IoT-4-Retail II: Deconstructing a Retail Mama Dragon Amazon

This is part 2 of IoT-4-Retail. Part 1 is ‘2016 Digital Disruption in the US Retail Industry’

To me a Unicorn is an idea with a potential for growth, to others it is a billion dollar opportunity for funding. Its rate of success works on some unpredictable probability factors. A successful Unicorn, in my world, will become a Dragon. The bad news is that Dragons eat competition very fast by attracting new customers faster, they ride the new digital convenience wave like confident digital surfers. The good news is that Dragons also create a new paradigm wave with their idea that can be replicated, and quite often it’s not the first dragon that actually succeeds. Lose sight of your customer emotions and the price can be heavy if there are better or legal alternatives. Take the case of Napster to Apple ITunes for the illegal-to-legal path, or Taxi ride to Uber in the case of a digital-disruption-path. Take the case of Pandora vs. Spotify for the me-too path. Now the Good and the bad news - the bad news is some Dragons become Mama-Dragons and right now there is no known structured path to overthrowing a Mama Dragon. Mama dragons plan, fund and lay hundreds of unicorn eggs knowing fully well that most of their hatchlings will fail to reach maturity. Each egg is a fully funded start-up idea with a team of resources and some of the world’s best digital pilot's and test beds. Their massive funds create one of the most valuable startup foundations- deep knowledge of what they know will not work. So the more you know about what does not work the closer you get to ideas that might work. Each of their new ideas was an infant egg idea that grew to maturity slowly and when the idea reaches a tipping-point- Wham! Gulp Barnes & Nobel. Wham! Gulp Whole Foods. Wham! Gulp- who next?

It was just twenty-three years ago, on July 5th 1994, that Amazon was launched as a e-book store. This bookstore to digital retailing path has been replicated may time since then. The first eBook order was sold out of Jeff Bezos' garage in Seattle. This e-tailing bookstore soon became a global dragon and has now become, what I define as the mama dragon.

It is just one year after, i.e. twenty-two years ago launch that Amazon sold its first product, a book, on the store. The first site was relentless.com and if you go to that site it still redirects you to amazon.com.

Last year Amazon demonstrated its retail muscle by gulping close to 48% of Christmas sales during the peak Christmas period. Their impact on the US retail business is akin to a digital explosion that is impacting all traditional retail stores and outlets. Read my last blog, 1st line on this blog, on this for specific Christmas details.

On Friday June 16th, 2017 Amazon gobbled Whole Foods in one bite with a $14 billion takeover that immediately sent a ripple 'Digital Shock' across the foods retail industry. The market assumption is a that there will now be a big digital shift with an Amazon trademark, i.e. first they will reduce prices, then they will automate checkouts as they will disrupt the fresh foods market. Immediately Whole-foods, Sprouts and other supermarket shares fell on their predictable outcome. There is also talk that somewhere in the future, 'Amazon Prime' members will be able to walk into a Store, pick what they want and simply walk out of the store. Goodbye checkout lines.

A Digital Bonus: Maybe even a possibility to say goodbye to theft and wastage during transportation. Global theft risk is a very big deal, i.e. a $250 billion reported issue in enterprise transportation alone. According to stats Food is one the biggest items that is stolen across the world, followed by electronics. Food thefts are estimated at around $47.5 billion. Note: In the retail segment theft is estimated at $60 billion and it is not taken as #1 for we feel that food and electronics might be buried in Retail too. So imagine if Amazon can eradicate, to a certain degree, theft from their digital stores then the benefits would be available directly on their margins and prices. They would no longer have to write off the standard percentage to theft, due to that they would not have to mark up prices by a percentage slightly larger than the write-off, due to that they will be able to provide the same products at a lower cost to their customers. If there ever was a win-win-win situation this is it is.

Our Solution: Up until now Transport theft has been an acceptable fact with few alternatives other than having an annual write-off, that could be as high a 2% to 4% of annual turnovers. This financial write-off is then adjusted into the price of the product. Here is a global theft risk map by nation.

 So if you are in transporting anything within or through Mexico, Brazil or South Africa you need to call us today. If you have plants and operations in these countries do the same. If you are in one of the Red countries think about calling us soon. Because, we have a digital solution that can be deployed in a matter of a week on an As-a-Service model which can give you real-time digital visualization of your critical transport items. Within that offer are a bunch of sub offers that can be deployed for any customer that needs help visualize transportation in real-time.

Amazon has already also gone retro by building its first brick-and-mortar store in Seattle. Next in their plans is curb-side pickup capabilities. Next, as mentioned above, is when members can walk into an Amazon store pick what they want and just walk out of the store without having to stand in a line for checkout. Amazon pay will take care of calculating your invoice and bill you directly. This will further reduce costs.

REMEMBER: Success in the Digital solutions is equal to = 'Higher Quality at Lower Price' we have already slashed prices three times while maintaining margins at the Amazon store in this paper alone.

We on our side are now taking a leap forward by taking the initial IoT-4-Retail impact of 2016 and using it to forecast how many additional stores will some of the giants need to close in the foreseeable future. We have still not charted the patterns for the Fresh foods industry so hang on tight there.

Some number crunching

• Online retail sales are growing 15% yoy and now constitute close to 22% of total general merchandise sales (exceptions are gas, grocery (till now), auto and restaurants (Eroding soon)
• Amazon has an online market share of over 40%
• In 2015 Amazon overtook Wal-Mart as the world’s #1 global retailing

Amazon has, and will continue, to single-handedly dismantle familiar retail brands like Sears, Macy’s, Target, Best-Buy and others. They want to play catchup with the Lowes and Home-Depot’s. Somewhere down the line could be the Costco's. Who knows where, and how far this can go.

Barons Financial weekly put it just right "the ones that will win are those that embrace the experiential element, blending technology, physical stores and an (digital) online strategy."

In the words of John Chambers “Disrupt or be Disrupted” that can also be read as Adapt or Die. Our solution to that is to ‘Become the Disrupter before you get Disrupted”

Some hard facts about Amazon

• The biggest disruption did is Amazon Prime. It gives them captive customers that get free shipping, but more importantly it has given them the customer buying habits and patterns. My daughter, when she needs to buy a shoe, orders 3, tries them, selects one and simply returns the other two- all for free. How can you beat that. My wife recently went into Nordstorm as she loves their boots and the stocks at the store were, according to her, quite dismal. Is this the Amazon effect of store shrinkage leading to an inevitable conclusion. By the way she ended buying her shoes on Amazon. This data is most valuable to Amazon and its becoming the mama dragon.
• Amazon is the new wave of Digital Mama Dragons expect more to come. Will Amazon soon become the golden PoT (Provider of Everything)
• In 2015 Amazon overtook Wall Mart as the world’s most valuable retailer.
• The market is scared, is an understatement, of Amazon and what they could do to their industry. If you are an industry leader you may get acquired, but if you are not then you may have to shrink till you burn. Amazon is freezing the brains of a whole lot of CxO's. The solution is to try and not solve the total complex solution in one single plan but to break it down into rapid, agile steps and plan to become the disrupter in your industry. Note: According to history the highest impact is attained by the first disrupter, so plan fast.
• Keep abreast of: [a] Amazon has already taken over Whole Foods and is starting to disrupt the foods industry. [b] Amazon just reported a Nike deal and this could be the start of a Sporting goods digital disruption. [3] The Metro in Seattle are adding new bus routes to accommodate for the Amazon interns. [4] The unicorns may disrupt your industry and then become dragons, the mama dragons could usurp the dragons and traditional leaders with big-bang takeovers

Lessons Learned or Roadmap to ‘Stayin' Alive’,

1. Think Competitive Advantage: Think Digital and enhance your competitive positioning by becoming a digital Enterprise. If you don’t believe that the digital disruption will not impact your industry then either call us today or call us in a few years when things don’t look good at all
2. Decide what business are you truly in: When a customer comes to buy a ? inch drill bit they are actually interested in a ? hole somewhere. Kodak thought they were in the film business but actually they were in the business of images and the digital revolution wiped them out.
3. Plan to Run Simple, and shrink Time to Respond: Customers today cannot wait to get a response and want instant gratification. Website are looking for micro-second response gains as that is the big differentiator.
4. Study a Success Business Case: Like IoT for Automotive. Then use lessons learnt to build you unique disruption model. Start small unicorn cells within your company. Ideate with Design Strategy and leaders who have assisted companies take the digital lead forward
5. Build a Shared Business Future: With end customers and business stakeholders first, mid and last. This is not a technocratic deliverable like your upgrades or migrations of the past. This is a very focused Customer centric, sticky deliverable that must consistently deliver ‘Higher Quality at Lower Costs’
6. Plan to Succeed and not simply spend on the installation of something new: According to Gartner over 70% of these IoT, Big Data and BI Projects will not meet business expectations. That is a soft way of saying fail. Quite early, it is predictable whether the project roadmap, plans and structure will lead to success or failure. You can predict whether it will be failure as a service or success as a service.
7. BI Is the center of the Universe for all things Digital: At the center of successful digital companies is Informatics. Which is Contextual Information, Delivered in Real-Time that is just enough for the consumer- Not too much and not too little. Think the Uber App and see the information delivered in Real time. Remember that we have all delivered reporting, DW or BI projects. According to Gartner less than 30% of these global BI projects actually succeed. I have been writing and curing this dilemma since 2009. My book ‘Bi Valuenomics’ is designed for business executives to mitigate just this dilemma, once again the book is available where but at Amazon. DO NOT use the same rules that got you here as you enter the new world of Digital Excellence. The data flow, the information, the deliver is entirely contextual and needs a new design paradigm.

So leverage the examples given here, secure your enterprise and business and become the disrupter that you can make your company and yourself to become.

Takeaway:

1. Build your digitization charter and roadmap with an end-user centric structured program starting next Monday

2. For SAP customer 'Simplify Decisions and Rationalize Processes' before jumping into open digital waters, as here too there are plenty of Sharks around

Addendum 1: Jun 29,17:  When buyers dictate how and where you should conduct business: The battle lines get drawn and places transporters, and suppliers, in an awkward bi-polar situation. Note suppliers cannot use Amazon cloud to host their business. https://www.zerohedge.com/news/2017-06-28/it-begins-walmart-warns-truckers-it-will-no-longer-work-them-if-they-move-goods-amaz. Is WMT getting desperate, will it hurt them strategically or benefit them. What happens if the trucking companies predict growth from AMZN and a decline from WMT and be willing to pull put of WMT.Is this self cannibalistic desperation or is it strategically sound.

Addendum 2: Aug 10, 2017: Retailers that fail to 'Transparently-Visualize' themselves to their customers are heading down the slippery slopes of Retail. The 10 at risk retailers today. The list is a low hitting list- the author is conservtive. We predict every Retailer you know of today is on this very slippery 'digital disruption' slope right now. We are working with some smaller ones to light up their digital bulbs.   https://www.msn.com/en-us/money/topstocks/heres-where-10-at-risk-retailers-stand-now/ar-AApHBjN?ocid=ientp 

                                                .....--ooOoo--.....

ABOUT HARI GULERIA I VP SAP HANA Business Solutions I PrideVel

Supporting Analytics & Digitization design and decision excellence through advisory & board work.

In our new digitized world of information and decisions Hari Guleria is a globally renowned executive leader in the SAP ERP analytics world, an author and a publisher of blogs and white papers. He is best known for permanently living in the future and partnering with actual end-users prior to designing any solutions that are consistently future compliant. Hari is an engaged, team oriented and actual-user benefit focused global solution leader and has been in startup phases across his many tenures and designated divisions, i.e. in IT, Analytics and building the next generation Digital Enterprise, a perfect fit both for mature global enterprise as well as start-up ideas and companies.

Hari is the author of ‘BI Valuenomics- The story of meeting business expectations in BI’ a book far more relevant today than it was in 2010 when it was published. He is currently working with Bill Inmon the father of Data Warehousing and TR Palle the Global Business Architect at Genentech/Roche to release a new book on ‘Analytics for the digital Era. And another book called ‘Digital Shock’ as a roadmap to digitization excellence

 Hi motto is to deliver “Highest Quality at Lowest Cost”. Hari may be contacted at [email protected]