems to make sense for Amazon.
In the few physical locations it currently has, Amazon uses data from its online operations, such as customer ratings, pre-orders, sales, popularity and other assessments to dictate inventory choices. Other retailers do the same, but they do not have access to the amount of data Amazon is able to collect from Amazon.com and Kindle purchases.
In addition, physical stores have one big advantage that online shopping doesn’t offer: the ability to create a wide range of special customer experiences. That “special experience” is recognized as being a substantial differentiator among retailers. Amazon seems to be keenly aware of that fact that they are missing that crucial retail component. Will they act on it? Time will tell.