Continuing from a previous post on the future of retailing, I wanted to turn my attention to the news that the world’s most notable eCommerce giant, Amazon, seems to think now is the time to go into bricks and mortar. Here are a few of my further thoughts on why I think they are doing this, how they are going about it and what this means for the future of our industry.
From 2000 to 2015, e-commerce jumped from 2 percent to 10 percent of all US retail sales whilst in the premium and luxury sector, digital commerce is growing at a double-digit rate (the only channel to do so in global retail) and according to a recent Bain & Co study will climb to represent 20% of global luxury sales by 2025. Pioneering eCommerce players such as the recently merged Yoox Net-A-Porter and Farfetch which offer a holistic and luxury-elevated turn-key experience (essentially operating as enormous independent boutiques) can take much of the credit for this. Looking at the headline numbers alone, online appears the way retailers need to go. Why bother with physical stores then anymore?
In my previous blog post I presented a few musings on the changing face of digital retail and how a ‘hybrid’ approach is giving rise to a new breed of so called ‘Digital Native Brands’, which are designed from the ground up to work as pure-play online brands, which can then leverage in-store infrastructure as an experiential driver of sales online if they so choose (the point being, the brands are designed to be able to ‘exist’ or survive exclusively online).
I suggested that the new trend in retail appears to present the bricks and mortar environment as a marketing channel to provide consumers with a ‘confirmation bias’ and smooth off any conversion friction (and reduce the likelihood of returns) which occur from customers not having a prior physical interaction with a brand. The customer journey is as follows – you hear about the brand online (initial touch point) but are not quite sure whether it will work for you (or fit you), so going to a bricks environment (whether you can purchase in said environment) provides a physical touch point with the brand and an opportunity to try on the product. This in turn provides a further customer capture point for the brand whilst increasing the chance the customer will make a purchase through the brand’s preferred channel.
Whereas before it might be argued that consumers turned to online channels for their pre-purchase research, the new breed of retailers have turned the system on its head – brands are making first contact with customers through online channels, whether through online marketing or social media, before channelling customers into a bricks and mortar environment where customers can have a physical experience of the brand and its product before purchasing online. As mentioned before, there has been something of a volte-face whereby brands such as Bonobos.com, which previous pronounced the death of bricks retail, have started opening ‘stockless’ stores to provide customers with a concrete touch point. I suggested previously that the 360 journey from online exposure, to in-store assessment and then back to online transaction, represented an opportunity for retailers to optimise their inventory management and overall retail processes to meet the requirements of the digital generation. I suggested that these optimisations would benefit retailers who managed to transform their operating models (assuming the return on investment is justified and the company has the time and resources to pull it off without damaging what they already have). I also proposed that Luxury Recruit’s candidates should not be intimated by the digitisation of the retail landscape and instead should see these shifts as an opportunity to work in better functioning and overall more successful brands. I advised candidates to embrace the opportunity to widen their skillset and increase overall performance.
By contrast, I am still digesting the ongoing news around Amazon’s, the world’s most illustrious and prominent pureplay eCommerce giant, plans to occupy a physical space on the highstreet, which many would argue it helped destroy in the first place, with its Amazon Go venture. I am excited by the technology being developed and deployed but concerned by the wider narrative which has emerged advocating the ‘automation of everything’.
This is far from Amazon’s first venture into the bricks environment. Amazon had of course previously operated dozens of pop-up stores which functioned in a way akin to a hybrid digitally native brand, being set-up as small temporary structures set-up to market and promote Amazon branded electronics during busy holiday periods. Business Insider suggests this is a way for Amazon to drive more traffic to its website and has the potential to grow into something much larger than a 300-500 square foot pop-up, possibly into an Apple-like store.
Similarly, earlier in the year Amazon pushed out its first major steps into direct to consumer bricks retailing with its physical book store. Although I am yet to visit the store (as far as I am aware there is currently only one store in Seattle), the consensus is that it feels and works much like a regular bookstore albeit with a smaller selection of books (due in part to the fact that books are displayed cover, rather than spine, outwards). Along with books, the bookshop operates as something of a showcase for Amazon technology such as the Kindle Fire range as well as newer Amazon branded gadgets such as the Echo series. The store apparently makes light touch use of technology, and foregoes any advanced in-store customer behaviour tracking activity to present a far more straightforward exercise in merchandising optimisation – the idea is that Amazon is able to leverage and cross compare data is captures from its online marketplace to present a carefully curated and merchandised selection of books to bricks shoppers, who in turn will be tracked as they shop, closing a feedback loop and allowing Amazon to capture customer shopping behaviour in a truly cross channel way.
Amazon’s bookstores, unlike their pop-up kin, follow a relatively traditional inventory and retail model, with purchasable stock and personalised cards recommending books selected by the store staff. In short, Amazon’s journey over the last 22 years (at least from a retail perspective) can be said to have migrated from pureplay eCommerce (the website), to digitally native brand (the technology pop-up stalls) to a return to the bricks and mortar environment which it helped disrupt (or break) in the first place with the Amazon bookstores.
Amazon Go feels rather different and highly significant from either of Amazon’s previous interventions into the bricks and mortar landscape. Amazon Go is essentially a local convenience store, providing a mixture of groceries, household essentials and freshly cooked food, bringing together various aspects of its online service facilities such as Amazon Fresh (its online grocer), Prime (fast delivery of key items) and its first foray into Amazon branded food products. Customers enter the store and ‘sign-in’ through a QR code on their Amazon app. Once signed in, customers can then walk around the store, physically removing items from shelves and adding them to their, physical, basket before walking out. There is no need to scan items or wait in line. The basket total is tallied up and payment is automatically debited from the customer’s account. The Amazon website describes the experience as:
“With our Just Walk Out Shopping experience, simply use the Amazon Go app to enter the store, take the products you want, and go! No lines, no checkout. (No, seriously.)”
The system works by employing a mixture of technologies which were initially designed for use in self driving cars, such as computer vision, sensors and deep learning. Amazon is calling it a “Just Walk Out Shopping” experience. As I understand it, the key technological deployed in the store can tell when an item is lifted off a shelf, and the visual system which tracks the customer’s face around the store knows where every shopper is standing and therefor can accredit the removal of a product from a shelf with the location of a customer (putting two and two together). What happens when a customer replaces an item in the wrong location or how it deals with loose items charged by weight remains to be seen and there are of course additional concerns around privacy if facial recognition is indeed the primary mechanism, but there is little doubt that Amazon has significant plans for the technology and that alone means that the entire industry needs to take note – the company is starting out with a large store in Seattle, but it’s clearly meant to serve as a model for other locations and retail stores, whether own branded or as a service provider for other retail store chains.
Amazon has not published much on its motivations for doing bricks-and-mortar but it is clear that they have a lot of ideas about how physical retailing can be improved, ideas that come from their data-centric approach to online retailing. The internet retailer, which has grown into a $359bn (£282bn) company in the 22 years since its founding, claimed the new service was “the world’s most advanced shopping technology” and certainly its combination of technology, which was built for Tesla, and long-tail merchandising expertise has the entire tech (and to a certain extent retail) industry fired up.
Whilst I cannot claim to understand the nuances of how Amazon Go’s technology works or indeed predict the true impact of Amazon’s automations and interventions on the future of global retail, I cannot help but feel uneasy about the market’s reaction to the news. Industry commentators have already started celebrating and promoting the efficiencies that such technology will bring to the market, enabling ‘human-less’ automation and efficiencies. The vernacular discussing Amazon Go in certain areas of the technology press is at once both celebratory and sinister, praising Amazon for its inventiveness and its ability to transform the economy again, whilst making little reference to ramifications in terms of job losses, which seem obvious. In the US, around five million people are employed in retail, while Australia has 1.3 million and Britain 2.8 million. Stores like Amazon Go could therefore mean many job losses. The British Retail Consortium has predicted that almost 30% of the UK’s 3 million shop jobs would disappear by 2025 as companies use technology instead of people. If Amazon Go catches on in the UK, established retailers would probably be forced to match its convenience to keep their customers. The prospect of rapid automation of the retail industry has added to unease about the use of technology to replace human workers. Capita, the outsourcing company that collects the BBC licence fee, said this week it would cut 2,000 jobs and plough the cost savings into developing robots. The Bank of England’s chief economist Andy Haldane warned earlier this year that 15m UK jobs could eventually be lost to robots.
Whilst complete automation of certain areas of supply chain has already occurred (robotic warehouse stacking), and other areas are in the process of being automated (note again the ever-nearing reality of Amazon’s drone delivery service) certain areas of business have always been presumed to require a human touch – most notably customer service. However, the game is changing even here, as this seemingly most human centric of roles is at the mercy of artificial intelligence: retail focused consultancies and service providers are encouraging their brand clients to switch to automated solutions, enthusing the benefits of efficiency and cost savings. More and more, the consolidated major social media players are also having a large influence on how brands and retailers operate. More than 11,000 bots came online soon after Facebook released a bot-development platform for Messenger. Since then, bots have proliferated across other messaging media like Kik, WhatsApp, Slack, Snapchat, and Skype and with messaging apps already surpassing social-media networks in popularity, those figures will continue to climb. Gartner projects that more than 85% of customer interactions will be managed without a human by 2020, and chatbots are also expected to be the primary consumer applications of AI over the next five years. Retailers are being encouraged to jump on the bandwagon or risk falling behind their customers – the vernacular the tech industry and its evangelising press celebrates this as progression.
In my opinion, the overly zealous narrative and tone celebrating Amazon Go’s technology and the technology industry’s promotion of bots and AI reminds me of the dialogue which surrounded the development of eCommerce, which was apparently going to mark the end of bricks and mortar retail as we knew it. As we have seen, the invective has calmed down and the industry is currently adopting a hybrid model combining the best of bricks with the benefit of digital. The narrative surrounding technological development, due to its low barrier to industry and reliance on network effects, is inherently amplified, which goes someway to explaining the noise and buzz which can surround the emergence of a new technology as it goes through a cycle of speculation, hype, evangelisation, entrenchment and replacement. Brands are learning how to analyse the best return on investment for their growth strategy, whether that be in bricks, online or a hybrid model. The established practices, when enabled through technology rather than replaced, remain the best way according to Andy Dunn of Bonobos, who was one of the first to proclaim the death of bricks and mortar before going on to open dozens of stockless guideshops.
As I argued in my previous blog post, I believe that the established practices which are the lynchpin of our premium and luxury industry, namely the quality of relevance of product, targeted and effective marketing, and excellence of customer service, will never go away and the human element which are industry prides itself on will remain at the centre of everything we do and can not be replicated easily. I feel that the technologies employed by Amazon Go and the social media networks will no doubt make a huge impact on the world we live in, but retail managers and brand owners should tread carefully when it comes to jumping on the bandwagon, for they risk losing something of the spirit and effectiveness of the systems, and ultimately the heart and goodwill, of what they already have.
I find my sentiments echoed by the French grocery chain, Monoprix, who made a highly amusing shot by shot parody of the Amazon Go promotional video to promote their own home delivery service.
I hope you will enjoy it as much as I did. Watch it here.