The best strategy to beat Amazon
It is true to say that online retail represents less than ten per cent of all retail sales. It is also true to say that Amazon represents a fraction of that ten per cent. But it is undeniable that Amazon’s impact is way beyond the sales it actually achieves. It is the ‘why’ that is the source of the opportunity to not only minimise their impact on your business, but to beat them. After all, everything in retail is an outcome of competitive context.
Amazon does fundamentally change distribution dynamics and supply chain management. But effectively that creates opportunity not threat, as all logistics models mutate to cover it and third party logistics providers lift their game. All of a sudden things you asked for previously and were told could not be done are suddenly available to you.
The fundamental and essential issue – as always in retail – comes down to product access.
The global distribution of branded goods is now an uncontrolled mess. Grey importing is not managed by the big brands because frankly they don’t care enough to fix it. As long as global sales continue they are not going to clamp down on a region that is clearly wholesaling more product than the domestic market it serves can actually sustain. Regional operators just want to make sales and profit bonus so they have no qualms about who they sell to beyond their licensed territory.
To make matters worse, ‘Doors Stocked’ is still a key performance indicator that means we have an over-distribution problem making access too easy and obvious on benchmarked product. And the final issue is the refusal of global brands to move to global price equalisation. The vast majority of global brands have become lazy and greedy and in the process created the very opportunity that Amazon exploits and Amazon is purely and simply a great exploiter.
The only way to create strategic advantage in this context is product differentiation. If you match their distribution capability – so what. You’re still selling the same product and they’ll dictate the price. They buy it cheaper through global sourcing, pay no effective tax and don’t even have to make a profit because their shareholders evaluate their value under a whole different set of criteria to real retail (to steal a term from ‘The Donald’).
The only thing they can’t beat you on is product that you control and they can’t get their hands on. Differentiated product that they can attempt to substitute but never match 100 per cent. Branded product is going to become the battle ground in twenty first century retail. It will lead to real functional, emotional and perceived variations that the customer will attach a value to.
And while the road will get bumpy, retail will actual thrive in the longer term because of it. But the number of players selling the same thing, trying to beat each other over the head with ever diminishing margins and streaming discounts will diminish rapidly. After all, global brands are a post World War Two phenomena. The new world order is a return to what has really driven retail for over 3,500 years. Product is king. Sell the same as everybody else and you are vulnerable because there are too many levers beyond your control. Invest in differentiating it and making it desirable to your customers in some meaningful way and you win. It will become that black and white.
Peter James Ryan is head of Red Communication and can be contacted on (02) 9481 7215 or at firstname.lastname@example.org.
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