A Commerce Battle Worth Watching
By Rob Hendricks
Reading the headlines these past few days, I couldn’t help but think about the parallels between boxing and business. It’s not for cowards or talkers — boxing is about asserting and affirming who you are, knowing your target and bringing your entire self to the fight. It helps to have a well-formed strategy, specific to the opponent you’re facing.
And nowhere, is the fight being brought stronger than in the digital arena. In fact, the LA Times reports the Internet is mauling America’s malls with more than 25% of them expected to close in the next 5 years.
And we’re not just talking malls.
No brand will be spared in this match up. If there’s a share of your wallet worth grabbing, there are some commerce heavyweights coming for you.
The talk track for ‘Rocky’ is playing in my head as I’m typing these lines… So, I’d like to point out again this is a non-sanctioned fight. The American Boxing Commission has not authorized this bout.
You boys know the rules.
Watch your low blows, kidney punches, rabbit punches.
In case of a knockdown, you go to the corner I tell you…
and you stay there until I tell you to come out.
Shake hands and let’s have a good fight.
This week the heavyweight king behind Amazon, Jeff Bezos, dealt a stunning blow to the market with a $13Bn acquisition of Whole Foods — a move that sent shockwaves across various industries and wobbled stock prices for nearly every public grocery retailer. But one has to wonder… was Amazon really jabbing at the Kroger’s of the world, or were they dealing an uppercut to a different opponent?
After all, Walmart made headlines this week too…
Remember, you fight great…
but I’m a great fighter.
Let’s go to school son!
Walmart’s defensive moves have been paying off… In its latest earnings release, Wal-Mart reported a 63% increase in U.S. store’s e-commerce sales. On a recent media call, Marc Lore, chief executive of Walmart e-commerce U.S., said the growth was driven by two-day shipping, what he called “easy re-order,” and a larger online assortment, put at about 50 million items as of May.
Large online assortments, fast shipping and easy re-orders certainly starts to sound dangerously close to what Mr. Bezos considers to be Amazon’s domain. And you know those threats can’t simply go unchallenged right?… Biff! Bam! Kapow!!
What’s happening out there?
I see three of him out there.
Get the one in the middle.
Right, hit the one in the middle.
What just happened? Well, remember last August when Walmart fired a shot across the bow to online retailers everywhere by acquiring Jet.com for approximately $3Bn in cash? And remember too, this week, when Walmart announced a move into the online fashion arena with the $310 Million acquisition of fashion brand Bonobos?
Well, it seems when you poke a sleeping giant, you get a $13Bn reply.
Okay, not really… this fight ain’t over yet. But a savvy opponent should have seen this punch coming.
Except for non-retail acquisitions, like the Washington Post, Jeff Bezos has been telegraphing his punches for a long time. Amazon Fresh, Amazon Prime Pantry, Amazon Go — all foreshadowed the online retailer’s interest in merging online grocery delivery with physical locations.
One of the toughest challenges in commerce has always been that last mile of distribution, particularly as consumers have increasingly come to expect shorter windows between ordering something online and getting it delivered. So Whole Foods has a 460-strong strategic physical store footprint, it has inventory, it has loads of physical research, it has all the things you need to satisfy the last mile of distribution for Amazon.
The Rise of the OmniChannel Experience
Until the early 90’s all retail was either a physical brick and mortar store, or catalog. Around 2003 the retail industry started marketing to digital and physical channels simultaneously. They clearly understood the two channels as distinct.
That thinking has changed. Marketers now understand that consumers think about digital and physical stores as two sides of the same coin. Brands create one message and experience by unifying touch points, not separating them.
At Rightpoint, one of my favorite client workshops is Customer Journey Mapping. We help businesses deepen their understanding of their customers, their purchase path, content strategies, personalization, and identifying the best channels and methods to engage customers more effectively.
In order to truly understand the customer experience brands have to empathize with the buyer’s behaviors, thoughts, and feelings across all the physical and digital touch points between them and the brand. These customer experience workshops become central components when developing an experience strategy for your organization.
But wait, is Amazon more like Rocky, or Ivan Drago?
Ivan was the data-backed, better conditioned, state-of-the-art athlete who put a real hurt on all of his opponents, much like Amazon. But in the end, none of that mattered, Ivan went down for the count.
Can Amazon’s superior, technology-backed business sustain all of these disparate acquisitions? Upon closer inspection, nearly all of their non-retail acquisitions seem questionable to me. And there’s still the fact that Amazon only started making money last year — bringing into question the sustainability of their profit model.
And the champ is down!
Come on, get up!
Drago continuing to punish Rocky Balboa!
He just will not let him out of that corner!
Amazon isn’t the only company venturing into widely disparate industries. Tesla, Virgin, and Google have all had more success than failures… But getting it wrong with this business adjacency growth model leads to massive layoffs, plummeting stocks, divestitures, and forced sell offs of non-core assets when the tides eventually turn.
Make no mistake. This is a high stakes gamble.
Before diversifying, managers must think not about what their company does but about what it does better than its competitors. There are many questions we advise our clients to ask:
- What strategic assets do you need in order to succeed in the new market?
- Are your strategic assets transportable to the industry you are targeting?
- What can your company do better than any of its competitors in its current market?
- Will you be simply a player in this new market, or will you emerge a winner?
Bezos is making a $13Bn bet that Amazon can catch up to or leapfrog competitors and basically change the game.
Move the head!
Stay with him!
Balboa goes down again!
Bounces right back up!
At the time of this post, Bezos holds roughly 20% of the shares. For now shareholders, won’t push for divestitures, but if they ever need cash, or to increase returns, selling non-core assets will be a likely source of capital.
Changing the Game in Groceries
There’s a famous scene in Rocky where his entire strategy consists of using solely his (weaker) right punch through the early rounds of his fight in order to throw off his opponent. It’s not until he’s given the green light to go “southpaw” (switch to lefty) when he’s able to use his power punches to win the bout.
We may just have witnessed Jeff Bezos going southpaw. In order to beat the industry at its own game, he’s seriously changing it and embracing the full customer journey.
And when Amazon is serious, frankly there is no limit to what they can do in terms of disrupting the space.
I’m a fan, a customer and a skeptic. But if Jeff Bezos gets this right, we all win… and we could all soon be hearing that ring announcer one more time:
He’s done it ladies and gentlemen.
Rocky Balboa has done the impossible…
and these people love it!
It is absolute pandemonium!