How to Survive As a Retailer Against Amazon

Brick-and-mortar retailers are under pressure due to growing e-commerce.
This is sometimes taken to the extremes, stating the end of physical
stores in near future. "How can I fight Amazon?" is a commonly asked
question.

The definite answer is that brick-and-mortar stores are here to stay.
Combining physical locations with e-commerce capabilities, we are
entering to an era of customer bliss where customer
experience means something.

Sure, but what does it actually mean for retailers?

The landscape of commerce is changing and retailers do need to go with
it to continue making revenue. Doug Stephens in his book The Retail
Revival suggest that we are in the middle of the market dividing into
two opposites of searching for experience or ease. He is backed up by
John Gerzema and Michael D'Antonio who in their book Spend Shift argue
that consumers are disregarding what has known to be middle-class
average to experience high-fidelity or convenience.

What do they mean by this? On one hand consumers enjoy an easy access to
a variety of products - convenience. A good example for this is Amazon
with its unprecedented selection of products that are easier to purchase
than ever before.

On the other hand, the consumer is looking for unique experiences
coupled with high touch service, or in other words high-fidelity.
Stephen has even suggest a new metric to be take into consideration to
support this: experiences per square meter.

It is not as simple cut as consumer being one or the other, however.
Your average buyer might log onto Amazon to make a 5-minute purchase of
slacks for $15 after they had a concierge like service buying a
classical Burberry trench coat for $2,000.

In this new age, the consumer is a creature who economizes on products
s/he doesn’t care about so s/he could spend excessively on things that
matter.

Facing this consumer, retailers need to ask what are they offering -
fidelity or convenience.

To understand today’s consumers and why they spend on average 500% more
than their parents in the same age, and how retailers can tap into this
potential, we need to know where they came from.

Birth of retailing as we know it

Second half of 1940s saw the beginning of what was later states as the
beginning of retailers heaven. Until 1960s, US continued having increase
in births from year to year establishing the baby-boomers generation.
Simply put - there were new consumers born every day more than ever
before.

The generation born during baby-boomers are also known as the Jones for
their eagerness to be like everyone else (or at least like their
neighbors). “Keeping up with the Joneses” was a well sought after
mahtra.

For retailers this meant having an increased amount of buyers who were
looking for the same thing (what the neighbor has) making them similar
in their consumption habits.

The majority of consumers were mostly white, middle-class children from
two-parents, single-income homes. They wore similar clothes, ate similar
food and lived a similar lifestyle.

All retailers needed to do was to meet the demands of an ever growing
population that created a market of fairly homogenous buyers.

By the 1960s the Joneses kids were in grade school, listening to the
Beatles sing A Hard Day's
Night while eating
a McDonalds burger 15 pennies a piece. With them grew the demand for
more clothes, toys, food and everything else. New stores were popping up
and today’s retail giants like Best Buy, MasterCard, PepsiCo, Wallmart,
Target and many others were established.

James is happy with his burger. The same burger that all of his friends
are eating and loving.

During 1970s the baby-boomers had grown up, entered the working force to
bring home salaries themselves and married to have kids of their own.
The sheer mass of babies born a decade ago were starting to make their
own money and spending it too.

A retail bliss!

Retailers went on a building frenzy, constructing bigger and bigger
shopping centers. Stephens calls this the retail industrialization, a
time when retailing ceased to be a craft and instead became an
occupation.

The new era would bear witness to the displacement of personal service,
unique products and artful merchandising by stack-outs, blowouts and
rollbacks. Quality would take a back seat to availability, and abundance
would triumph over substance.

The Joneses are gone

Baby-boomers themselves failed to give birth to an ever growing army of
consumers. Their kids, the Generation X is at least 15% smaller. It's
nearly impossible for them to fuel the economy through everyday shopping
the same way as their parents did.

Stephens and Gerzema-D'Antonio suggest that the current situation of
retail isn't a dragged out recession like many would like to believe but
an end of the 50 year long era that resembles hazed college years
beer-party extravaganza. Many of those brands established in the 60s are
experiencing the following hangover coupled with confusion.

More-so the era of middle-class Joneses, where everyone wanted to be
like everyone else, is over. During the past 50 years many changes have
occurred in the way people live, access to diverse backgrounds and
opinions, the new debt filled rules of economy and many more. Buyers are
returning to pre-baby-boomers era of consumption when quality trumps
quantity and craftsmanship is back in fashion.

Consumers these days aren't as simply cut as they were just few decades
ago, demanding more from brands.

In his book Trade-Off: Why Some Things Catch On, and Others Don't
author, Kevin Maney, explains the difference of what he believes to be
the new norm in consumption where buyers choose between fidelity and
convenience.

"Fidelity is the total experience of something"- a brand, a retailer or
a product - the sum total of price, service, merchandising, product
quality and so on wrapped up into the feeling the consumer walks away
with.

Convenience-based experiences, on the other hand, are comparatively
ubiquitous, accessible and inexpensive. They are less about the
experience and more about the sheer ease with which a product or service
can be acquired.

The question that retailers need to ask themselves is - in which
category do I belong? The middle ground is a deadzone of brands who
consumers can’t trust to be one or the other. Think of it as the
poisonous fog Jennifer Lawrence needed to battle in The Hunger Games.

Understanding product and service

In high-fidelity, the service or product is exclusive, premium priced,
has limited availability/distribution, provides concierge level of
service, have niche appeal and in the end the
consumer develops emotional connection.

A typical high-convenience product would be ubiquitous, low prices,
available through multiple channels/mass, low service or self-service,
have wide appeal and consumer forms cognitive a connection.

Retailers should be aware that this isn't as simple question between
cheap versus expensive products and services. Stephens brings an
illustrating example between buying a coffee in Starbucks or Dunkin
Donuts where the price of the coffee can be the same, but the experience
that the buyer receives is very different.