Who's Really Paying the Freight for Amazon's "Free" Shipping?

A recent study by consulting firm Shipware LLC documented the commanding advantage Amazon has established in shipping. The "big shippers" - so-called Mega-Retailers like Amazon, Target & Wal-Mart - get dramatically more favorable rates from carriers such as FedEx and United Parcel because their volume is "guaranteed and predictable." 

As a result, the costs absorbed by the Mega-Retailers to provide "free shipping" are breath-takingly less than those for their smaller competitors.
Shipware estimated the shipping costs that would be incurred by each type of merchant to ship a 10-inch square box weighing 3 pounds from New York City to a suburban residence in Atlanta.

But are the shippers relying on this "guaranteed and predictable volume" to offset the discounts they offer? Or, are the shippers looking to their smaller customers - with far less negotiating power - to bear a disproportionate share of the costs?

  • For the mega-retailers, free shipping drives tremendous volume (and customer loyalty) while also enabling greater and greater negotiating strength with the shippers. A powerful dynamic: the big get bigger.
  • And for the smaller merchants? Matching the mega-retailers' online prices and absorbing the "free" shipping costs are much higher hurdles. They represent the opposite but equally powerful dynamic, the downward spiral....

Will there be any relief for the Small-Medium Retailers as Amazon grows its own shipping fleets? That is, faced with reduced volume from Amazon, might FedEx and UPS be more willing to offer better rates to all the other customers?  

SIgh. We wouldn't count on it.  

Or, given this huge discrepancy in costs, might other shipping services emerge to fill this vacuum? Perhaps consolidaters of some sort? Or...???

"Smart Appliances". Smart for Who?

The Internet of Things (IoT) – all the web-enabled devices for the home – is a dynamic and fascinating arena. One of the latest devices is the Family Hub, the "Smart Refrigerator" from Samsung. 

The Family Hub has 3 cameras inside the fridge and a 21 inch touchscreen on the front that connects to the web. Samsung says they want to move your refrigerator beyond storage, and bring your kitchen into the digital age.

For that, the Family Hub comes complete with...its own family! (And you thought it was about your family.) It's all about the "home shopping vertical." 

So, when you wonder (or are being asked), "What's for dinner?", the Family Hub has lots of partner-enabled help for you. 

  • First, you can look inside your refrigerator – from anywhere with an internet connection – and see what’s in it right now, including expiration dates.
  • Meanwhile, the Groceries by MasterCard app has been studying your habits, and offers a grocery list of suggestions on specific items and brands.
  • AllRecipes has recipes, cooking tips and suggestions for you (complete with shopping lists).
  • Others in the household have been adding to the grocery list too.
  • Once you approve your shopping list, items are added to a cart at a FreshDirect or ShopRite location, the payment is processed by the MasterCard app, and the groceries are delivered by Instacart.

Whew! It's giving a whole new meaning to "food chain", isn't it?

Our questions: Are these smart fridges - and all their connections - really cool? Or, really chilling?

  • Is this a time-saving, technological break-through? The perfect blend of technology, merchandising, and convenience for today's consumers?
  • Or, despite the amazing connections the technology can allow, Is it even solving a real problem?
  • Meanwhile, as with all these technology advances,  who actually will own all the valuable data these smart refrigerators are collecting? 

It will be fun to watch, for sure. 

And who knows? With the web-connected video screen on the refrigerator, the Family Hub may give a whole new meaning to “binge watching”!!

In-Store Customer Analytics...from the Ground Up!

"How do you do analytics in such a way you don't become creepy?" asked Jill Standish, Senior Managing Director of Retail at Accenture Consulting.

And her answer? A technology that looks at the shoes of customers as they walk in the store.

"You can actually get a lot of pretty accurate demographic information about the customer based on their shoes, such as their age, whether they are male or female, and even their income status. And it's not that intrusive, unlike facial recognition." 

Revealing "Foot Traffic"

That got us wondering: even without that technology, what might you be able to learn about your customers by looking at their shoes?!

  • For example, with just the camera on your phone, get some pictures of the shoes on the shoppers entering your store. Then, take pictures of the customer's shoes at your cash wrap counter.

    Now compare those sets of pictures. How much consistency is there between the folks coming into your stores, and the ones actually buying from you?

  • Considering a new location? Or a different location in a mall? Supplement your research with some "ground up" analysis. What can you discern about the "foot traffic" available in that new location? And how well does that match up with your present customers?
Intriguing, isn't it? It won't take much time, or even an investment in technology. (And it might be a great project for one of your newer and/or younger staff members.) You will undoubtedly find some surprises – and more opportunities!

Just a little time and effort can reward you with some revealing and useful insights. All free, too! One more way that independent retailers can work smarter, not just harder.

Update: The Amazon Tsunami

No matter what segment of retailing you are in or what merchandise you are selling, every retailer is keeping a wary eye on Amazon. As we sure do. 

But, the Thursday, April 7 edition of The Wall Street Journal had an update on Amazon that, once again, can take your breath away: "Amazon’s Fashion Secret: Full Price", by Suzanne Kapner.

According to Kapner: “Dozens of brands now sell directly to Amazon, including department store stalwarts such as Nicole Miller, Calvin Klein, Kate Spade, Lacoste and Levi Strauss. And, just recently, Ralph Lauren shoes."

Why is this happening? For brands, Amazon offers growth – now without having to discount – at a time when department store sales are sluggish. 

Indeed during one 21-day time period (Jan. 28–Feb. 17), “Including sales by third parties, Amazon had higher average prices than Macy’s and Kohl’s on 69 items of women’s and men’s clothing and shoes.”

Of course, some department store executives still cling to the idea that Amazon will not be prepared to deal with returns. Hmm. Amazon has proven time and again that operational and logistics issues are not a deterrent.

Moreover, Kapner reports, “Amazon has advantages [for the brands] that traditional retailers are finding hard to match, including analytics data that help brands target shoppers by letting them know which styles and sizes sell best by region, and more sophisticated pricing.”

Ahh yes, “dynamic pricing”. Amazon’s unmatched analytics (and algorithms) allow much more responsive pricing than department stores.  For Amazon, price changes occur online, without having to be matched in hundreds of stores across the country. 

In fact, during that same 21-day time period, “Amazon changed prices 9.2 times on average per item, while Macy’s changed prices 2.1 times and Kohl’s did so 1.5 times.”

"Of course, Amazon will not depend on the brands for its growth; it is making many other inroads into fashion. It has acquired online sellers of designer brands, hired talent, launched a flash sale site, improved its presentation (its photography studio in Brooklyn creates magazine-like spreads for its site), created its own private-label products, and launched a live fashion show that streams each evening on the web."

But the key value persists: Amazon continues to relentlessly seek and capture the real prize, more and more customer data. Their stated goal: "turn the art of retailing into the science of retailing."

Can this tsunami be thwarted? Hmm.

Well, others have been. Think Kresge, Montgomery Ward, several "big box" specialty stores, many department stores, Sears, now maybe Wal-Mart. 

Stay tuned......

The Lure of Retailing for Manufacturers

According to a recently published eBook by Channel Advisor*, branded manufacturers are wondering: "Should we complement the traditional model of selling solely to wholesalers and retailers by selling directly to consumers?"

And the encouraging advice offered to these suppliers by Channel Advisor?
  • "The short answer: Yes, you should."
  • "Luxury brands, apparel brands, household product brands – they're all joining the party."
Meanwhile, The ROI's recent survey of retailers (see all results here) confirmed that manufacturers are seizing this opportunity. Indeed, this prompted some retailers to write:
  • "We need less on-line competition from our vendors." 
  • "Vendors selling directly to the consumer is a huge problem." 
No question, this is a sensitive issue for retailers, and often a frustration

But is it really a problem? 
    Keep in mind that, over the years, many manufacturers have tried it and failed. Not all, but many. They think that retailing looks so easy! 

    But, success in retailing requires a special mix of skills that very few manufacturers can accumulate.
One seasoned specialty store retailer we know exclaims, "Whenever someone says to me they want to open a store like mine, I say 'Great! You should do it!'"

Why so encouraging? He knows that only the pros can make retailing look easy, and work well.

Perhaps those manufacturers tempted to heed Channel Advisor's advice should also be reminded of this old saw: "The best way to make a small fortune in retailing? Start with a large one!" 

Manufacturers selling direct to customers is a genuine frustration. But.... 

*"Branded Manufacturers: Should You Sell Direct?"
Channel Advisor eBook

The Case of the Missing Customers

We're heard from several very experienced retailers this past week that sales and in-store traffic have just dropped off since early February. Altogether spooky.

Indeed, 6 out of 10 respondents to our recent survey of retailers reported that customer counts (transactions) are down so far this year.

What's going on? Where are the customers? 

We can only speculate, but our suspicion: the 2016 Presidential campaigns continues to dominate the news in unprecedented and relentless fashion. Every day, the news is full of more uncertainty and disruption. 

And this democracy-in-action upheaval is taking a toll on retailing. This year, there is no "business as usual"!

  • In a nation whose favorite spectator sports are auto racing and football, it's no wonder that this politcal spectacle has commanded our attention: When and where will the next collision occur?
  • In this case, a "collision" is, distractingly and potentially, a major change in how our country is run, and how it is perceived around the world.
In fact, it seems to us that no "news item" in recent history has ever been more captivating. It not only is being watched; it is being stared at, mouths agape! 

Our hypothesis: You bet, most customers are distracted. And concerned. And spending less confidently. Aren't you too?

Your Shoppers Deserve to Know You Better

We hear it over and over. "Good business citizenship" matters to shoppers. They vote with their feet, their wallets, and their hearts, and increasingly choose those retailers who "do the right thing", whether it's how they source product, hire and pay employees, reduce environmental impacts, etc.

Followers of The Retail Owners Institute® know that one of our beliefs is that "Retail is a mirror of society."  And independent retailers, especially, are often in the forefront of "good business citizenship".

So, why not let your customers know?  As Joe Kefauver wrote in Retailing Today*:
  • "Is there a fun way to let people know how many employees at a certain location have gone from entry level to a management position?
  • "Can a company creatively communicate how many volunteer hours or non-profit dollars a certain establishment contributed to the community over the past year?
  • "How is a given unit and its larger company talking about the use of its culture of opportunity to help leaders in a city solve problems?"
These are the things that independent retailers do day in and day out, without perhaps even realizing how special they are!  And especially in today's world, these are your competitive edge!

  • Many of you are using social media to promote sales events, new product arrivals, etc.
  • You already are finding how to convey your store's personality when it comes to your merchandise.
  • Why not also use it to share how you do business? That is what increasingly matters to your customers.
  • As a retailer, you likely are one of the civic leaders in your community. It's okay to let people know.

* "What retailers can learn from Uber's playbook", Guest Viewpoint by Joe Kefauver. Retailing Today, February 3, 2016.

About Those Wal-Mart Store Closings

Perhaps you also have noticed the recent announcements that Wal-Mart will be closing 269 stores, 154 of which are in the U.S. In several breathless pieces about this announcement, much attention was focused on the negative impacts the closings will have on their respective communities. Perhaps so.

Maybe the spirit of The Retail Owners Institute® is misguided, or we're looking through rose-colored glasses, but we can see opportunities galore! Consider this:
    For every $1 million in sales that a closing Wal-Mart was doing, there's $500K of volume for each of two new or expanding merchants. So, closing a $10 million store might sprout 20 small businesses right down old Main Street!
    In most communities, there are several good merchants already. We can imagine those folks stepping up quickly to help fill the vacuum a closed Wal-Mart created by adding stores without adding much administrative overhead. One good bookkeeper can handle more than one store. Same with POS systems, for example.
    Or, a Wal-Mart closing can prompt new retailers, who can take advantage of the many in-the-cloud resources to reduce admin costs and introduce new retail concepts to a community.

Take That, Chicken Little! The Sky Is NOT Falling!

See, there well could be great opportunities out there. At least for those who are not distracted by the negativity. And retailers, more than most any other group of business owners, are incredibly optimistic. 

Before You Ask About the Economy....

Like us, many of you are watching with concern as the U.S. stock market starts the year in free fall, and the media pours kerosene on the fire. Additionally, the commercial world is wondering if China’s more modest growth is an aberration or the new normal.

For owners of retail operations, who were smashed by the recent Great Recession, these dark clouds are not welcome at all. And if consumer confidence were to plummet, so would sales, most likely. That would be painful!

Let’s be perfectly clear: we are called a lot of things, and answer to some. But we are NOT economists! Whew! 

But, before you ask, here is our amateur opinion of this downtown:
  • It won’t last long.
  • By the fourth quarter, most of the world’s economies will be feeling robust.
  • And independent retailers need to be prepared to take advantage. Hunker down now, but be ready for the rebound. 
My, aren’t we the cheery optimists?!

Oh. You want to know how we reached that glossy conclusion? Fair enough.

First, the remarkably depressed oil prices (a major contributor to balance sheet erosion worldwide) were caused by a glut of oil backing up. Finally, that glut will subside in order that suppliers can raise prices. Too much pressure to do otherwise.

In much the same manner, several other “gluts” are undergoing better management.
  • Consumer goods at deflationary prices is simply not sustainable economically. Third world producers are learning that, finally.
  • Millions of immigrants upsetting the economies of many countries. Those very countries will, we like to think, exert their diplomatic and political muscle to correct some of the reasons that cause the fleeing, beginning to reverse the flow. There are some sound leaders, after all!
  • Millennials worldwide are coming forward, and will influence economies, elections, the environment, and stability like no generation before. They’ve watched their parents and grandparents botch things up. They are one glut we all can applaud!

So, before you ask, we’ve offered our crystal ball gazing. Now, what’s yours??