Those opposed to this deal are, I think, assuming that this adds significant incremental cost or effort for Old Navy. It does not. Old Navy already fulfills online orders from stores through click and collect and they are charging $8.99 for deliveries that Old Navy employees are not delivering. This is a safe, tactical move. I don't believe, though, that the upside will be significant because I suspect that people are willing to wait a few days for apparel. But none of us know for sure in this environment where consumer expectations are changing so rapidly, fueled mostly by Amazon. I'd have done this deal were I in Old Navy's shoes.
I love the dark kitchen concept. Almost no one actually eats in the restaurants that I pick up lunch from in midtown Manhattan but those restaurants are paying very expensive midtown Manhattan street level retail rents. I see this as a metaphor for the broader retail sector, which continues to carry all the costs of legacy brick-and-mortar businesses in addition to the incremental costs that e-commerce adds.
The disruption of retail that we've seen over the past quarter century has been a boon for consumers and a much needed wake-up call to a retail industry where the creative energy had been subsumed by the desire to maximize profit by replicating tired store formats again and again in mall after mall. While the past 25 years has been tough for retailers, it is making American retail better and stronger than it's ever been. Kudos to the disruptors.
The biggest obstacle to digital transformation that I've seen over the years is the misguided idea that digital investments must offer short term incremental sales. The reality is that, because consumers are demanding increasingly digital experiences, digital investments need to be looked at as defensive (protecting the franchise) as much as offense (incremental sales).
Amazon Fresh has been losing grocery market share to Walmart Grocery and Instacart for a few years now. This was partially because of the cost (which Amazon has now fixed) and partially because of the relatively limited geographic scope of Amazon Fresh. If Amazon decides to dramatically increase its geographic footprint, it could impact the growth of Instacart and Walmart Grocery significantly. That's a big IF, though. Amazon has historically been very conservative on this front and expansion into new markets would signal a whole new commitment to winning in grocery for Amazon.
Amazon is attempting to lead its competitors over a cliff and only Amazon has the financial wherewithal to sustain the landing. It is far from clear that one day makes an appreciable difference to consumers. Competitors should be careful before following Amazon's lead here.
Convenience can be defined by the equation (time spent * physical effort expended * ability to have it when you need it). Online grocery shopping today takes significantly less time and effort than a trip to the grocery store, even for a first timer. And grocers are getting better at getting my order to me when I need it. Habits take time to change, but trust the math in the long run.
After a three year period of aggressive digital acquisitive-ness, Walmart is clearly taking stock, divesting of some acquisitions and scaling back others. What we don't see is where they're doubling down, where employees have been integrated into the mothership, what lessons they've learned, and what habits they've changed. No aggressively acquiring company bats a thousand. But if Walmart had been idle, we can be fairly confident that its stock price would not be up 59 percent since its acquisition of Jet, compared with 33 percent for the S&P 500 over the same period.
The biggest challenge that big CPGs face in becoming digitally enabled is that of internal incentives for leaders: For an ambitious person that hopes to push the envelope in a big CPG company, there is too much risk for leading an effort that fails and too little upside for one that succeeds.
I had taken for granted the pain of checkout until I shopped an Amazon Go store for the first time. There is no question in my mind, after that one shopping experience, that this is the way of the future, and that it will accelerate the culling of the retail herd. This is something hard, and expensive, that all retailers will need to do well.
Amazon has not destroyed U.S. retail, quite the contrary. It has put it at the forefront of retail globally, destroying individual retailers that were over-leveraged or unable to compete for other reasons. However, that doesn't mean that Amazon's power in the market doesn't need to be checked.
This sounds very much like a modern take on indentured servitude to me. Maybe there is some fine print in the agreement that makes this make sense, but as reported it is a terrible deal for these merchants.
The U.S. online restaurant delivery market is estimated at $20+ billion by 2023, and online services like Yelp attract millions of people looking for restaurants. I find it entirely plausible that this virtual restaurant model can work. Working in midtown Manhattan, I see dozens of lunch restaurants that undoubtedly pay enormous rents, that are deserted 22 hours a day. Restaurants would simply swap rent expense for marketing expense, and might find that they come out ahead.
Retail (and business and life, more broadly) is not always a zero sum game and Counter is a perfect example. Rite Aid needs store traffic, Amazon needs to expand its brick-and-mortar footprint, and has realized that acquisitions of retail chains can be painful (Whole Foods).
I fundamentally reject the premise that online-only retail cannot work. I agree that there is a limit to how big companies can get without stores, but we all ought to appreciate that a healthy retail economy includes healthy small to medium sized players going after targeted niches as well as large players going after the mass market.