Managing Director, New York
More gloom descended from the skies in June as retail sales continue to be challenged. According to the Census Bureau's Advance Retail Sales Report, core retail sales in June were largely flat, and most retail segments posted weaker results.1 Sales fell 0.7% at department stores and 1.3% at service stations.2 US shoppers also cut back on spending at supermarkets, as well as on hobbies.3 Meanwhile, non-store sales, including online sales, rose 0.4% in June, a 9.2% year-over-year jump.
Meanwhile, Amazon continued dominating this summer’s headlines by announcing a few days ago that its third-annual Prime Day broke previous sales records by 60%.4 Whether it’s making an acquisition, striking a big trade deal with a major brand, or introducing a new product or service, Amazon will never stop innovating and taking risks. Amazon’s assortment and growing list of offerings continue to attract new customers, and its massive infrastructure helps it execute with speed and precision. And we can complain about the financial “pass” it’s getting all we want, but that’s not going to change. Investors are betting on an Amazon future, and customers now expect the services that Amazon pioneered from all their retailers, not just Amazon.
As Amazon continues to raise the stakes, retailers are struggling to figure out how to compete. Shockingly, we still meet with retail boards and CEOs who say, “my category is Amazon-proof.” That’s laughable.
So, do we just throw in the towel? Of course not. But is out-competing Amazon a strategy? Not on your life. Even if a retailer somehow managed to innovate in a way that Amazon has not, how long do you think it will take for Amazon to copy it? Prime Wardrobe just made fitting rooms obsolete for goodness sake!
In our view, the only strategy is to bite the bullet and copy Amazon on the dimensions that affect your specific channel. That will require a radical rethinking of the traditional retail P&L, but it can be done. It must be done.
To win over the long term, each retailer must make the tough choices and double down on a few value propositions that truly matter to their customers. This requires building an extensive and permanent capability around analytics and insights. This capability is the new “Merchant Princess,” and in many ways it’s even more important than even the best merchants were 20 years ago.
Some of Amazon’s bets
Amazon is ruthless about innovating and adding value to the consumer. Some of these services include loyalty programs, cheap and speedy delivery, low prices, unique assortments, and easy returns. None of these concepts are new, and yet, many retailers still fall short on the table stakes. We reviewed 25 leading retailers’ capabilities and found that many are still not on par with Amazon in several areas (figure 1).
For example, only two of the retailers analyzed offer free two-day shipping, and only eight offer free returns by mail—services that feel synonymous with Amazon Prime. Competitor price matching also came out near the bottom of the list, which increases the importance of flawlessly executing current pricing competitiveness strategies. This will be expensive—but that’s where radically restructuring traditional retail P&L comes into play. It may not be practical or financially feasible for every retailer to differentiate themselves on all these offerings. But our experience suggests that they need to be at least on par with Amazon on many of them to build a solid foundation for future growth.
Upping the ante
Getting on par with Amazon will not be enough to return to growth, but it will help stop the bleeding of customers, and it will buy time to figure out how to differentiate on the dimensions that matter for each segment and channel.
Savvy retailers are stepping back, taking a hard look at their core customer value propositions, and deciding whether to redouble efforts to deliver on those propositions, or pursue a core-value reset. Starting at the c-level, they must go back to basics and ask themselves questions like, "Why do our customers shop with us?" and "Do we deliver on the capabilities that customers expect from us?" as well as "How can we simplify and focus?"
Too often, the answers to these simple questions differ within the same company, even among c-suite executives. If it’s difficult for a retailer to answer these questions internally, then its customers are likely having trouble understanding why they should open their wallets for that retailer.
The benefit of doing a core-value reset is two-fold. First, it prompts a retailer to explore what is truly important to their core customers now and in the future, rather than assuming needs haven’t changed over time. Second, it aligns the organization, at all levels, on where the retailer is today and where it wants to go in the future in five key dimensions: price, product, experience, service, and access.
From our experience, retailers that are misaligned on any of these risk inefficient execution. In addition, retailers that try to win on all these areas simultaneously risk trying to boil the ocean and suffering from unclear priorities within their organization. Instead, using customer insights, retailers should select one dimension they want to dominate on, one where they will differentiate, and then strive to be at par on the remaining three.
After a retailer analyzes its value propositions and decides on its path forward, it should reassess its ability to execute on that proposition by asking the following questions:
By evaluating whether they are on par with Amazon’s table-stakes capabilities and ensuring they are executing on a clear and convincing value proposition, retailers can better position themselves for success heading into this holiday season and beyond.
For our complete data pack of retailer and macroeconomic data including many of the key economic indicators discussed above, please contact firstname.lastname@example.org.
1 Seasonally adjusted June retail sales exclude motor vehicles, gas, food services, and drinking places.