Retail location strategy

Amazon: The biter bitten?

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The various theories built around the concept of the wheel of retailing seem to be bearing fruit in the case of Amazon. In November it opened its first ever physical retail store outlet in Seattle in the USA. On the face of it, this would appear to be a contradiction in terms. Amazon has been the “trailblazer” in the area of online retailing and has set the standard for others to follow. Retailers across the different categories have embraced “e-tailing” as shoppers appear to flock to this channel. Now the circle has turned full circle: rumours indicate that Amazon might open over 400 stores in the USA alone, in the coming years.

Retailers such as Waterstones are expressing concern at the likely impact that such physical stores would have in the UK market.

Why the about turn to this strategy? For years Amazon has never physically met any of its customers. Instead, due to the power of the “big data” that it collects on the purchasing patterns and habits of its customers, it has been able to provide a value proposition that is customised to individual needs. It has involved its customers in the process by encouraging them to post reviews of books, movies and other product categories. This has been of enormous help to others in determining what items they should buy. From a marketing perspective it also provides the opportunity for Amazon to “shape” and direct its customers to particular purchases. Why should they revert back to the traditional way of selling books and other complementary products? Especially when it would appear as though opening physical outlets will add to the overall cost of the value proposition and potentially make it less price competitive?

Initial evidence would suggest that Amazon is attempting to harness the detailed data to provide a store experience that is more attuned to the preferences and requirements of book purchasers in particular. The Seattle store highlights books that have received top ratings and reviews on the online channel. Thus it can be argued that it provides shoppers with a pleasant in-store experience that is built around items that are relevant to them.

It also has long moved away from being a simple bookseller: books make up a small percentage of its overall product offering on the web. It can be argued that opening some bookstores will have a negligible effect on its overall sales on the online channel.

Amazon will be attempting to change the face of physical store book selling. For instance shoppers can choose a book and leave the store without have to pay for it at a checkout desk. Technology will ensure that the amount charged for the item will be automatically transferred from the customer’s account to Amazon.

Maybe Amazon are not going “off the rails after all”. There is evidence to suggest that sales of paperbacks and hardbacks are increasing in the UK (Retail Week). This is the first time that such an increase has been tracked since 2012. One of the largest booksellers in the UK: Waterstones, increased the number of stores over the past two years. It is worried about the likely arrival of Amazon to this market.

How are we to assess this development? Perhaps it reinforces the importance of retailers increasingly moving to an “omni-channel” approach; where shoppers can in theory benefit from an integrated and seamless experience across different retail channels. I would welcome some comments on this move by Amazon. Over to you!

Somebody has to pay

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Perhaps the benefits of shopping online are about to decrease. Recently in the UK, retailers have begun to address an issue which was always there under the surface but has not been really addressed up front. I am talking about the costs of shopping online.

Shoppers, in their droves, have embraced the concept of online shopping in recent years. To such an extent that many retailers are seriously questioning whether or not they need so many physical stores in order to conduct business. The perceived benefits of shopping online are based around the belief that you will get a better deal in terms of price if you purchase from an online retailer.

Amazon, perhaps the pioneer of online shopping, seriously challenged established retailers in the bookselling and music business. Those that have survived have had to redesign and reconfigure their business models in order to ‘stay afloat’.

However, one of the biggest challenges facing retailers who operate online channels is that of the cost of transportation and delivery of orders to customers. It places great strain on their respective supply chain strategies and structures. Many of them, seduced by the exponential growth in demand for online channels, have steered around the issue of the costs of delivering orders.

This however is changing. In the last few months, large retailers such as Amazon, John Lewis, Marks & Spencer, Sainsbury’s and Ocado have reviewed their approach to managing such costs and have introduced an array of different methods to deal with the subject. The common denominator in all of these initiatives is that the shopper will have to pay more for delivery.

These initiatives include shoppers having to make a minimum purchase order before they receive free delivery, or no free delivery at all and charges decreasing only as the spending on a particular order increases. Other retailers apply a time slot to the delivery: people pay more at peak times during the day and less, when orders are delivered during quieter periods of traffic. The latter point is very relevant in the context of delivering orders in major centres of population.

Another initiative involves shoppers being asked to make an annual subscription payment (e.g. around £50 per year). In return, they receive ‘free’ delivery. In some cases, shoppers are finding that even with the subscription fee paid, they still have to make a minimum order in order to receive the free delivery.

Forgive me if I am being cynical, but are we seeing the beginning of a complex problem being created by retailers?

Nobody is naïve enough to assume that retailers will blithely ignore the costs in their ever-ending quest to offer lower prices. However the bewildering array of initiatives being introduced is in many ways similar to the price tariffs that have been introduced in other sectors such as utilities and mobile phone companies. In the latter cases, the end result is that most consumers become confused by the jargon and the complex way in which the prices are determined and presented to them. Consumer groups such as Which also expose many of these companies for deliberately creating confusing and misleading tariffs such that the consumer ends up paying higher prices than are actually available, if people have the time and ingenuity to discover them! The next time you need to travel from one city to another, contact the rail operator for your region and you will experience this feeling of frustration and cynicism.

I would welcome comments and contributions on these questions.

Should retailers incorporate the costs of delivery into their overall pricing? This would avoid the situation where shoppers perceive the costs of delivery as being “extra” charges, over and above the price.

How do they keep the charges simple and transparent?

Do they have to make any apology for introducing these charges? After all, shoppers surely cannot expect such services to be provided free of charge?

Can we learn from any other sector?

How do they avoid being perceived as greedy?