Can retailers become omni-channel omnivores?
Through a special arrangement, presented here for discussion is a summary of a current article from the newmarketbuilders blog.
Recently, the retail world was abuzz over speculation that Walmart might take a shine to Family Dollar, on the heels of Credit Suisse analyst Michael Exstein’s recommendation to that effect. His argument followed the traditional eat-to-grow logic that has long dominated the conversation in retail, as well as much of the action. Getting hot and bothered by the possibility of a bricks-based buy, however, seems downright regressive at a time when the two platforms that are influencing retailers the most, Amazon and Facebook, are bent on defanging potential digital competitors.
Facebook’s announcement that it would acquire mobile messaging startup WhatsApp for the astronomical sum of $16 billion (plus stock options) understandably inspired much skepticism, as well as a spate of highly-entertaining other-stuff-you-could-get-for-that-crazy-amount articles. Through the acquisition, Facebook will be able to grab business intelligence on WhatsApp’s 450 million active monthly users, including what types of phones they are using to access the service, troves of keyword insights, data on popular features and more.
This is good stuff for sure, but doesn’t seem to justify the cost over the short term, at least using traditional metrics: revenues, operating margins and risk. Facebook’s real bang for the buck comes from keeping WhatsApp’s global texting treasure out of Google’s grasping paws and adding another people-connecting competitor to its platform, as it did through its acquisition of Instagram last year for the comparatively palatable sum of $1 billion.
Amazon’s purchase of reader review site Goodreads last year marked a similar preemptive move, as it kept a potential competitor out of the clutches of rivals like Apple and Barnes & Noble. It was Amazon’s acquisition of Quidsi in 2010 that first got the blocking ball rolling, though. Quidsi’s proliferating stable of category-killing spin-offs, including soap.com and diapers.com, as well as its Amazon-in-a-bottle algorithms, grew to become flies that were easier for Amazon to catch than swat.
Up to this point, digital acquisitions by traditional retailers such as Kroger, Walmart, Tesco, and others have focused exclusively on scale-building and adding complementary solutions. At the same time, future competitors are lurking in the cracks and crevices, and other digital platforms are prying them open before they become threats. Will traditional retailers soon have the confidence and foresight to do the same?
Discussion Questions
Are brick & mortar retailers vulnerable to Amazon, Facebook and/or Google dominating omni-channel interaction? Should brick & mortar retailers be more aggressive in acquiring omni-channel technologies for themselves? If so, which ones make the most sense?
I actually think there is a fair amount of omni-channel acquisition happening out there by traditional retailers:
Traditional retailers are clearly trying to get better at digital through acquisitions. They are also making strategic bets on nascent digital competitors that might be the next big thing. These deals just don’t get the attention that the larger and more typical “big retailer swallows other distressed retailer for value price” deals.
I keep trying to defend brick & mortar retailers, but they are definitely behind the curve in acquiring omni-channel technologies. There doesn’t seem to be any way for them to catch the wave here. It now seems to be about whether they are going to wipe out, simple stay afloat in hopes of catching the next wave, or get on board a rescue boat. Then there’s also the possibility of being swallowed up by a whale like Amazon, Facebook or Google.
Saying that you are, or will be Omni-channel, doesn’t make it so. It requires a massive amount of infrastructure, technology and systems to execute an omni-channel experience … FROM THE EYES OF THE CONSUMER. The shop everywhere, anytime consumer, expects a seamless experience. They are just as likely to use their phone to shop in store as they are while commuting.
While acquiring the technology for omni-channel is necessary, if is far from sufficient. Omni-channel execution requires strategic alignment within at all levels. How many bricks and mortar retailers today still have separate teams and merchants for running the stores and their web site?
Future success in omni-channel for bricks and mortar will have to do more with internal strategy and processes, than with incremental acquisitions.
Bricks and mortar retailers have the advantage over Amazon and others of knowing how to build, merchandise, and operate physical stores. However, they lose that advantage if they are unable or unwilling to connect the in-store environment to their own emerging omni-channel efforts.
My fervent believe is the retailers that do the best job of mastering both worlds (online and in-store) in a way that provides the shopper a consistent experience in terms of pricing, services, selection and shopping experience will win. If the two seem disconnected, the shopper will become discourage with both environments and shop elsewhere.
To that end, technologies that provide both mapping, shopper tracking and locational elements of the in-store environment will serve as a bridge between the two worlds. In addition, interactive technologies that communicate and even dialogue with the shopper in-store, are also great candidates for marrying the online with the in-store experience.
Brick & mortar retailers will continue to be vulnerable to the likes of Amazon, Google or Facebook until they become completely marginalized unless they fight back. I have provided technology acquisition and IP development recommendations to a number of my retailer clients over the years and in every case the answer has been similar: “We’re a retailer and we aren’t interested in diluting our efforts.” Ironically, the the ever changing and innovative digital world around them is diluting their core business model while they stay “focused.” In many cases this translates to “we’re burying our heads in the sand.”
The one critical piece that brick & mortar retailers have is brick & mortar! Retailers have a number of opportunities available to them to bring incredible value to their brand relationships by understanding the in-store shopper.
Omni-channel is not about channels. It is about your customers and how they interact and access your products and services. Recall in the food marketing world, we have witnessed many paradigm shifts, beginning with the first supermarket, King Cullen in 1930, to the entry of Walmart, to the emergence of Amazon. Brick & mortar retailers were slow to react to Walmart as well as to Amazon. Before they pursue the acquisition of omni-channel technologies, they need to address online shopping first.
I am not convinced that there are any “first mover” advantages to brick & mortar retailers to making significant investments in these emerging technologies. Instead, they should consider a “fast follower” approach.
This article began with a look at Walmart acquiring Family Dollar. While this kind of move might seem “regressive,” I see it as simply a bid to own a corner of the market. That corner is often ignored or unloved by marketers, because it isn’t sexy, high-end or tech-forward. I am referring to low income shopper. Walmart is expert at selling to this shopper, and occupying the low-cost producer position. They have made a fortune at it. Acquiring any Dollar Store franchise would extend their domination in this realm.
Is it regressive? No, it’s smart. Lower income shoppers certainly have money to spend. However, while they cling to their mobile phones, they aren’t the most progressive tech audience. That’s ok.
This group might gravitate toward site-to-store pick up with the mobile phone. But I bet they’ll be slower to move to online delivery (Amazon, B&N, et.al.). Online delivery means having a secure place to deliver to. Sure there are some retail drop-off spots, but these aren’t always convenient when one is holding down two jobs and has to deal with child care. Further, returns are more time consuming and any payment toward shipping adds to the cost.
In short, pure digital retail is expensive in terms of time and shopper infra-structure: valid credit card, online access, a secure delivery spot, and possibly, time to make a return. Having those things in place is practically the meaning of middle class these days. And not everyone with a wallet falls into that category.
The problem with so many brick and mortar retailers is that their infrastructures are so tangled up that it restricts what they can do.
Retailers need to find creative ways to get untangled and then they can consider what purchases would make sense for their brands. This would also make the most sense for retailers as they are short on the resources they would need to support omni-channel technologies.
When your spend is upwards of 60% of IT budget just to keep on the lights and perform maintenance on out dated systems, resources are an ever ongoing issue.
And that’s my 2 cents worth!
Brick-and-mortar retailers MUST look to acquire omni-channel technologies or risk falling victim to standing still (which, by the way, is not an option). The train has definitely left the station!
Brick and mortar are ahead of the game by having infrastructure and physical locations. They can acquire technology and expertise in ecommerce. Amazon cannot easily acquire locations and build that infrastructure, so they are at risk from a good omnichannel competitor.
The method a retailer uses to interact with their consumer digitally depends on their category, their offer, and most importantly, their customers’ preferences. The issue is not about being “omnichannel.” It is about meeting the customer where they want to experience your product or brand. This may be an omnichannel strategy, or or it may not.