NPR – "Never Pay Retail" – Is Everywhere!

A new consumer study by First Insight confirmed: “Today’s consumers expect discounts every time they shop.”  

The documentation of this phenomenon – what we often refer to as “NPR: Never Pay Retail” – is  sobering. Maybe not surprising to you, but nevertheless, quite sobering.

First Insight reported: "Percentage of consumers who expect discounts when shopping in these categories:"

• Electronics - 90%
• Appliances - 88%
• Furniture - 85%
• Smartphones - 83%
• Vehicles - 80%

(Note: These are the only categories reported on so far.)

Their study further revealed that Baby Boomers are the most resistant to paying full price. Three out of four Baby Boomers would “definitely not” or “probably not” buy at full price.

Among Millennials, however, purchase decisions seem to be driven by factors other than price. Only 35-40% would choose not to purchase at full price. 

The Pricing Credibility Crisis

However, a strong caution. (Why do we need to be reminded of this?)

In the battle to deliver "what the customers want", there is one more thing: Discounts offered have to be real! 

Yes, even if your name is Amazon!

A just-released study by the non-profit Consumer Watchdog reports that Amazon is posting “misleading list prices” on their site that significantly overstate the “discounts” Amazon shoppers receive.

From Consumer Watchdog's recap of their major findings (supporting the lawsuit they filed in California):

• “Amazon continues to include reference prices on more than a quarter of its stock”
• “About 40 percent of Amazon’s reference prices are greater than the highest price charged by any known competitor.”
• "On average, Amazon’s reference prices overstate the median market prices by $22, or about 20%.”
• "Amazon Marketplace vendors also post reference prices in excess of the prevailing market price, but they do so less frequently and to a lesser degree than Amazon itself.”

Ugh! What’s a retailer to do? 

Is “pricing credibility” even possible? Especially when virtually every consumer expects a discount? Or, relies on Amazon for pricing information?

Our conclusion (we know; not all will agree): In this "crisis of credibility", independent retailers are very well-positioned to seize this opportunity! 

Since the rise of Wal-Mart, then category killers, then Amazon, your competitive edge - your “value proposition” - likely has not been ”lowest price.” 

• Instead, you offer better selection
• more specialized merchandise
• more knowledgeable sales staff
• more personal customer service
• or other benefits that do matter to your best customers.

That's what has enabled you to survive. 

But to continue, you need to be even better. So, sharpen that "competitive edge" all the more! 

If Baby Boomers predominate in your stores, an “every day low price” strategy is unlikely to be compelling.

• To retain Baby Boomer customers, your competitive edge must be attuned to offering "discounts". 
• Just make sure that they work for you, too: a loyalty program perhaps (which also provides more customer data), or “special shopper” events, etc.

Focused on Millennials? Clarifying a total “value proposition” that matters to them is imperative.

Price always matters, of course. 

But credibility and fairness can still be your competitive edge!

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Links to these studies:

First Insight, discount expectations

Consumer Watchdog, Amazon's "misleading" discounts

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...???

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......

Alert! The Amazon Books Store Is Just the Start

We have watched the opening of Amazon's first bricks-n-mortar specialty store with great interest. And here is our conclusion: Brace yourself!

In fact, we anticipate an onslaught of entire shopping centers of Amazon "specialty retail stores". (Zappos Shoe Store, anyone?!) All using the same data-centric efficiencies Amazon is testing at Amazon Books, its just-opened bricks-n-mortar bookstore.

• Whether apparel, electronics, sporting goods, kitchenware, jewelry, hunting gear or whatever: Amazon has incredible customer data.
• Now, imagine a center full of separate Amazon "specialty stores" of categories specifically tailored to that particular market: hunting and fishing gear in some places; hiking and backpacking gear in another market.

Breath taking, isn't it? But that is our prediction: "Earth's Biggest Store" will find you and others who shop like you, (or your customers and others who shop like them) and set up its own specialty shops.

Talk about target marketing! 

A Little Background

In early November, in a prominent location – complete with a brick facade – in an upscale shopping center in Seattle, Amazon opened the "real wooden doors" on Amazon Books, its bricks-n-mortar bookstore.

Hmm. Actually, Amazon Books has far more in common with Amazon.com than with bricks-n-mortar bookstores.

1. First, it is VERY data-centric. The books they carry, Amazon says, "are selected based on Amazon.com customer ratings, pre-orders, sales, popularity on Goodreads, and our curators' assessments." And it's hyper-local; it represents the tastes and preferences of the readers in that local market.
2. Second, they have inoculated themselves from price competition from "the web": all prices in the store are the same as on Amazon.com.
3. Third, they are constantly gathering customer data. No prices are displayed at Amazon Books. Want to know the price? Just scan the barcode below each book. Be sure to do so with your Amazon app; for convenience, you know.
4. And, it's true; they do not take cash! Yet another typical cost they have eliminated.

In our view, what they have opened is a new kind of category killer, but in a very small footprint.

• They are using their vast storehouse of data to offer only the best turning inventory, to a targeted, localized market.
• And, they have the pricing advantages that come from size. They are "earth's biggest bookstore", after all.
• Their pricing is dynamic; e.g., $16.25 today, $17.85 tomorrow. What will it be next week? That's the marketplace dynamics in action. 
• Their pricing also could be targeted to the particular shopper as well, based on that person's history with Amazon. Remember, the only way to get price info is by scanning with your Amazon app. ("Don't have one? We can set that up for you right now!")
• And, it certainly continues Amazon's relentless pursuit to turn "the art of retailing into the science of retailing." No more need for judgment calls from the high-salary buyer; just follow the data! (The data isn't temperamental the way some buyers can be, either!)

Coming Soon to a Neighborhood Near You?

The issue is this: with its vast 20+ years of customer data, Amazon is showing its ability to again reinvent retailing. 

We believe they are poised to roll out collections of Amazon Specialty Shops. Each shop is targeted to that particular market, as is the mix of shops in a given center.

All, of course, would be highly data-driven, and able to exploit the same cost efficiencies that Amazon is testing at Amazon Books. 

Amazon's "Store" In New York City – Our Contrarian View

Not a Store, But a Brilliant Service Center

There has been a bit of a buzz about Amazon's plans to open a "store" in New York City, on 34th Street. This storefront will enable customers to pick up their Amazon purchases, versus having them shipped; to return merchandise; and, likely, to see and purchase Amazon products such as the Kindle Fire, etc.

• We imagine that Amazon will have a real "Wow!" effect available at this location. Perhaps digital displays of their television programming? Showcasing of their products. Demonstrations of how to use their various shopping apps. And no doubt, a special line/faster service for their Amazon Prime customers.

Some pundits claim Amazon is trying to emulate Apple; others compare it to e-commerce specialists like Warby Parker opening brick-n-mortar locations. 

But our comments, when contacted by the American Business Journals, revealed a far different perspective. In our view, what Amazon is opening, on 34th Street, is a service center, NOT a "store."

• That location is at the confluence of virtually all of the transit choices in NYC: Penn State, Grand Central Station, major subway stops, and of course, taxis. Perfect for commuters to pick up their items on the way to their train.
• If Amazon really wanted to "do retail", it would have selected a retail location: SoHo, or Madison Avenue north of 57th; etc.
• By offering this service, Amazon is able to promote "same day delivery" without having a fleet of delivery trucks entangled in NYC traffic. (NY traffic cops and – cabbies – will be delighted with that news!)

Maybe a Defensive Move?

Here's another thought: this could be viewed as a defensive move by Amazon, in response to other retailers' in-store pick up programs. (Also known as "click-n-pick", where the customer orders online, and picks up from the store.) 

As always in retailing, this will be fun to watch!

Herding Cats: Those Ever-Changing Demands of Retailing

Warren Buffet, the "Oracle of Omaha", is widely considered the most successful investor of the 20th century. But what is his "Achilles heel"? What investments does he self-describe as "failures"? According to Mr. Buffet, it is his investments in the retail industry. 

The problem? The constant change in retailing makes it difficult to achieve economies of scale. 

"Mr. Buffet has said that retail is challenging because shopping habits and sales channels are constantly changing, making it difficult for businesses to build and maintain competitive advantages, or what he calls 'economic moats,'" reported Anupreeta Das in the July 17 Wall Street Journal.

Meanwhile, there is Amazon. At one point, in their postings for retail jobs, Amazon stated their goal was to "Turn the art of retailing into the science of retailing." Oh really?! They, too, believe that retail should be easily reduced to an algorithm.

Retailing defies predictability. There are no straight-line projections. And, not everyone has the stomach for retailing's unpredictability.  

Today, it is common to cite the internet as the major competitive threat to retailing. Indeed, e-commerce has challenged retailing.

But, so did the big box stores. And mail order. And before that, outlet malls. Before that, regional shopping malls. And shopping centers. And before that, department stores. 

Responding to change is not news to seasoned merchants. In fact, it is this dynamism of retailing that attracts so many people into the industry! 

The true merchants thrive on this ever-changing environment. Instead of being dismayed by change, they relish its challenges.

In retailing, being nimble and responsive offers a decided competitive advantage. And with today's technology, any retailer, anywhere, can gain that advantage, and compete far more effectively. 

Retailers: Are You Protecting Your Most Valuable Asset?

What does it take to survive in retailing today? 
Profitable lines of merchandise? Sure, but that may not be enough. Profitable stores? That may not be enough either. Instead, only those retailers with the most profitable customers, whether instore and online, are those who are destined to thrive.

That's why your knowledge of your very best customers is the bedrock of your competitive edge. The more you can know, document and analyze about your customers, the more equity you are growing in your business.

We think this explains what has puzzled some observers of Amazon, who wonder why Amazon is not growing its advertising revenue to its capacity. 

"As big as Amazon's ad business already is, it could be much larger," writes Jay Greene, Seattle Times business reporter. "The data that Amazon collects gives it the ability to see patterns Google and most of its other ad rivals could never find.  

"That's data nirvana for advertisers. 

"But here's the interesting part", Greene continues: "Amazon won't share the most coveted of its data with advertisers for fear of alienating shoppers. 

'Customer trust is paramount to us,' said Lisa Utzschneider, vice-president of gloabl advertising sales at Amazon Media Group. 'We would never do anything to infringe on that trust.'" 

Amazon has chosen to not sell their customer data to other advertisers. While they claim it is out of respect for their customer's privacy, their decision to preserve this knowledge for only their own uses demonstrates their recognition of the true worth of this information.

In our view, that provides some key takeaways for all other retailers:

1. Are you gathering – and documenting! – this valuable customer data in your business? (Your POS system may have more data available than you realize, and/or could capture even more.)
2. Are you protecting and preserving this asset – your true competitive edge – as zealously as you should?

Want to grow the value of your business? Invest more – time, resources, even money – in your most valuable asset: knowledge of your best customers. 

Retailers...Don't Be MYTH-LED!

As Retail Strategists, we follow retailing trends and their impacts on 55 retail segments. In so doing, we've identified that some of the accepted "truisms" in retailing actually are myths. We are exposing them as myths, to prevent retailers from being myth-led.

Here are three examples:
Amazon will eventually run all retailers out of business.

Don't Be Myth-Led! The customer has the final say. 

Until Amazon solves the fact that 90% of customers want to touch, feel, test, try on or taste before buying, their growth from retailing will be limited.

Because of the soft and disappointing Back-to-School sales, 2013 Holiday sales are commonly predicted to be lackluster.

Don't Be Myth-Led! What matters is how consumers are spending.

BTS results were affected by the uptick in sales of homes and cars. In November and December, houses and cars will not suck disposable dollars away from Holiday spending.

Struggling malls can be turned around as the economy improves.

Don't Be Myth-Led!  Probably 15-20% of them have no future as malls.

How to get the highest and best use from that real estate? Retrofit them into retirement homes!

Know About This? (re Amazon, eBay, Google) You Should!

Amazon's dominance as the e-commerce platform for "third-party sellers" may be showing some signs of decline. There is unrest among its "small merchants" about fee hikes, and now a class-action lawsuit has been filed by some merchants.

• "Third-party sellers alleged in the lawsuit that, by holding sellers' money longer than allowed (often well in excess of the 90 days), Amazon racks up interest and uses the extra cash to support its operations."

• "Amazon has skewed the relationship to best suit its own operations," noted one observer. 

• "The suit estimates the total merchandise value of third-party sales last year at Amazon averaged more than $160 million a day. By holding on to this daily cash flow for only a few days or weeks, Amazon is able to invest this money in money market funds, marketable securities and other investments, and utilize the cash as working capital in the operation of its business,' the lawsuit says."

• "Amazon has been hiking fees for its third-party sellers over the past year-and-a-half. The hikes are shrinking smaller sellers' margins to increasingly uncomfortable and untenable points. The fact that Amazon is a direct competitor to those merchants stings even more."  

This resentment of the online retail giant's actions by some of its third-part sellers seems to have emboldened Amazon's competitors. Consider these observations from some recent news articles and commentaries (again, not us):

• "eBay and Google have both offered to reduce costs and transparency for third-party sellers. The companies are naturally hoping to trigger a merchant exodus from Amazon."  

• "eBay said that it will overhaul fees for sellers on its online marketplace, lowering them for many sellers as it steps up competition with Amazon.com."

• "Google seems to be preparing for an e-commerce battle with Amazon and eBay."

• "A brewing conflict between Amazon.com and its merchants over fee hikes could benefit rival eBay, and provide an opening for Wal-Mart Stores and Google, which are just getting into the space."

• "This battle of the giants - eBay, Google, Amazon - is just getting started. Though many smaller retailers could be hurt by these three large companies squeezing their way into traditionally physical retail distribution channels."  

While some independent retailers will welcome the benefits of heightened competition for Amazon, we think it behooves all "third-party sellers" to be well aware that the true cost of doing business with any of these platforms is exposing all of your sales and customer data to your "digital landlord".
Here's what some experts warn: 

• "Knowing exactly what sells, for how much and to which customers, means Amazon can adjust its own assortment and set prices to undercut the competitors it hosts, all based on actual sales."

• "Through its third-party sellers, Amazon can also collect Customer Relationship Management data on customers who have never bought a single item from Amazon."  

Your customer database may well be the most valuable asset of your retail business. Those customer relationships represent yourcompetitive edge. Retailers must manage, protect and preserve this important asset, which increasingly has monetary value. 

Additionally, the sometimes very slow payments from Amazon to some of their merchants (exceeding 90 days) can cause cash flow havoc, especially for the "small merchants."

It always comes back to that other Golden Rule:

"Whoever has the gold, rules!"

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Reminder: all of the quotes above are from people not associated with The ROI.  We have compiled them for you strictly as an FYI.

Have Retailers Lost Their Minds? Or Just Their Way?

What is it about egos and market-share-at-all-costs that suppresses judgment?! Are the "Big Guys" nuts?!

This Thanksgiving weekend exposed the worst strategic thinking by retail CEO's that we've ever witnessed. In fact, we call this phenomenon "The Bezos Laugh-A-Thon." Jeff and his Amazon team must have sore sides by now.

So spooked are major retailers about Amazon's growing market share that common sense seems to have evaporated. Just imagine all the additional direct and indirect expenses that opening on Thanksgiving Day must have generated. All to protect their market share! 

Remember, "the pie isn't getting bigger!" All this has done is "time shift" that shopping.  The media loved it, but the shareholders should be appalled.

Two outcomes of this misjudgment seem predictable:

• Continuing a recent trend, sales over the next two weeks will be much lower than last year. Customers have just so much to spend, especially in this difficult economy. 

• Each year, no publicly-traded retailer can tolerate sales being lower than last year. For shame! So next year, look for openings at noon(!) on Thanksgiving.

Bottom line: Advantage, Independent Retailers

Those who keep working smarter will benefit greatly by the "Big Guys" errors.  Enjoy it!

Big Box Store's Dilemma: Great Customer Service...for Amazon's Customers?!?

Ironic, isn't it? Big Box stores are being morphed into specialty stores.

Not so long ago, shoppers were using the specialty stores and their knowledgeable staff as their source for knowledge about the newest products...and then buying from the Big Box stores! The specialty stores were the "showrooms" for the Big Boxes, who as low-cost providers, could offer lower prices.

This is a long-standing "specialty store dilemma": hire, train and keep a knowledgeable sales staff who can educate the consumer about new products (aka "great customer service"), only to lose the sale to the lower cost, lower-priced competitor. This has been long known to specialty retailers in all retail segments, whether audio/video products, art supplies, power tools, whatever.

But now, look what's happening to the Big Box stores. Customers go there to see, hear, and touch the latest products (think Best Buy), so they can decide which one they want to buy. Then - customers being customers - they buy it at a lower price from online providers (think Amazon)!

The Big Boxes have become the "showroom" for the online retailers of the world! In their efforts to provide better customer service, the Big Boxes incur added costs (both in-store for people as well as robust web sites chock-full of more information) only to lose sales to the new low-cost providers of the world.

What goes around, comes around.

Or, consider the impact of category killers like Barnes & Noble and Border's Books on independent bookstores. Now these "category killers" have become dinosaurs themselves. Increasingly, more books are bought online, and/or in digital form, for a lower price at greater convenience.

Retail Darwinism at work.

Google and Amazon As Retailers?!?

Amazon's best-selling holiday item was its own Kindles. And now Google is selling its Nexus One smart phone online, directly to the customer (bypassing Google's previous customer, the phone carriers.)

Yep, selling to the ultimate consumer IS the definition of retailing. Increasingly, manufacturers assume that only they can "do justice" to their product line.

We all know what these companies are trying to do. They have immense confidence in the merits of their respective products, and they think retailing is easy. But it's not just the product. And retailing isn't easy.

The real test is whether these technology giants-turned-manufacturers-turned-retailers actually can be merchants? That is, can they consistently provide value to the customer?

Value: the benefits received for the burdens endured.

In our view, Google and Amazon are asking consumers to assume most of the burdens in these transactions.

• Go to the website, learn about the product, choose the item
• Ring up the transaction; send the money to us safely
• Be available to take delivery of the product
• Have questions? Use the online help forums.
• Have a return? Box it up and send it back.
• And "trust us" about receiving the credit.

Remarkable cost savings for the manufacturer. All those burdensome "retailing" issues have been shifted to the customer. Granted, maybe 10% of the market will think this is wonderful. No muss, no fuss.

Still this nagging question: Will the rest of the customers willingly endure these burdens?

Hasn't Apple proven that there's a role for storefronts "for the rest of us"?