Big retailers need to stop paying lip service to disruption
If you were setting up a retailer today, would you model it on Target, Sears, or Kroger? Probably not. You’d be more likely to model it on Amazon, Alibaba, ASOS, or another e-commerce giant.
Amazon has changed the very nature and standards of shopping
E-commerce has disrupted the market. It has increased competition, pushed down costs, and enhanced customer expectations. Consumers now expect to be able to buy most of their goods online with a click of the button, tap of the screen, or even by talking to their in-home AI assistant, like Alexa, and they expect these goods to be delivered overnight — or even sooner.
Amazon has changed the very nature and standards of shopping, leaving the traditional big-box retailers playing catch-up.
Fightback start now
This month signaled the start of a retail fightback, or at least a new stage in this fight.
Following its acquisition of Jet.com at the end of last year, Walmart announced it is setting up a new tech startup incubator, Store No. 8, to develop disruptive retail technology to beat Amazon at its own game. In the Middle East, although Amazon just entered the market in a big way through their acquisition of Souq.com, one of the biggest traditional retail developers, Mohamed AlAbbar, is set to launch Noon.com to compete in the next few weeks.
Another challenge for traditional established companies is recruiting top tech talent
But that may not be enough. The truth is that it’s difficult for a large company, like Walmart, to drive technological innovation throughout the company. Not impossible, but difficult. That’s because its organisational expertise — its ‘core’ — is in physical retail, and not in technological transformation. Its expertise lies is delivering a good in-store experience to its customers at a good price, not in taking advantage of new technology in disruptive ways.
Another challenge for traditional established companies is recruiting top tech talent. Talented programmers, digital executives, and innovators are often attracted by the culture, salaries and stock option upside at the big tech firms, such as Google and Facebook, or the thousands of hungry VC-backed tech startups. These tech companies just get stronger, hungrier and more and more creative — and the traditional established high-street brands find it increasingly difficult to compete.
A strategic acquisition can solve many of these challenges for a traditional retailer or non-tech company. On the one hand, the right acquisition can inject a high-octane dose of innovative new technology into the acquiring company. On the other hand, the acquirers gets to ‘hire’ the team of the target tech company, bringing on board top tech talent that otherwise would have been difficult — and expensive — to attract to their business organically.
While the results are still not clear, Walmart’s acquisition of Jet.com last year is a good example of such an approach. The acquisition gave Walmart new customers as well as a fully developed, digital and mobile-first e-commerce platform that would have been difficult and expensive for Walmart to develop in-house. And Walmart also acquired a tech-savvy, innovative, and experienced management team. In fact, Walmart’s new Head of e-Commerce is Marc Lore, co-founder and CEO of Jet.com.
Retailers need to transform their core, and not bolt-on
If the traditional retailers are going to succeed, they need to make sure that these acquisitions truly transform their ‘core’ — the part of the business that defines who they are. Netflix is a great example of a company that transformed its core and succeeded, in contrast to Blockbuster, which did not transform its core, and failed as a company.
Every company has its own distinct ‘organisational DNA’
Often, established companies merely pay lip service to the idea of transformation and disruption. They end up acquiring a tech company without sufficient thought and sometimes overpay for the asset. Such an acquisition becomes just a ‘bolt-on’ for the business and doesn’t lead to any substantial transformation in the company itself. In fact, in many cases the acquired company may continue to exist completely independently, with little interaction between the acquirer and target company.
Transformation via a technology acquisition will be different for each individual retailer, since every company has its own distinct ‘organisational DNA’. The ‘core’ of a company is what gives the business its identity and competitive advantage in the marketplace. For some retailers, this might be the range of the products it offers; for others it might be its outstanding customer service or returns policy. Most likely, for most retailers it will be a powerful combination of different value propositions.
Management needs to ask itself how technology can help its company radically improve on and transform its core — and find an acquisition that matches this ‘how’.
The high street still matters, and it can’t be neglected
But while the big retailers are fighting online, they must not neglect their traditional business on the high street.
Many high street stores are suffering not only because of direct competition from e-commerce, but because many retail outlets have faced years of neglect and under-investment and just don’t deliver the extraordinary customer experience that is often required today. ‘Good enough’ isn’t good enough anymore.
Management teams are of course stretched by battles on so many different fronts. They’ve been focusing their attention on tactics and the next quarter, among other things. However, a technology-related acquisition can help force change in a company in a way that in-house development cannot. Done properly, it can uplift an organisation and over time, transform it.
Millions of consumers still value shopping on the high street, and increasingly they are looking for immersive retail experiences. For example, a company recently created an artificial Lapland in a British forest, which amazed children and parents alike. People flock to immersive attractions like this. Children rave and hyped-up parents spend big money on site on very high-priced — but low-cost — products and merchandise. This is something that an Amazon cannot compete with.
Times will be challenging for the big retailers from now on. But they are starting to catch up. A strategic well-timed acquisition that transforms — and maybe even disrupts — a retailers’ ‘core’ might inject that special tonic of impetus that boosts them across the finishing line. These retailers need to ensure they have their eyes out deep and wide in the market if they’re to increase the odds of securing their own future.
Paul Cuatrecasas is founder and CEO of Aquaa Partners (http://aquaapartners.com), a specialist M&A and corporate finance advisory firm. It specialises in advising growth-focused traditional companies on acquiring tech companies.