George MacDonald: “online-to-offline” trend will reshape retail

George MacDonald, an executive editor of Retail Week, has interviewed many important personalities in the retail world and is often asked to comment latest trends of market in the wider media. Now he shares his thoughts about the future of the retail world.

Although Amazon shocks the retail world with buying Whole Foods Market, this “online-to-offline” trend is an exception rather than one of the directions of travel that will shape the retail industry.

The online-to-offline snatch is not restricted to the US. It is playing out globally. Chinese retail Goliath Alibaba, for instance, presaged Amazon’s Whole Foods deal when it bought into store chains. First, it happened in 1,600-branch retailer Suning, in which it took a 20 per cent stake for $4.6bn in 2015.

Then, at the start of this year, Alibaba struck a partnership with Chinese grocery and department store group Bailian to embark on a tech-led overhaul of the latter’s 4,700 branches. That followed a bid for department store group Intime, said to be valued at $2.6bn.

In the UK too, the “online-to-offline” switch is apparent. Etailer Missguided has begun opening shops, at Westfield and Bluewater, a venture blending the live-streaming of social media feedback with the retail theatre designed to help the retailer stand out.

Missguided is not alone. Online furniture retailer Made.com now has seven stores and online grocer Ocado has launched a beauty fascia, Fabled.com, on London’s Tottenham Court Road, in partnership with Marie Claire.

According to MacDonald, such changes show that e-commerce, still seen by many as the new kid on the retail block, despite now being established for two decades, is changing rapidly and is going through shifts just as seismic as its original debut.

Why did Amazon buy Whole Foods?

Mr. MacDonalds thinks that there are a few complicated reasons why Amazon bought Whole Foods. The most likely reason could be that Amazon is “a minnow in food”.

The company, which originally launched its AmazonFresh grocery business in 2007 and brought it to the UK a year ago, holds a market share in its home market of just 0.19 per cent according to researcher GlobalData.

The remainder lies in the hands of bricks-and-mortar giants such as Walmart, which speaks for almost 15 per cent and Kroger, which controls just over 7 per cent. Under pressure as they may be, traditional retailers retain the lion’s share.

That’s why Amazon wants to be a serious food player, to buy into the market – and it has made its intentions clear in the fact that the purchase of Whole Foods is its biggest ever purchase by value.

Online to offline

Online to offline is perhaps most evident in the UK in how department stores are remodelling.

In the case of Debenhams, even its boss has gone from online to offline – Sergio Bucher worked for Amazon before joining the department store business. Bucher has hung his hat on the nail of what he calls ‘social shopping’.

When he unveiled his strategy in April, he said:”Shopping with Debenhams should be effortless, reliable and fun, whichever channel our customers use. We will be a destination for ‘social shopping’ with mobile the unifying platform for interacting with our customers. If we deliver differentiated and distinctive brands, services and experiences both online and in stores, our customers will visit us more frequently and, having simplified our operations to make us more efficient, we will be able to serve them better and make better use of our resources.”

Challenges everywhere

According to MacDonalds, the basic rule once applied by former Waitrose boss Mark Price was to ‘go the other way’ – to do precisely the opposite of what rivals do. That was also one of the ground rules of retail legend Sam Walton, founder of Walmart. While the business he founded is now seeking new direction, the mindset he brought is no less relevant in 21st century retail as it was in the latter half of the 20th century.

As Amazon once again confounds opinion about the direction of retail, the point perhaps is that one and one has to make at least two – not one and a half. That has been the multichannel challenge for a long time as established businesses have carried the traditional costs of retailing – such as stores and staff – while having to invest in online operations and all that goes with them, such as smooth fulfilment.

Amazon is guided by four principles which it highlighted in its statement on the Whole Foods deal: “Customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking.”

Amazon is a giant consumer laboratory. And, as in science, old theories and once-overlooked analysis can bring different perspectives when new information emerges.

The takeover of Whole Foods is both a reminder that old ways can sometimes be the best ways when new ways of doing business bring reminders of insights that could otherwise have been lost.

Action points for retailers:

Bricks-and-mortar

Retail’s biggest innovators, such as Amazon and Alibaba, no longer see websites as sufficient in the contemporary and future retail environment. Store chains are investment and acquisition targets.

What opportunities are there either to work in partnership with tech giants to enhance your multichannel offer, or to better exploit assets such as store networks?

Pureplay retailers

Online specialists are increasingly shifting away from reliance solely on their websites, whether mobile or desktop.

Voice technology is growing in importance, evidenced by the popularity of Amazon’s Alexa and Amazon’s proposed acquisition of bricks-and-mortar retailer Whole Foods.

While traditional e-commerce continues to grow, are you confident that your proposition caters for how people may shop in the future? What opportunities are there to extend and adapt your proposition?

All retailers

Amazon’s and Alibaba’s willingness to invest in building their businesses in the most unexpected ways is perhaps the biggest change agent in retail globally.

Are you investing to the benefit of the shopper, or seeking only to cut costs? If the latter, you are likely to hit trouble.

Winning license to invest is likely to rely on the ability to convince shareholders that investment and imagination – and sometimes they will fail – will be central to long-term success.

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