Technology/Services

Opinion: The Amazonization of Retailing

Automation, buying clout and the future of brick-and-mortar stores

NEW YORK -- Unlike railroad operators who saw themselves as being in the business of running trains rather than providing transportation—and therefore didn’t get into the airline business—it is clear that Amazon’s positioning is not to be just an online retail company. Rather, it aims to become the most convenient and economical way to get retail merchandise into the hands of consumers regardless of channel.

Amazon knows this will involve brick-and-mortar retailing, and that the technology and logistical capabilities they have developed in their online, autonomous-vehicle and cloud-computing businesses can be mobilized to achieve this goal.

While Amazon’s plan to acquire Whole Foods is in furtherance of this objective, my guess is the company’s leadership doesn’t have a fully thought out plan as to what they will do with the company. Instead, they intend to use it as a laboratory to develop and test new approaches—as well as to provide them with more expertise and more buying clout in the food-merchandise category.

Quite soon we may well see Amazon introduce some of its capabilities into Whole Foods stores, including such things as the elimination of checkouts, click-and-pick-up capabilities and personalized messaging to individual customers. However, it is going to take quite a long time for these things to be worked out and perfected, so I think the market has over-reacted to the deal for the short term.

For the longer term, “Amazonization” may well become pervasive and revolutionize the whole retail scene. However, none of this will happen in a vacuum, and all the major brick-and-mortar chains—Wal-Mart, Target, Costco, etc.—are looking at the same objective through the other end of the lens. So it is by no means clear how they will be impacted.

Amazonization will change the game, but it is not yet possible to forecast who the winners and losers will be. For smaller retailers, who can’t afford to develop their own solutions, it is probable that Amazon systems and technology will become available through licensing or other means.

Recent projections that 6 million retail jobs will be eliminated by automation over the next 10 years may well be valid. Certainly, there will be less brick-and-mortar stores, with fewer employees per store. But it is not yet clear how the additional logistical and technological jobs created by Amazonization will offset this.

And while Amazonization will undoubtedly impact convenience retailing, the good news is that brick-and-mortar convenience stores are likely to be less affected than other retail segments. People will still have to eat and will still run out of things, so they will continue to need physical places to go to when they need some instant gratification, have to make a stop while on the road, or to “run in when they run out.”

Gerald Lewis provides transformational retailing guidance and execution to convenience store operators. He can be reached at glewis@c-man.net or (646) 215-7741.

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