Amazon’s interesting play with their new stores.

Hey look Amazon is in the news again! Surprise surprise. They just announced their first Fresh grocery store – click here for article. On the surface it appears to be a traditional grocery store, but with a number of technological goodies from Amazon. From Amazon Echos allowing patrons to ask for directions and help in the aisles to smart shopping carts that allow for frictionless transactions. Of course all this can be tied to the customers’ Prime account. It is almost as if Amazon was looking to combine the online experience to the brick and mortar world. So is there something beyond simply grocery shopping here? Absolutely.

Bezos always has some secondary goals with his efforts. Other than world domination. Let’s go beyond the fact Amazon wants to capture even more of your household spend. This concept grocery store is an opening to more micro-fulfillment centers for Amazon. Amazon is known for opening mega fulfillment centers to service geographic areas. These distribution centers are sprinkled across the country, with the idea in mind to ensure customers are within easy reach of an Amazon fulfillment center. If you want to see where the centers are located, check out this wiki page. But what about getting into denser population centers. Where having a massive distribution center might not be optimal? What about having a micro-fulfillment center where consumers are trained to interact with automation? Hmmmm….exactly.

These Fresh grocery stores will allow Amazon to offer a location for their

customers to get groceries and pick up or return orders. They have an opportunity to interact face to face with these customers. Amazon will also be able to fulfill online grocery orders within the store. Adding the automated grocery cart mimics similar technology leveraged in traditional warehouses where eaches picking is done with automation. Could Amazon leverage the automated shopping carts to do order picking when the store was closed to the public…or even where the store was live. Amazon could basically flip between a traditional grocery store and a micro-fulfillment, warehouse lite. The technology could empower more sophisticated home delivery or BOPAC (buy online pick up at curb) from the store. Amazon could also leverage these facilities to train consumers to interact with more in store automation. Consumers would be introduced to the automated shopping carts. A shopping cart that could guide the consumer through their shopping lists. Next step would be getting used to having other automated devices doing replenishment, cleaning, stock counting or security within the store.

These new store concepts are not simply about getting you to buy groceries from Amazon. They could prove to be the beginning of new play from Amazon to create more micro-fulfillment centers and introduce more automation into the shopping experience. So the ecommerce giant continues to expand its brick and mortar presence. How times continue to change!

Amazon fulfillment center coming to a mall near you. Not as bad as you think.

There has been some recent reporting that Amazon is in talks with mall management companies to take over some of the space from anchor tenants. Click here for a recent piece in the WSJ. Legacy tenants such as Sears and JCPenney. Legacy names that have fallen on hard times and faded away from the mainstream retail conversation. Many are fretting that this would be a terrible move for malls, letting the very player that has put these malls under duress come right into their house! Set up a fulfillment center, and just crush whatever life there is left for these malls. Not so fast!

I’m not convinced. First, what choice do malls have? The days of having mega retailers act as the anchor tenant have gone. The internet made sure of that. The advent of the World Wide Web meant that the mega shopping malls, were just a click away. I remember working at Forrester in the late 1990s, I had a large mall owner as a client. We had a conversation that went something like this:

Mall owner: “We are really excited about the web. We want to create a portal, where the brands and retailers that are in our mall could be part of our portal. Customers can then access our site and get to their pages.”

Response: “The internet is that portal. Why would you need to go through a secondary portal when I can get to those brands and retailers directly?”

Needless to say the silence after that conversation was deafening. This was retail thinking driven by a brick and mortar only mentality.

So fast forward 20+ years. Malls are taking it on the chin. They are scrambling to figure out how to get foot traffic into their physical locations. Many have turned to more experiential type tenants – restaurants, salons, gyms, medical offices or amusement park style operators (visit the Mall of America in Minnesota for a true experience). Some have looked to add residential inventory as well – or built around a larger attraction such as a sports venue. The Atlanta Braves’ new baseball park, Truist Park, is built with an outdoor mall and residential space – the Battery.

But many malls are still stuck with massive anchor footprints, a reminder of the Jurassic time in retail. Some are looking to bring grocers into those spaces. A local mall in the Boston region added a Wegmans a few years ago, hoping to attract foot traffic. And now, some mall owners are considering bringing in their biggest nemesis of all – Amazon – into that space. Here is why that might not be as bad as some believe:

• Create some buzz – want to bring your property some buzz? Let Amazon put up a distribution center. The local media will certainly pick up on it. There will be news reports on the automation that Amazon will be using to fulfill orders, clips of the boxes zipping around the conveyors and on Kiva Robots. There will be talk of how many employees the fulfillment center will now employ.
• Amazon employed foot traffic – maybe a small victory, but any mall should be happy to have bump in terms of having “guaranteed” foot traffic as Amazon employees will be present through out the day. There is the potential for these employees to become patrons of the other services within the mall. Maybe that is fool’s gold. But at least there is some opportunity to have a pseudo captured audience.
• Incentivize Amazon to do more than simply deliver – Malls who look to Amazon to take some fo the real estate space, should work with Amazon to not simply use the space to do last mile order fulfillment, but also BOPAC (buy online pick up at curb). Think of it. What do malls have other than a lot of physical store space? Lots of parking and are usually located in convenient geographic locations. Amazon could offer customers the ability to come and pick up their orders as well. Create designated curb side pick up spots, create spots where patrons can pick up merchandise but also park for a period of time in case they want to also go into the mall to pick up something. Could Amazon take some of the real estate and create seasonal stores – small footprint stores with the high demand merchandise and other Amazon products. Much like what they already do with their pop up and other physical stores now. Finally leverage this footprint to process returns. Maybe once the patrons return items, they might also stop at the food court or see what is going on in the mall.
• Leverage the Amazon fulfillment know how – This might be a stretch, but what if the Amazon fulfillment anchor tenants, also took on last mile fulfillment for the other tenants on the property. Amazon is already working on becoming a 3PL, delivering and fulfilling for other brands and retailers. Imagine if as an anchor tenant, Amazon worked with the other tenants to deliver merchandise from the stores. Either last mile fulfillment or BOPAC. Of course they would make their money in the services they offered. While the tenants would be able to take advantage of the fulfillment infrastructure and knowledge of Amazon. This may feel like giving up even more to Amazon, but sometimes if you can’t beat them, join them.

While I am sure that mall owners would prefer that their anchor tenants were not named Amazon and that they could still draw the foot traffic needed to make the property profitable, those times are in the rear view mirror. Mall owners need to face today’s reality. Having an anchor tenant such as Amazon, using the real estate to fulfill eCommerce orders, might be one of the few ways to get someone to pay for that space. But if you can work with them to offer other services such as BOPAC or become a returns hub, you now have new ways to getting people into the mall.

Yes Amazon will continue to eat at some of the mall’s core business, but might as well try to profit from their physical presence. It isn’t a pretty relationship, but it might just give malls some extended life.

More direct to consumer…means more warehouses. Or does it.

There was a recent article talking about the surge in demand for warehouse space in North America in large part due to the explosion in eCommerce. According to the article there will be an additional 1 billion square feet of storage needs by 2025. Impressive numbers. With eCommerce number predictions ranging between 18% to 26% of overall retail over the next 5 years, many are pointing to this upwards curve as the leading indicator of the need for more warehouse space. Where else will you hold all that inventory needed to fulfill the orders?

But not so fast. Yes, there will be a greater need for the warehousing space. However what some we are missing is that not only is online commerce driving the linear flow of inventory, but the way we fulfill orders is itself changing and adapting. With that, where inventory flows is also changing.

More warehousing!

• More warehousing…no doubt. There will absolutely be a need for added warehousing space. Not only will we need an influx of warehouse space, but how that space is being utilized will also have to adapt. From assembly, kitting, customization and intaking returns, the warehouse of tomorrow is no longer a simple rest stop for inventory on its way to a customer. So yes, we will have to continue to ramp up the available warehouse space, but how that space is utilized will also have to evolve.
• Stores become more flexible inventory dispersers. Dark stores are all the rage these days and the pandemic has only accelerated a trend that has long been baked into the fulfillment cake. Moving forward, it will be more than dark stores that become an integral part of how we fulfill customer orders. Look for stores to become integral to micro-fulfillment clusters. Rather than relying on mammoth distribution centers to service large swaths of real estate, image networked clusters of localized stores (both dark and normal stores as well as smaller DCs) being able to service demand on a block by block, or street level geography.
• Drop shipping becomes a growing method of fulfillment. Want that product tomorrow? Maybe we need to ship it to you right from the factory. I worked with a large sneaker manufacturer that was manufacturing customized sneakers on the same manufacturing line as their traditional make to stock production. It was interesting that they could manufacture both in the same plant. But then it was fulfilled via traditional methods. What if you dispatch those made to order items directly to the end consumer? Drop ship the custom pair of sneakers? You might incur shipping costs with this strategy, but as you get a better handle on that aspect, being able to fulfill directly from the manufacturer could eliminate some of the strain on other parts of your fulfillment channels.
• Circular economy leads to more fulfillment from the returns. I mentioned above that one aspect warehouses will have to contend with, his how to handle ever growing deluge of inventory coming back. Returns is an ever growing aspect of the supply chain that is a cost center, but should be seen as an opportunity. According to market research firm IHL, global returns are approaching $1 Trillion. 50% of all online apparel is put back into the channel via returns. Why put this inventory back into the stores or distribution channels, why not send them directly to consumers? Think of a eBay coming to the returns channel. You purchased a new Xbox, but you realize that the PS4 is a better route, so you initiate a return. As that return is being processed, another customer orders and Xbox. Rather than you shipping the Xbox to a return facility, imaging being able to ship it directly to that other customer. Retailers and brands could initiate some simple ways to “check” the product – upload pictures of the product, guarantee certain functions still work and the retailer/brand could keep track and financial incentivize the parties. This would reduce the added costs associated with all the touch points needed for returns.

So will we need more warehouse space? Absolutely. But the way retail and the manners in which we fulfill customer needs, are evolving. Evolving in such a manner that we need to think of multiple ways, not simply more warehousing, to satisfy those demands.

eCommerce’s moment to shine, but what about post-Covid 19?

Much has been written and discussed about the current state of retail during these unprecedented times. Like many of us, I am staying at home, venturing out only to get groceries or to the pharmacy. Other than that, when we do leave the condo it is to walk the dog or get some exercise. No more excursions to stores or the mall, no more date nights at restaurants or meeting colleagues at coffee shops or bars. Our retail muscle is atrophying before our very eyes!

Of course not all retail is suffering. Online grocery ordering has been skyrocketing in this era of social distancing. The most recent data showed a 37% increase in April online grocery sales from March.

What’s interesting is the number of customers only grew by 1% and spend per order by 3%, but clearly the order number jump by 33%. So those that are leaning on online grocery are placing more orders. Another interesting data point – 26% of homes that had not purchased online groceries in the past 30 days are highly likely to do so in the next 3 months. Interesting numbers to say the least.

Of course not all categories are enjoying such a bump. A recent New York Times piece looks at the categories that are doing well, and those that aren’t.

No surprise that travel has taken such a beating during this time…we aren’t suppose to leave our homes!! So not sure how we are suppose to get on planes and trains. But what is even more interesting is to see what categories have spiked in terms of online sales. Disposable gloves have seen a 670% increase year over year sales and bread machines 652% increase in online sales. Some of the biggest categories that have dropped? Luggage -77%, Men’s swimwear -64% and Bridal clothing at -63%…no surprise there either. Click here for a more complete list. So coming out of Covid-19, do we expect to see disposableglove.com as the new go to ecommerce site and all of grocery shopping being done on line? Of course not.

Online Retail peaking at 22%?

But what do the numbers show us? That eCommerce, in terms of “percentage of change” has slowed down before the current pandemic. In our current state the categories of eCommerce that are peaking, are not necessarily those that will be sustained post Covid19. But what should we expect?

• A bit of an acceleration of eCommerce growth continues – I realize I have stated that we cannot simply assume that eCommerce trends will continue, but I am not naive enough to believe things will go back to “normal.” I certainly expect a number of consumers who have been forced to try eCommerce will see the utility. That utility will continue post Covid19. Specifically in having grocery and other staples delivered.
• Rushing to brick and mortar. Wait…what? Yup. I expect a burst of consumers rushing out to physical retail locations. Think about it, we have been stuck in our homes for close to 6 weeks now, we are itching to get out and do something! Retail is part of that activity. There will be a resurgence of retail-therapy…in the store. Savvy retailers will look to creating in store experiences that not only excite consumers to be in the store but also provides a safe and healthy environment. Those retailers that offer such an experience might find a new loyal customer.
• Increased fulfillment experiences. Before Covid19 we had already started to see new fulfillment methods: BOPIS, pick up lockers to name a few. Of course we are now seeing BOPAC (buy on line pick up at curbside) becoming pivotal for retailers. Look for more fulfillment options from retailers to meet customer needs. Expect the consumer to start demanding these as well! For example, I wouldn’t be surprised if consumer pressures force legislation to loosen up regulations that have grounded drones for last mile distribution.

Let’s all hope we go back to a new normal soon, meaning we can slowly start to interact with one another, leave our homes, go to church, have a dinner in our favorite restaurant and yes shop in stores. Of course things will never go back to “normal,” then again I would argue what was that normal you speak of? Haven’t we seen retail undergo constant change since humans first traded from our caves?

The pandemic has made some of our retail muscles atrophy, while building up other muscles. Stay healthy everyone, stay strong. We will emerge from this and so will retail. It is much more resilient than we realize.

Customization: more than monograms and pant hems.

We as consumers have demanded and started to expect that our brands and retailers provide us products that are personalized. Beyond simply adding our initials to the sleeves of our Ralph Lauren shirt or having to hem our new Hugo Boss suit, product customization is moving towards a place where the consumer can dictate what they want from the brands and retailers.

All one has to do is look at how we can customize our automobiles – BMW’s Spartanburg factory could run a full year worth of production and never produce the same car twice. Or how we can call up our sneaker companies such as Adidas, New Balance or Nike to create customized footwear for our enjoyment. The market is also seeing the rise of brands looking to create bespoken clothing such as Indochino, Suit Supply or MTailor who look to create suits, shirts and other items simply by taking your measurements over their apps. Of course these services are not without some growing pain issues…I have two Indochino suits that both have a sizing story associated with them!

Indochino suit…looks good. But it took some work to get here…

While customized products are becoming more of the norm, what brands and retailers need to starting thinking about goes beyond simply products. Customize the entire experience for consumers. The inventory is only a part of the overall retail ecosystem. Consumers expect greater information about their purchase, flexible fulfillment and friendly return policies.

• Greater information, greater insights expecting by consumers. The experience for consumers starts much earlier than it did 20 years ago. Brands and retailers need to be there when that journey begins. That means rich data, entertaining information and deeper knowledge sharing. Where did the product come from? How was it manufactured? What was its journey to its final destination? Can I customize this information – shopper A might be more environmentally conscious so give her lots of data on the sustainability efforts, while shopper B is more interested in how others use that product so give him YouTube videos or Instagram pages of how the product is being leveraged.
• 2 Hour fulfillment? Sure as long as it is one option. Retail giant Amazon has trained us that the 2 hour fulfillment window is nirvana. Is it really? While instant gratification, in this case 120 minute, is a driver for consumers, it is not always the right option for fulfillment. Savvy brands and retailers are starting to realize that they need to rethink this, rather than chasing Amazon, set their own strategy when it comes to order fulfillment. It is hard to compete when Amazon’s fulfillment costs, as they have only continued to rise to the tune of $34 billion annually. Fulfillment needs to be seen as part of the customization process. Want it delivered in 2 hours or in a month, sure. Need it shipped to a local pick up locker for you to retrieve after work, okay. Want it shipped to your vacation hotel next week, absolutely. Retailers and brands need to start thinking about customization in this context – when I want it isn’t always within 2 hours.
• Circular life of inventory demands for better returns. Returns and the circular aspects of retail are becoming of greater importance. Rather than viewing this as a cost center, savvy brands and retailers are seeing returns as a way to pull back working capital into their supply chains, as a touch point with customers and as overall good business. Retail giants such as Home Depot still view returns as a cost center, trying to minimize the overall cost of processing the returns as much as possible. A short term cost cutting strategy. While other retailers such as Kohl’s has been willing to take the chance, and dance with the devil, allowing Amazon returns to be processed within their stores. Inviting the biggest disruptor into your store! Smart. Get those customers into your physical store, allow them the ease of returning that Amazon item and yes try to sell them something from your inventory. I have heard customers say, “well I needed to get product A, and had to return this Amazon item, so might as well do it all at Kohl’s.” This is simply the beginning. More retailers will realize that they need to offer simple and customized returns for their products, sometimes it might call upon partnering with other players in the space.

Of course the drive towards greater product customization will continue. Whether it is your BMW X5 or your new pair of Adidas, we expect our brands and retailers to try to amaze us by better meeting our personalized needs. But it is simply not in the product, but in all that surrounds the retail experience.