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Strategy + Efficiency

Amazon: Didn’t we tell you?

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Andrew Gorecki
Managing Director - Retail Directions
June 20, 2017

As seen on Inside Retail.

Only a few weeks ago, our Marketing Manager, Justin Cohen wrote an article published on Inside Retail titled ‘Containing the Amazon Offensive. The piece revealed the true nature of Amazon and outlined the strategy local retailers can use to fortify their businesses against the e-commerce powerhouse.

Justin’s message was three-fold:

  • Amazon has practically unlimited financial resources due its market capitalisation
  • It cannot be defeated in a head-on e-commerce confrontation
  • Brick and mortar retailers have a key strength that Amazon doesn’t – physical stores that can be infused with digital to create compelling, human-led customer engagement

Justin’s advice to retailers was to stop viewing their store portfolio as a liability and use it as an important asset in an omni-channel, customer-centric enterprise. He received a great deal of positive feedback, despite his message challenging the prevalent opinion in the media that the days of brick and mortar retailers are numbered.

This week, I noticed that every media outlet was lamenting the news that Amazon has made the bold move to acquire Whole Foods in the US for A$18 billion.

A range of doom and gloom predictions have been offered, failing to recognise that Amazon’s move fully endorses the important fact highlighted by Justin – that without a brick and mortar presence, pure-play retailers are unable to truly compete in the retail space.

Media and industry commentators (practically all print media and online channels) have then made a material mistake by projecting that Amazon will bulldoze the brick and mortar space as well. In reality, just as seasoned retailers find the physical game challenging, so will Amazon.

Dear Amazon, I welcome you to the world of exorbitant and ever-growing rents, needs-based (rather than productivity-related) wage increases, unreasonable penalty rates, one-sided industrial relations laws and regulations, shrinkage and other forms of theft, the need to effectively work with thousands of employees in remote locations, and so on…

This significant foray by Amazon into the brick and mortar world, if sustained, can lead to a much more level field for the retail industry. Amazon’s market capitalisation, their massive, anti-competitive weapon, will start to decline as they become a more traditional business, with a more traditional valuation.

The relentless evolution of technology, customer expectations, and the financial power of market disruptors reinforce Retail Directions’ message to the retail industry, which was so well put by Justin:

  • Create a technologically harmonious, well-connected retail enterprise, providing seamless customer experience across all channels. Infuse your stores with digital and use e-commerce to drive your customers into your physical estates where you can captivate them with service and experience excellence. If your online trading flourishes in its own right, even better.
  • Don’t buy into the fear mongers. While there are regrettable stories about some traditional retailers going out of business, these are balanced by success stories of other traditional retailers experiencing solid growth.
  • It’s not the environment, but how one operates within the environment that matters. Has the environment become more demanding? Most definitely. Retail used to be a fast, intense, trader-driven industry. Today it is still all that, but technology has become another essential pillar.  It must be effective, elegant, and low cost.  Parts of it must reside in the cloud, while other parts must have mission-critical strength, with redundant systems that can withstand network and server outages and delays.

Established retailers live in very interesting times, but Amazon’s arrival in Australia is not the end of days. Sure, Amazon is revolutionary in the e-commerce space and they will make a dent in this area, affecting the existing Australian operators.

At the same time, while cashed-up, Amazon is a retailer that has limited capability in the real retail game. Every retailer that has solid omni-channel systems, a great merchandising offer, and bulletproof customer engagement, will do well despite Amazon’s presence.

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About the author

Whether it is retail, technology, current events or entrepreneurship – Andrew Gorecki brings an unconventional approach to the subject matter. He provides a compelling alternative narrative, challenging mainstream views, and is sought out by industry insiders for his strategic advice and insights. Andrew co-founded the retail software company Retail Directions in 1994, and was a non-executive director of Reece Ltd and its subsidiary companies between 2008 and 2017. His latest book, Gearing Up for Success covers the critically important secrets of success that our schools choose not to teach.

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