Saturday, June 24, 2017

Musings in Amazon World

I am probably the last one to write after Amazon’s blockbuster takeover of Whole Foods. I have no bold predictions, just a lot of thoughts and what ifs. So please forgive me if the below is not my usual tightly spun and clear logicJ

It’s not just Whole Foods making the news. Consider Walmart’s buyout of Bonobos-strange bedfellows, so what’s the logic?

And I just read that Nike has agreed to sell its shoes through Amazon. How’s that for putting more nails in the brick and mortar traditional retail coffin?

So here are my thoughts and questions:

What does Amazon really want with Whole Foods? It seems pretty sure that Whole Paycheck as we knew it is going to disappear. Will it be a showcase for Amazon products other than food? Will it be a $14billion testing ground for Amazon Go, the automated supermarket service system which has yet to be perfected? I think, no matter what Amazon does, people will still want to squeeze the melons-which will have to be bought and delivered fresh and are highly unlikely to be bought on line. AND require a different kind of category expertise.

And what happens to the traditional supermarkets? According to one writer, their fatal flaw is that they need and want to make profit, while Amazon doesn’t. If that is the case, they are going in the wrong direction, especially if you look at the hundreds of items on the weekly circular, all competing with each other for the same brand, same product, and surely losing money just to bring customers into their store to compete with other traditional supermarkets who are trying just as hard to lose money.

But voila! And nobody has really talked about this- in come some category specialists like Trader Joe’s (Aldi) that have developed their own brands to such a degree that they are trusted at higher (but fair) prices. What is more, they compete (usually well) on a product by product basis while not needing to compete brand by brand. Just like Zara and Uniqlo in the apparel world, their stores are interesting and fun (Trader Joe’s treats us to a California surfer atmosphere even down to the Hawaiian shirts) and clearly well merchandised to sell what they sell- which is not everything and is category focused. Easy to shop and easy to like. And customers trust them. How will Amazon compete with this? Or maybe no need to compete, just buy it.

Amazon is also developing private label in non-foods, and has been very successful so far. Will these items find their way into Whole Foods (or whatever it will be called in the future-ie, Amazon Market)? I am not sure even Jeff Bezos knows-it will be fun to watch. What I do know and I am sure Mr. Bezos does as well- the return on selling other people’s goods, like the Nike deal, is sure and sure to grow as more brands decide if you can’t beat ‘em, join ‘em. Which funds these bold experiments.

Let’s jump to Walmart. What could Walmart want with Bonobos? $70ish custom made shirts has as much relationship to Walmart’s business as penny candy has to Tiffany, it would seem. I believe this acquisition has nothing to do with the product-it is the unique system of integrating apparel retail with brick and mortar which is more interesting. As with other technology companies recently purchased by Walmart, this is about an integrated vision of online and offline so Walmart doesn’t lose a sale. The product or products are collateral damage.

So that is what Amazon and Walmart have in common-they are paying what they need to pay in hopes of finding the Magic Kingdom of future retail, and they can afford it.

But if I were to be offered a bet on the future, or buy stock, I would place my money on the category experts-like Uniqlo, Inditex/Zara, Trader Joe’s. They have captured the attention of customers in the best way-with exciting, unique and proprietary product. And, by the way, they all have web sites so you can order online as well. But their stores are too much fun to miss. Maybe that’s the ticket-fun..

Another question that comes to mind is, I wonder if Amazon or Walmart has the category experts in house for all the diverse private label categories they are adding. Recently, I looked at Amazon’s offering in their dress shirt brand, Buttoned Down. Admitting that to make any conclusion I really need to see the products up close and personal-which I didn’t-my viewing as a potential customer and a category expert showed up some clearly visible points of concern for a $39-49 shirt (expensive for Amazon). Maybe I am wrong about the shirts, but it gave me legitimate grounds for wonder about the management of category expertise in new areas in which Amazon seems to expand daily.

It would take some serious mathematical models, guesswork and clairvoyance to make concrete predictions for the future, of Whole Foods and the bigger world to come. Too many variables. The final vote will be cast by the consumer. As said, I bet even Jeff Bezos is not sure-nor should he be. My bet is that there is still a lot of room for brick and mortar-but not the way it used to be. The world has changed and keeps changing daily.

What is sure is this: It’s Amazon’s world, and we are just living in it.

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