The Amazon Effect

by Scott Kreisberg, CEO One Step Retail Solutions

As a technology company that makes it’s living helping independent retailers achieve their financial goals with the help of modern technology, it is of great interest to me personally when I notice anything that might negatively impact my clients. During a recent trip to New York City I couldn’t help but notice how much prime retail space was available and I got to thinking about it. I have serviced New York for well over a decade and even during the past few recessions I didn’t recall seeing this number of vacancies. The odd part of it was that we are not even in the middle of a recession now, yet it seemed like every other space was vacant and, as you can imagine, this was alarming to me.

Then a few days later it was announced that both Sport Chalet and Sports Authority were closing all locations and the bad news continued with Nordstrom cutting their outlook, Dillard’s profits drop on weak sales, Kohl’s posts surprise sales decline, Ralph Lauren profit plunges and Macy’s reporting big declines. It usually doesn’t take much for me to put two and two together to observe something was seriously amiss and I started to do some research and quickly uncovered that many experts were pointing their fingers to Amazon and something called “The Amazon Effect”.

Experts and retailers are pointing to the following facts that are painting a clear picture of what is going on:

  • Foot traffic is down because of a broader change in consumer habits.
  • It was thought that Amazon was not going to be able to break into apparel and fashion segment of retail and this turned out to be wrong. Amazon is the second largest apparel retailer in the U.S. behind Wal-Mart and there is less than a 1% difference between them, so Amazon is on track to overtake them too.
  • Kohl’s recently announced they are closing weaker locations and diverting more spending to upgrade their websites and provide options that allow shoppers to order goods online and pick them up at a local store.
  • Nordstrom indicated they already get one-fifth of their sales from the Internet and said it was committing one-third of its capital to investments in technology. On a conference call, Mr. Koppel said Nordstrom was seeing a transformation in its business model, as e-commerce took a greater share, and mall traffic continued to decrease.
  • As traditional retailers have struggled, chains that sell name brands at discount prices have been gaining share. Sales at Nordstrom Rack stores, the company’s off-price chain, open for at least a year rose 4.6% in the period, but much of that growth came from orders placed online.
  • It would appear that Amazon is the new Wal-mart and is the single biggest issue that is or will be affecting independent retailers for years to come. During my research, I came across a few comments from consumers regarding why they feel Amazon is doing so well.
  • Amazon e-shopping experience has no equal. Richly endowed with an incredible range of content and of sizes, colors along with fast delivery and superb intuitive navigation software that is the gold standard for web retailing, why shop anywhere else?
  • The service at Macy’s or Kohl’s is bad. Do they really think that’s not part of the problem? Guys all I want to do is pay and leave. Is it really that hard to man the check-out counters? It’s so painful that we only go when it is absolutely the last option and we always leave saying “never again”.

I quickly determined that independent retailers need to rapidly evaluate their on-line initiative to determine if it is properly aligned with the direction of this new economy. They also need to ensure they have a product mix that is demanded by their target audience. The competition is fierce today and unnecessary overhead is a prime target for retailers to cut like low producing locations. When it comes to investing into an on-line presence it is wise to invest in proper design and marketing programs in order to drive traffic to your site. Of course, if the products offered are not wanted then it doesn’t matter how cool or appropriate your site is.

Taking on Amazon is not impossible but it does require thought, planning, and experimentation in order to find the right mix to compete with them. Before the Internet, it was mostly about location, location, location but today location is obsolete and product mix, easy to find with excellent customer service is key. I wish you good hunting!

*The Wall Street Journal, Suzanne Kapner, May 12, 2016