Blurring Lines Between Click and Brick

Blurring Lines Between Click and Brick

Is the US facing a Retail Apocalypse?  By mid-June of this year the 19 major retail bankruptcies in the US put the industry on pace to exceed retail failures in all but one year since 2012 according to the Financial Times.  Although eCommerce has certainly given traditional retail outlets a run for their money, it still represents only 11% of total retail sales.

Of course the share of eCommerce is much higher in certain retail sectors than in others.
A 2018 analysis by Payment.com found eCommerce representing over 23% of electronics and appliance sales, but barely more than 3% of food and beverage sales.

What are traditional retailers doing to protect their turf against the relentless incursion of eCommerce, and how are eCommerce companies encroaching on the brick and mortar space?  We posed this and other related questions to eCommerce industry consultant, Rick Watson and learned a few things about the blurring lines between click and brick.


Rick Watson

Rick Watson is veteran of the eCommerce industry, with years of experience in the trenches, working with both eCommerce stores (General Manager of Barnes & Noble Marketplace) and vendors (Director of Engineering at Channel Advisor, CEO of Merchantry, and VP Commerce Product Management at Pitney Bowes).

Earlier this year, Rick hung out his own shingle and launched RMW Commerce Consulting which provides strategy and operations consulting to eCommerce merchants and vendors.  Rick’s consulting practice is currently focusing on two areas – helping merchants formulate strategies for building industry specific multi-vendor marketplaces and advising technology vendors on how best to position their products for rapid market penetration.

Rick was kind enough to meet with eCommerce Weekly Brief to share his perspectives on how eCommerce and brick and mortar retailers are encroaching on each other’s territory to thrive in an increasingly competitive environment.

EWB: How are traditional brick and mortar retail outlets successfully leveraging their real estate assets to compete with pure play eCommerce competitors?  In particular, what types of innovations are they rolling out – whether in store or online?

RW: There are few examples that come to mind, mostly focused on consumer convenience with the goal of encouraging repeat business and growing loyalty. Target is currently testing parking lot pick up for customers who use their mobile app.  After a customer has placed an online order, the app can track the user’s location to estimate their ETA at the store so Target can have their pick-up order ready upon arrival.

Walmart is taking convenience to another level with their trial of in-refrigerator delivery, where they will deliver a subscriber’s groceries directly to their refrigerator/freezer even when they are not home.   Of course, this involves some more sophisticated security technology including a $50 smart door lock and cameras that track every move of the delivery person while they are in your house.

Another traditional retailer that is breaking the bricks and mortar mold is the venerable department store, Nordstrom which is testing micro locations in affluent neighborhoods where their customers live.  They recently opened a micro location on Manhattan’s Upper East Side with almost no inventory.  Instead, they are providing value added services like tailoring, personal style advisory and item pickup and return via UPS and Fedex including return of third-party packages so customers can even return an item purchased on Amazon or another online store.

EWB: Since opening its first physical bookstore in Seattle in 2015, Amazon has continued to invest in brick and mortar retail with its acquisition of Whole Foods in 2017 and launch of its cashier-less chain Amazon Go in early 2018.  What is the rationale behind these moves?

RW: Prior to their purchase of Whole Foods, Amazon didn’t really have significant market share in groceries, which despite its low margins, is a massive category.  The acquisition gave them an immediate footprint in the grocery category with an established brand. When the VP of Amazon Prime was asked this same question, his response was “We are always looking for ways to provide new benefits to Prime members and this was one more great offering for Amazon’s most loyal customers”.  And with the Amazon Prime logo splashed everywhere in store, the company gets the added benefit of reinforcing their brand among the company’s target audience.

Amazon Go is a great example of how boldly innovative the company is.  They view the bricks and mortar channel as another opportunity for radical change, and Amazon Go as one vehicle for fixing what is broken. No one likes dealing with salesclerks or waiting in line or going to a store that is out of stock of a particular item.   Amazon Go addresses almost all of these issues by allowing customers to simply go into a store, take what they need and leave without the company risking outright product theft.  Because Amazon is not afraid to innovate, they can address needs in the marketplace starting from a blank slate, much like they did with the Kindle, which was hugely disruptive in the publishing world.

EWB: Is Amazon’s entrée into brick and mortar retail any different from similar moves made by digital native ecommerce companies like Warby Parker, Everlane and Allbirds?  How, so?

RW: I think that smaller digital-only brands discovered that they were missing out on large part of the market that still shops in stores and that they could cherry pick their locations based on the gobs of information they already have about where their current customers live.  Since they typically don’t have large amounts of investment capital to work with, they have experimented with lower cost store formats like pop-ups and using those as a platform to learn more about what works, and what doesn’t.  Although it’s expensive to open stores, it’s also expensive to drive traffic to their sites.  Where stores are strategically located in high traffic areas, the cost of walk in traffic could actually be lower than the cost of generating similar online traffic, making those locations more profitable than their website.  Some of these brands have also found that their physical stores are lifting brand awareness in those neighborhoods and driving up web traffic, creating a virtuous cycle of profitability.

EWB: What management skills and knowledge will be critical for traditional retailers to survive the eCommerce onslaught?

RW: The big challenge for traditional retailers is attracting and retaining digital talent.  Part of the secret to doing so is to nurture and accelerate a culture of innovation within a company.  Let’s face it, the young digital talent that a large, traditional retailer might be able to hire will not stay long if they see that their bold, innovative ideas are constantly getting quashed by layers of risk-averse bureaucracy.  If traditional retailers want to retain that talent, they are going to have to get more comfortable with, and actually celebrate the cycles of experimentation, failure, and learning that will eventually lead them to successful innovations.  There are a few big retailers that are innovating faster, like the ones we discussed in response to your first question – Target, Walmart and Nordstrom.   Although their greatest digital successes are still mostly related to their brick and mortar locations, rather than purely in eCommerce where the digital natives like Amazon excel.

EWB: Which technology vendors, whether startups or big companies, stand out in providing the most innovative and impactful solutions for traditional retailers to compete as eCommerce continues to take market share?

RW: Shopify is the clearly one of the big technology vendor success stories.  They have become a huge, multi-billion-dollar company whose platform was considered merely a toy for building simple online stores only 5 years ago.  At the time, conventional wisdom was that no “real” company would ever run their online business on Shopify.  While Shopify’s platform may still not be appropriate for the largest brands, many of the now successful digital native brands started on Shopify or similar SaaS eCommerce solutions.

There are also several under-the-radar startups that are helping more traditional retailers compete in some aspect of digital commerce.  I was recently introduced to Fenix Commerce, a company whose first product helps retailers with both eCommerce sites and multiple store locations to optimize their shipping by selecting the outlet that can provide the fastest and cheapest delivery based on inventory and ship to address.  Like many successful startups, they identified a niche-sized, yet pervasive problem, that they could solve with a technology solution.

Another small innovative technology vendor that comes to mind is Dynamic Yield, which was acquired for $300M by McDonalds in the Spring.  The company provides artificial intelligence driven delivery of digital content that customizes the online experience to the user based on multiple factors like location, time of day/year, the visitor’s profile and prior behavior.  McDonalds saw this as a critical capability for their instore digital kiosks, that would enable them to recommend the most appropriate option for the customer and thereby speed up the ordering process and increase customer satisfaction.  In this case, the large traditional retailer addressed the innovation problem in a different way – via acquisition as opposed to building these capabilities internally.

Keeping you e-formed,

Michael Bendit – Publisher


eCommerce Weekly Brief Title

November 18, 2019

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November 17, 2019 / by / in ,

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