Latest Should Make Us All Nervous

McKinsey recently issued another must-read paper for retail technologists.

I urge you to spend time with the chart on slide two. Serious, what-do-we-do-now time.

Seven core value propositions are listed for the store. These are the value propositions through which brands differentiate themselves, that win and lose retail shoppers.

In McKinsey’s opinion, Amazon has conquered the first four of the value propositions and is fast making in-roads on the fifth.

As we enter 2018, here’s what it means – and what we must remember:

  • Amazon (and fellow market-shapers Alibaba and now define the operational benchmarks of retail, including the operational benchmarks for the store.

That entails pricing, assortment, ease of transaction (especially ease of transaction), fulfillment and unified commerce options, access to decision knowledge (such as ratings and reviews), and returns.

For today’s retail shoppers, it simply does not matter if your operational performance is faster-cheaper-better than the other brands in your segment. If it's slower-less effective-less efficient than Amazon’s – and increasingly, Amazon Prime – it’s perceived as a negative by your customers.

But that doesn’t mean it’s white flag time for brick and mortar brands.

  • Although Amazon and Ali are defining operational norms, there are multiple winning opportunities for brick-and-mortar brands within McKinsey’s top four value propositions.

Yes, Amazon can reach 91% of the US population in one day. That’s their advantage today. But tomorrow, last mile efficiency will be measured in not days, but minutes. Which means that wide-ranging networks of brick and mortar locations that also function as fulfillment centers will provide an edge.

Keep in mind that Amazon spent more than $16 billion in 2016 on outbound shipping and there are brick and mortar brands – Target, as an example – whose stores are within ten miles (generally 30 minutes or less) of 85% of all US homes.

And yes, Amazon stocks more than 370 million products. But the research shows that an endless aisle can also be the aisle of exhaustion – and abandonment. Lidl and others have shown that narrow assortments of high-quality win, recurring revenue, and lasting brand affinity.

  • Study value propositions six and seven. Closely. The paradox of multi-channel retailing is that as the percentage of online transactions rises so does the value of in-store expertise and advice.

Recent primary research shows that retail shoppers who seek entry-level explanations and usage advice and explanations are increasingly drawn to stores. They need someone who can translate specialist vocabularies into everyday language—to explain what’s best to buy and what goes with what.

It’s why a large portion of your operational line for labor is no longer an expense, but a shopper affinity investment—one far more valuable than promotions. And it’s why today’s rapid advances in artificial intelligence will make chatbots a highly scalable way to deliver detailed expertise.

It’s Darwinian evolution. How short are your arms?

We’re not in an era of Retail Armageddon. Far from it. For those with eyes to see, it’s clear that we’re in an era of merciless Darwinian retail evolution.

And the meteor has hit the planet.

Tell me what you think. Find me on LinkedIn or Twitter.


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Jon Stine

About Jon Stine

Global Director Retail Sales at Intel. Jon Stine leads Intel’s global sales and strategy for the retail, hospitality, and consumer goods industry sectors. His CV includes leadership of North American retail consulting practice for Cisco Systems, and a prior stint at Intel, where he founded the company’s sales and marketing focus on the retail industry. His perspective on technology’s value in the industry has been shaped by advisory and project engagements in the United States, across the European Union, and in India, Australia, and the People’s Republic of China, and from 15 years of executive sales and marketing experience in the U.S. apparel industry, working with the nation’s leading department and specialty stores. At Intel, his current areas of research and engagement include the future of the store in this new digital age; how and where retailers turn data into competitive advantage; the role of technology within the new cross-channel shopper journey, and, the critical business and IT capabilities that industry success will demand going forward.