Is Jeff Bezos Darth Vader of Retail Industry?

Retail Apocalypse? Yes, If All You Do Is A Poor Imitation Of Online Competitors

“It’s not the biggest, but the most curious & the most open-minded retailer that survives” – Oleg Feldgajer’s Theory of Retail Evolution

BROAD STROKES GIVEAWAY

Retail bankruptcies, and predictions about the imminent demise of big-box retailers – have reached almost apocalyptic proportions. The good news is: the Retail Industry is not alone! Similar disruptive changes are affecting other industries, too.

Instead of feeling sorry for yourself, start listening to people who are able and willing to help. The trick is to focus on a big picture – and not to get caught in too many numbers. After all: Blockbuster, Kodak & Nokia had strong accounting departments for years!

To succeed in today’s competitive market, retailers must take steps to increase visibility and to further enhance the emotional side of their brand! No, it’s not enough to add a slew of online tools - to look like Amazon.

As IT and Artificial Intelligence are redefining consumers’ habits - shopping for food and groceries receives its rightful attention. So, what do all the big-box retailers do? They try to look alike and deal with the competition by rushing into costly acquisitions.

Instead, their focus should be on how to redefine the problem, move away from a devastating race to the bottom, and create a much bigger growth opportunity - while at it.

If Walmart just tries to be like Amazon, it will lose 70% of possible revenue streams. So, instead of needlessly competing for a slice of remaining 30% - I advise companies not to fall into such a trap. Instead, they should be adopting what I call: The Push, The Pull & The AI Bull? revenue strategy.

In addition to the Push-Only approach, I recommend generating huge secondary and tertiary revenue streams. Such a strategy is scalable and sustainable - and as a side-bonus, you also get an option for revenue smoothing.

Also, don’t forget that most big-box retailers are a part of established shopping centers. Considering that shopping centers, as a whole, generate much bigger foot-traffic than individual tenants – smart retailers can take advantage of such factor endowment!

So, my message to many shopping center owners is as follows: stop thinking of what tenants can do for you, and start thinking of what you can do for your tenants!

PROBLEM

According to Daniel Kahneman, Nobel Prize winner in Behavioral Economics, losses are twice as important, as gains - in moving the action needle. This is what you can find by digging inside his Prospect Theory.

So, it’s not surprising at all, that retail bankruptcies and predictions about the imminent demise of big-box retailers – have reached almost apocalyptic proportions. It took me less than 5 seconds to find some of the most worrisome headlines on Google – pertaining to the retail industry:

?        “The rise of Internet shopping and the growth of off-price retailing are mega-trends reshaping the retail industry”

?        “Traditional brick and mortar retailers must look at their business structure and decide where to cut administrative staff, and which stores to close, in order to survive”

Similarly, pwc shows that 52% of shoppers are likely to buy from offshore online retailers. Such trends are further supported by Private Equity financing, which fuels the ever-growing acquisition appetite of e-commerce participants. Ouch!

Recently, I was asked for an opinion on this very subject by a $400MM/year retailer - selling outdoor gear, clothing, and services. With all the negativity around, it’s easy to get overwhelmed and lose the BIG PICTURE. Their BOD is rightfully concerned!

The good news is: the Retail Industry is not alone!

Similar disruptive changes are affecting other industries, too:

·       Utilities – and their squeeze by Distributed & Renewable Energy plus Storage, resulting in $trillions of stranded assets being written off. I wrote about it in many posts, including Branding & Rebranding Utility 2.0 - The Times They Are A-Changin'

·       Telcos & Cable Industry – experiencing unprecedented churn from cord-cutters and VOIP services - kissing long-distance charges, goodbye

·       Automotive Industry – already facing LEGISLATIVE threats in so many countries. Not a day goes by - without hearing of yet another authority mandating EVs, and disallowing combustion engines in the next 20 years. And I'm not even talking about the impact of AI & Autonomous Driving Vehicles on car manufacturers

·       Music & Big Movie Studios – being all threatened by content produced and distributed directly to consumers by Apple, Netflix, and Amazon, etc., etc.

Should I go on? All such industries are afraid to see their Kodak Moment – the same way Retail Industry is. So, instead of feeling sorry for yourself, start listening to people who are able, and willing to help!

The trick is to focus on a big picture – and not to get caught in too many numbers. After all: Blockbuster, Kodak & Nokia had strong accounting departments for years!

Look on the bright side: according to Forester, online sales in the United States are expected to reach $523 billion in the next five years, up 56% from $335 billion in 2015. That’s HUGE! No matter the size of the actual markets – a rising tide lifts all boats!

Retail AND Online industries will all have to face Internet of Things (IoT) realities and master Artificial Intelligence (AI) applied toward Business Intelligence, Product Information Management, Supply Chain Management, Customer Experience Management, etc., etc.

So, does it all boil down to creating a better customer experience?

In short: yes! To succeed in today’s competitive market, retailers must take steps to increase visibility and to further enhance the emotional side of their brand! No, it’s not enough to add a slew of online tools to look like Amazon. The writing is on the wall: you’ll be joining Toys “R” Us, Payless, Sears, and Radio Shack - if your value proposition is not 10x better than Amazon Prime’s!

All big-box retailers, including Walmart, need to embrace the necessity for differentiated positioning – offering unmatched authenticity! But things are even worse for retailers much smaller than Walmart. Such are facing problems from both ends: online pressures from Amazon entering the high-end of the market by acquiring Whole Foods, AND cut-throat competition from Walmart - trying to do the same, at the low-end.

As IT and AI advances redefine consumers’ habits - shopping for food and groceries receives its rightful attention. Your competitors are all trying to look alike. In addition, they deal with the competition by rushing into costly acquisitions. My message: instead of doing what you’re doing, your focus should be on how to redefine the problem, move away from a devastating race to the bottom, and create a much bigger growth opportunity - while at it.

Amazon did it! While profit margins from selling groceries are EXTREMELY low & hover between 1-3% - acquiring Whole Foods brings new, and much bigger revenue streams to Amazon. Such higher margins are linked to Amazon Web Services (AWS).

Did you really think that following Amazon’s acquisition, Whole Foods is going to outsource its cloud-based logistics to IBM?

And that translates into additional $billions and VERY HIGH MARGINS added to Amazon’s bottom line. Simply brilliant!

Unfortunately, the fear and uncertainty linked to digitization often hides and obscures realities. The fact is: it’s not technology innovation, but the exponential increase in value offered to buyers – that makes all the difference.

SOLUTION

If Walmart just tries to be like Amazon, it will lose 70% of possible revenue streams. Instead of needlessly competing for a slice of the remaining 30% - I advise companies not to fall into such a trap. Instead, they should be adopting what I call:

The Push, The Pull & The AI Bull? revenue strategy.

In addition to the Push-Only approach, I recommend generating huge secondary and tertiary revenue streams. Such a strategy is scalable and sustainable - and as a side-bonus, you also get an option for revenue smoothing.

Also, don’t forget that most big-box retailers are a part of established shopping centers. Considering that shopping centers, as a whole, generate much bigger foot-traffic than individual tenants – smart retailers can take advantage of such factor endowment, too!

So, my message to shopping center owners is as follows:

Stop thinking of what tenants can do for you, and start thinking of what you can do for your tenants!

Mitch Goldhar, the man behind the phenomenal success of Smart Centers - said it the best: “Retailers didn’t put themselves out of business, landlords did it for them”. And nobody wins, when Sears or Target leave your premises for good!

Over the last 12 years, I’ve been passionately advocating the wisdom of Blue Ocean Strategy. As a result, I frequently mentioned such strategies to various BODs & Advisory Boards. Recently, BOS authors elegantly commented on Fear, Uncertainty & Doubt of retailers being Amazoned! They’ve said:

“Our question is: “Is Amazon dooming retailers or are retailers dooming themselves?” Because when you look at retailers today – say department stores in the U.S. – and you remove the signage, you’re not going to know if you are in a Bloomingdale’s, Lord & Taylor or Saks Fifth Avenue. Moreover, if you look at those organizations today versus 30 years ago, they look virtually the same. It’s because they are focused on competing within the industry instead of creating, which is what Amazon is doing. So while Amazon may be accelerating their demise, these retailers got on that track all by themselves”

When asked, what retailers should do considering devastating e-commerce/online competition, the authors replied:

“First make creating, not competing, their key strategic agenda. Without it being their number one priority, they are not going to move the needle and get out of the shrinking red ocean they are in. Too many companies spend 90 percent of their time worrying about reality and only 10 percent doing something about it. That is not a formula for success. It needs to be the other way around. Next, they need to get super-clear about the current state of play. They need to wake up. Many organizations are living in an illusion; they’re in the past”

“Imitation is not the path to the future. The best defense is an offense. And the best offense is creating new markets that open new value-cost frontiers. So, the way for retail to succeed is to stop competing head to head, and certainly not to imitate Amazon. It’s to shift and start creating. When companies do that, they will build a strong future”

An innovative mindset is the first step to take in order to avoid red oceans of intense competition!

“Being competitive is a great thing. But the path to being competitive today is very different from the path in the past. Competing works when demand outstrips supply because there’s a lot to gain by beating your neighbor. But we’re no longer in that world. That’s the past. Today, supply exceeds demand in virtually every industry. To move forward and be super-competitive, companies need to create. They need to open new value-cost frontiers. That’s what unlocks new demand. That’s what allows us to seize new growth and thrive"

IN CONCLUSION

As challenging retail transformation is – remember this: it all starts with being open-minded to outside advice and ... staying curious. 

Venture Capital (VC) industry used to be a closed-minded community, too. To get your foot in a door, you needed an introduction from a “trusted” intermediary. Not anymore. Cold calls are back. Suddenly, such are acceptable and ….welcome!

No surprise there. Just look at the scathing report by Steve Blank, documenting how during the last 10 years, VCs lost their control over unruly founders. It didn’t happen in a vacuum - but rather due to Silicon Valley’s tunnel vision and greed.

The next 10 years are going to be even more challenging for VCs - due to the growing popularity of Crowdfunding platforms, ICOs, and the growth of Corporate VC. Smart VCs are open to outside advice – and you should be too!

Retailers: don’t let it happen to you. “Stay hungry, stay foolish” – Steve Jobs.

Oleg Feldgajer is President & CEO of Canada Green ESCO Inc. Oleg is positioning the company to become a leader in financing AI-enhanced green energy projects and ventures. CGE’s mission is to guide DISRUPTIVE businesses in ENERGY & TRANSPORTATION toward profitable business models. Oleg is passionate about such a mission, and firmly believes that without AI-based innovation, we will all prematurely choke on polluted air and dirty water. CGE delivers 100% financing (levered and unlevered) to its clients - and utilizes large equity pools, and non-recourse debt. Oleg offers creative, fresh ideas to open-minded businesses - that embrace both: logic AND opportunistic intuition. CGE stands against mediocrity & its modus operandi is quite simple: If CGE is not invited to join your BOD or Advisory Board – we failed!