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Live from (R)Evolution - State of the Retail Union

Marc Lautenbach, Pitney Bowes CEO, Lila Snyder, President, Global Ecommerce at Pitney Bowes, Kasey Lobaugh, CIO, Deloitte and Michelle Grant, Head of Retailing, Euromonitor International share their thoughts on the 'State of the Retail Union'.

Tue Apr 25 21:48:00 EDT 2017
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The Amazon Generation

I remember when Amazon only sold books. I mean, it wasn’t so long ago… just 23 years. As the business that Jeff Bezos started in his garage began generating $20,000 per week (source: Fundable.com), I remember my parents lamenting the loss of the “local bookstore”. I had little understanding of that because, even as a late teen, I had already noticed that the Barnes and Noble on the busy avenue was cheaper than that small store in the center of our hamlet. And then that Barnes and Noble closed and by 1998 Amazon expanded beyond books.

I am part of “The Amazon Generation”. I’m not sure that’s a real thing, or, as my Google search suggests, a term I’ve just coined, but Amazon is the grease in my life’s wheels. I’m a full-time working mother of two growing boys. I have a wonderful husband who also works in technology and we are supported by a brigade of paid and unpaid (my mom) childcare providers, FreshDirect, our local grocery delivery service (until AmazonFresh is available in my area), Zappos (now an Amazon company) and, AmazonPrime, which delivers the next size in shin-guards, the air conditioner filters, the fidget spinners (if your kids do not have them yet, I suggest this glow-in-the-dark one) and everything else my family wants or needs in two days or less. Not two business days. Two days.

Amazon even found me on my flght to Orlando to attend the Pitney Bowes Retail (R)Evolution and I'll be taking advantage of the triple points offer on my return trip on Wednesday.

Live from The Pitney Bowes Retail (R)Evolution, Day 1

We’re kicking off each day of Pitney Bowes Retail (R)Evolution with perspectives on the ‘State of the Retail Union’. 

Moments ago, our CEO Marc Lautenbach began with a “lesson in macroeconomics”. 

“Only 73 of the Fortune 500 in 1963 still exist today,” he said. He explained, that if you look at economic history, that same pattern occurs again and again.  The turbine, the printing press, the internet – new technologies disrupt the ‘current’ business model, unsettle the incumbent and advance business. The strong survive.

Per Marc, “You have two choices: you can embrace the future, or you can put your head in the sand.” The future is uncertain and you need to prepare your business and your business model. Marc suggests reading Thomas Friedman’s new book Thank You for Being Late: An Optimist's Guide to Thriving in the Age of Accelerations (available on Amazon here) for additional perspective.

As we (Pitney Bowes) are in the midst of our own transformation, Marc stressed “culture and the organizational capacity to create value,” fueled by innovation. Marc candidly lamented that as business changes, the norms of your business delivered value are being disruptive.  How you embrace that determines your survival and your success moving forward. To this point, Marc also suggests reading Jeff Bezos’ most recent letter to shareholders.

Marc also suggests business leaders both within Pitney Bowes and beyond embrace the exercise of writing their company’s obituary, as suggested in this recent Wall Street Journal blog. It forces leaders to take a thoughtful look at their business today and understand the choices made today determine the future and, ostensibly, looking to the future, encourages the better choices today.

Lila Snyder, President of Pitney Bowes’ Global Ecommerce business, took the stage next posing and answering the question “What is the State of Retail?”

“Glass Half Full”

73% of consumers buying online and 1/3 of that group buying cross-border.  But even with all the talk of online shopping, the majority of purchases DO still happen in “brick-and-mortar” stores.  “Experiences are drawing customers in to stores”, Lila explained.

We (Pitney Bowes) run a survey every summer around shopping behaviors and we posed a new question this year: “When you travel [abroad] and shop at a store, have you ever gone home and bought something cross-border from that merchant?”  Two-thirds have.

“The experience you have in the store doesn’t just resonate with domestic shoppers, it crosses borders.” Lila continued. “Digital technology is opening up limitless possibilities,” with customer expectations growing and expecting retailers know who they are, where they are and how they wish to be interacted with.

“Glass Half Empty”, but not really.

Lila declares: “Amazon is raising the bar and it’s on us, collectively, to keep up.” It’s on us as commerce professionals to create opportunity and deliver value to consumers where Amazon cannot: understand that retailers are technology companies. Build systems and processes to meet consumer expectations, understanding it runs the gamut – from back office processes to your store floor.  The pace is “exhausting”, but the retailers who keep up are successful.

Lila concludes, “I can’t look at the glass half-empty, I’m not wired that way.”

What is disruption and how do you measure it?

Kasey Lobaugh, Chief Innovation Officer and Retail Practice Leader at Deloitte took the stage next and posited that Amazon is not “the disruptive force”.

He shared a story from an engagement at a traditional brick-and-mortar shoe retailer in 2004.  The head of that company declared that shoes will ‘never be sold online’. And with that, Kasey suggests: “Whatever the conventional wisdom is in your head right now, I want you to challenge it.”

While some say “sales are shifting online”, the 2016 holiday season results showed $12B growth in both brick-and-mortar and online channels. While this $12B contribution meant a higher growth rate in the online channel than brick-and-mortar, the overall pie got bigger. And, in fact, many of these online retailers have physical stores too, so they benefit in both areas and are winning. But, even with a holiday season that was up 4%, the top 20 retailers have actually lost market share.

Moore’s Law

Kasey takes us back to business school and delves in to the application of Moore’s Law (review here).

Do you think that ABC or HBO thing about the niche “Kinder Egg” opening video? You wouldn’t think so, but that video has over 400 million views. Even in retail, new entrants start small, eat up market share.

Walgreens is losing to “Dollar Shave Club”. For every large retailer, there’s a ‘dollar entrant’.

Kasey indicates, “The fundamental problem is not ‘should we be online or shouldn’t we be online?’ It’s ‘how do we compete in a highly fragmented market?’” Pressures of new entrants and price deflation abound, but some retailers have found ways to win in a highly volatile market. Thinking about a continuum of Product Differentiation vs. Experience Differentiation.

What battle are we fighting and who are we fighting with?

Either you’re fighting for “cheaper, faster, easier”, or for differentiation. 

Most retailers are in the lower left quadrant, but technology is directly attacking the idea that access to consumers and distribution are the barriers to entry.

Kasey offers, “You have to be willing to fragment yourself.” If you’re a large retailer, create offerings to compete with niche offerings, but doing so that leverages your scale. It’s not easy, but “if you buy in to the simplistic view of the industry”, you’re effectively bringing a “knife to a gun fight”.

The Amazon Playbook

Michelle Grant, Head of Retailing at Euromonitor International, dissects Amazon’s success starting with culture. Putting their own spin on the ‘company obituary’ writing exercise, Amazon has a practice of writing the press release for a launch before even starting development. Embracing Agile principles, leveraging existing infrastructure, scaling ‘promising experiments’ and opening the infrastructure to others, in 2015, Amazon attempted “2-hour Prime”, now “PrimeNow”, beginning with a single space in one city two years ago and now available in over 30 cities.

Prime ‘lock-in’

Simply, prime members buy more than non-prime. Jeff Bezos has been quoted as saying “Our goal with Amazon Prime, make no mistake, is to make sure that if you are not a Prime member, you are being irresponsible.” And the perks ‘pile up’ – driving loyalty from Amazon’s customers and revenue growth for Amazon.

That said, it’s not all success.  Amazon’s hardware (Kindle, Fire, FireTV, Echo, Dash) are loss-leaders, but they drive media consumption – and purchase – via Amazon.

Creating new Amazon-enabled spaces

Amazon’s latest innovation, the Echo, has brought “Alexa” into our homes and even our cars. Introduced in late 2015, the Amazon Echo enabled a Smart Home with a sleek hub. Amazon invited other companies to develop “skills” for Alexa – “Order a Domino’s Pizza”, “Tell me today’s weather” – thereby extending the Amazon reach to yet another device and into the center of homes.

Amazon is now experimenting with physical retail spaces – “AmazonGo”, “Amazon Fresh Pickup” – now being trialed by Amazon employees, so stay tuned!

The Amazon Effect

Amazon accounts for 45% in the absolute growth in internet sales from 2007-2017, which poses the question, would the whole channel have grown so much if Amazon wasn’t in the space?

Today Amazon has a market cap of $432B.

Embracing disruption

Do I miss the local book store? No, not really. I’m ashamed to say I wasn’t much of a reader as a child, but please don’t tell my kids that. I’m now a loyal Audible subscriber (another Amazon company) and look forward to beach reading the old-fashioned way (paper). I’ve evolved just as business has. And the entertainment of my kids asking Alexa questions is priceless.

 

Follow the action on the (R)evolution Live site.