Tag: online shopping

• The grocery wars: Why Amazon bought Whole Foods

  

  The big news on Friday was that Amazon has agreed to buy grocery chain Whole Foods for $13.4 billion.

  Some people – such as Bruce Berkowitz, who manages the $2.3 billion Fairholme Fund and who is the second largest shareholder of Sears Holdings Corp. – believe that this says to the market that “there is a need for physical space in retailing.” Everything can’t be online.

  I obviously agree that there’s value in real estate / physical locations, but I don’t see this as Amazon capitulating in any way. This is not Amazon saying to itself: “Well, AmazonFresh hasn’t grown as quickly as we’d like, so let’s forget this ecommerce thing.” No, Amazon is determined to win.

  Indeed, the fact that shares of supermarket operators tumbled across the U.S., Canada, and Europe, probably signals that the market is expecting something other than the status quo following this acquisition. 

  All of this is a big deal because grocery is a big deal. 

  There’s a reason Wal-Mart ramped up grocery (and now derives over half of its revenue from it). There’s a reason why drug stores are proliferating across our cities (and expanding their grocery offerings). In Toronto it’s Shoppers Drug Mart and Rexall. In New York it’s Duane Reade.

  We buy groceries frequently and we overwhelmingly still buy them in person. So online grocery is the holy grail of ecommerce of right now. Everyone wants to nail it first.

  How does this acquisition help Amazon do that? Here are two thoughts.

  1) The real estate still matters. 

  Even in a world where most groceries are purchased online, you need still need physical distribution centers in close proximity to lots of customers.

  Whole Foods has more than 460 stores across the U.S., Canada, and Britain. Their formatting would obviously evolve, but the bones are there for Amazon to leverage.

  Startups such as Instacart have tried to circumvent this requirement by fulfilling only the delivery portion. And arguably their pitch to other grocers may now be stronger: “You need to offer this to compete with Amazon/Whole Foods.” (Instacart currently provides this service Whole Foods.) But you can bet Amazon will want to squeeze/control this part of the supply chain.

  2) The data.

  Many analysts are already assuming that Amazon will work to automate away cashiers, similar to what it’s trying to do with its Amazon Go concept store. If you combine this with other offerings such as 15 minute pickup (Amazon Fresh PIckup), you can easily imagine a world where us customers get weaned off of in-person shopping.

  For example, if my regular grocery store made better use of its data, it would probably come to the conclusion that I generally buy things like orange juice, milk, and avocados (I’m a Millennial) every X days. I’m sure if you look at my shopping habits, I’m pretty predictable. Whenever I go to a new store it always takes me 100% longer to shop because I don’t generally wander. I target my stuff.

  Now if I could get somehow prompted to re-order my regular items every X – 1 days, chances are I would gladly tap order. And now I’m shopping for groceries online. Get ready for the grocery wars.

  2017.06.17

• Retail tipping point

  

  Venture capitalist Benedict Evans recently published a post on his blog called, Ten Year Futures. If you haven’t already noticed, I really enjoy this sort of curiosity and line of thinking. Here is an excerpt where he talks about retail being at a tipping point:

  “First, ecommerce, having grown more or less in a straight line for the past twenty years, is starting to reach the point that broad classes of retailer have real trouble. It’s useful to compare physical retail with newspapers, which face many of the same problems: a fixed cost base with falling revenues, the near-disappearance of a physical distribution advantage, and above all, unbundling and disaggregation. Everything bad that the internet did to media is probably going to happen to retailers. The tipping point might now be approaching, particularly in the US, where the situation is worsened by the fact that there is far more retail square footage per capita than in any other developed market. And when the store closes and you turn to shopping online (or are simply forced to, if enough physical retail goes away), you don’t buy all the same things, any more than you read all the same things when you took your media consumption online. When we went from a corner store to a department store, and then from a department store to big box retail, we didn’t all buy exactly the same things but in different places – we bought different things. If you go from buying soap powder in Wal-Mart based on brand and eye-level placement to telling Alexa ‘I need more soap’, some of your buying will look different.”

  I’ve said this many times before, but the way the above excerpt ends is yet another remind that one has to look deeper beyond the obvious change(s). Yes, ecommerce is growing and impacting physical retail. But what other changes might ensue because of this shift?

  2017.04.30

• Amazon is just getting started

  

  The Economist has an article up talking about what a behemoth Amazon has and will continue to become. Here are some interesting stats for you to think about:

  • More than half of every dollar spent online in America now goes to Amazon

  • Amazon’s share price has increased 173% since the beginning of 2015 (12x faster than the S&P 500)

  • With a market capitalization > $400 billion, it is the 5th most valuable company in the world

  • 92% of its value is supposedly being derived from profits expected after 2020 – they are playing the long game

  • Investors believe that revenue will go from $136 billion (2016) to half a trillion over the next decade

  If I can buy something online, instead of in person, I will do it. And that very often leads me to Amazon. In fact, I bought my new camera lens from them last week. Many others seem to be doing the same.

  When I go to a store now it’s because I need something immediately or because I’m looking for a new experience. I want novelty and I want to feel something special when I walk in. That, or I just need groceries.

  2017.04.01

• Take it and go

  

  Given the option, I will buy online as opposed to offline. About the only thing I consistently buy in-person is groceries. Food shopping remains a persistently in-store activity for most of the market. Though some European countries seem to have much higher online food shopping rates.

  It is for reasons like this that Amazon opened a new small-format grocery store this past Monday called Amazon Go. The big game changer – which is currently making the rounds on the internet – is the fact that there are no check out counters. You simply check-in with their app when you walk into the store and then leave with whatever you want. Your phone will automatically charge you for whatever you picked up.

  Finally! Grocery store check outs suck. (The store is currently in beta and will not open to the general public until 2017.)

  But perhaps even more meaningful is all the data that Amazon will be collecting about our grocery shopping habits. This will scare some of you, I’m sure. But I can tell you that there are a slew of things that I buy regularly. And I bet that if you analyzed the data, the purchases would happen at fairly regular intervals: bananas every x days, orange juice every y days, etc.

  So once Amazon Go learns what I like to buy, I am sure that it will then start to try and sell it to me online, along with some sort of subscription. If it can assure me that the produce is fresh and the expiry dates are far out (if they’re not, I want to be able to take a picture and get a refund), then there’s probably a good chance that I, as well as others, could be converted to online food shoppers.

  2016.12.06

• What’s next for Walmart?

  Today I was surprised to learn from Charlie Gardner’s blog that groceries now represent 56% of Walmart’s sales. This is a huge number that I frankly wouldn’t have expected. 

  Groceries have relatively low online penetration, which makes them great for brick-and-mortar retailers. I’ve written about this topic before in the context of big box stores and online shopping. But I clearly didn’t realize that it had become such a big segment for Walmart. 

  What’s also noteworthy about grocery shopping though, is that customers appear to be less likely to travel far distances for it, even for lower prices. This means that the radial impact of Walmart the supermarket is less significant and far tighter (~2 miles) than Walmart the discount store. Click here for that study.

  This is important because a big catchment area has been central to the Walmart model. They consume cheap land on the outskirts of cities and then offload the transportation costs (indirect costs) to consumers in exchange for everyday low prices (direct costs). Studies show that we, consumers, typically undervalue indirect costs.

  Charlie argues in his post that this does not mean that we should write off big box retailing. And I would agree. The Walmart Express concept may have failed, but they are clearly looking for ways to rethink their model. Urban stores will need to form part of that.

  2016.02.23

• Dead malls — what’s the future of offline retailing?

  

  A lot of shopping malls are dying. You’ve probably heard this before. But how bad is it and what exactly is happening?

  Well, a new report by CoStar (heard through the New York Times) found that nearly 20% of the 1,200 malls in the US are presently in trouble. “Trouble” is defined as a mall with a vacancy rate of 10% or more.

  But what’s perhaps most disconcerting about this number is that, as recently as 2006, only about 5% of the malls in America would have been pegged as being “in trouble.” Here’s a chart from the New York Times (I’d love to see this same graph with a longer time horizon):

  

  But not all malls are dying. The general sentiment seems to be that the high-end A malls are and will continue to thrive, and that it’s only the B and C malls that are dying:

  Tom Simmons, who oversees the mid-Atlantic shopping center division of Kimco, another real estate giant, is more blunt. “There are B and C malls in tertiary markets that are dinosaurs and will likely die,” he said, but “A malls are doing well.” (NY Times)

  So why is this happening? Some think it’s because the US is over-retailed. And some think it’s because of rising income inequality – which would explain why the high-end malls continue to thrive. But the experts seem to agree that it’s not the result of more people shopping online:

  One factor many shoppers blame for the decline of malls — online shopping — is having only a small effect, experts say. Less than 10 percent of retail sales take place online, and those sales tend to hit big-box stores harder, rather than the fashion chains and other specialty retailers in enclosed malls. (NY Times)

  I wrote a post 2 months ago where where I argued that big box stores will be the most impacted by online shopping (which is why so many of them now sell groceries). But I don’t believe that they are the only retailers that will be affected. Quite the opposite: Every retailer is or eventually will be impacted by the internet.

  This threat is real.

  Millennials have no hesitations about buying things online and, in many cases, they would prefer to do so. It has already been well documented that we (I’m a Millennial) don’t like driving as much as previous generations. So what makes you think we’d enjoy the process of driving to a mall?

  But the other factor at play, I think, is that malls are no longer the “public space” of young people. Their position as a kind of cultural institution is waning. At the same time, more and more people are craving uniqueness. They like independent shops, not malls that all look and feel the same. And as these young people become old people, we might find that even the A malls start becoming impacted.

  I don’t believe, for a second, that retail nodes within cities will ever disappear. But I think our attention would be better spent figuring out what the mall of the 21st century will be, as opposed to hiring PR firms to try and spin doctor our way out of this dead mall phenomenon.

  Image: Flickr

  2015.01.04