“The beginning of the end of retail as we know it”

“OK it’s Tuesday morning in Australia and this is a very long and important article. Send it to yourself so you can read it later in the day.”

It’s good having mates in different countries who look at the same stuff that you do. In my case that mate is Howard Saunders at 22nd and 5th in New York. And the “stuff” is retail trending.

An article by Irwin Stelzer, an American economist writing in the UK’s The Sunday Times, caught Howard’s eye and he shared it with me on Facebook. It’s not a good article, it’s a great article and one which all leaders and investors in retail should read.

It starts a bit like HG Wells’ novel The War of The Worlds.

An ominous portent of bad things to come in the world of retail. My apologies to the late, great Herbert George for editing and “retailising” the opening lines of his great novel.

“No one would have believed in the first years of the twenty first century that this retail world was being watched keenly and closely by intelligences greater than an average retailer and yet as mortal as his own; that as retailers busied themselves about their various concerns they were scrutinised and studied, perhaps almost as narrowly as a man with a microscope might scrutinise the transient creatures that swarm and multiply in a drop of water. With infinite complacency retailers went to and fro over this globe about their little affairs, serene in their assurance of their empire over online technology.”

Scary huh? The original lines, narrated by Richard Burton, used to frighten my then 10-year-old daughter to death. However, if you’re a retailer they aren’t anywhere near as scary as Stelzer’s article.

Stelzer wrote:

“July 12 just might have been the day on which the retail sector as we have known it here in America came to its end. If not its end, surely the beginning of its end. Amazon has an estimated 54 million Prime customers in the U.S. who pay $99 per year, and millions more around the world who pay about the same for ‘free delivery’. Ignore pedants who ask how something for which you pay can be ‘free’. Customers love it. They have items shipped to them in one day, and in one hour in cities from New York to London. On July 12, Amazon’s second annual “Prime Day”, these customers could order kitchen, dining and bar items at 86 percent off usual prices; treat themselves to a 55-inch television set for $650, a $350 discount; buy watches at discounts of up to 60 percent, and snap up new deals that were offered every ten minutes. The result was a flood of orders, with Prime Day sales topping those on last year’s first Prime Day by 50 percent in the US and 60 percent worldwide. And beating Black Friday, the day after Thanksgiving, for many years the biggest shopping day of the year.

“Some 200,000 headphones, 14,000 laptops, and hundreds of thousands of boxes of Cascade and Tide rolled out of its warehouses, capturing sales from all sorts of existing retailers – electronics stores, supermarkets, jewelry shops and department stores. The latter, of course, are already hard-hit by the growth in online purchases of apparel and accessories, estimated to rise to $71.8 billion by year-end from $48.5 billion as recently as 2013, an increase of 48 percent.

“Amazon, with a range of its own-brand apparel such as socks and trousers, is now the second largest apparel seller in America behind Walmart, another chain that is no friend to department stores. According to Morgan Stanley, Amazon will account for one-fifth of all US apparel sales by 2020, biting into the business not only of department stores but of Walmart, which is closing 154 stores in America. As The Economist put it, Walmart ‘has strived to help Americans save money, [whereas] Amazon is obsessed with helping them save time’. Walmart is running up against lots of stores that match its savings, while Amazon is benefitting from the fact that millennials (born between around the mid-1990s through the early 2000s) want the hassle-free experiences of online ordering and free delivery, an Amazon feature that few can match, especially in the range of goods on offer.”

This single retailing model features a wide range of discounted products and brands, all targeted at Millennials by a Millennial company. The scale of sales dollars and growth rates, which are all based on innovative technology, communication and delivery, is staggeringly difficult for any established retailer to build out quickly and within their current available capital as public companies. Stelzer goes on to talk about the challenges faced by generalist and department store retailers. But he also offers hope for those who can innovate to reinvent themselves.

“None of this will come as a surprise to students of capitalism as capitalism continually innovates in a process Joseph Schumpeter called a ‘perennial gale of creative destruction’. Competition produces winners and losers. In the case of the changes in the retail sector, shoppers are the clear winners, employees and investors in incumbent retail firms are the losers.

“Unless they adapt. Some retailers, like Nordstrom, are setting up cut-price chains to attract price-conscious customers and acquiring firms such as DS Co., a cloud-based firm that enables Nordstrom to ship online orders directly from manufacturers to customers, bypassing its bricks-and-mortar stores. Others, like Walmart, are using stores to compete with Amazon’s delivery system—90 percent of Americans live within fifteen minutes of a Walmart store. And Amazon isn’t standing still. More good news for shoppers who, thanks to Google’s search engine, tips on social media, and the rapid responses of innovative retailers, now have more choice than ever.”

Traditional retailers can adapt but it takes very clear leadership and targeted capital expenditure in technology to play catch up.

So what about suppliers to retail? Well Stelzer’s article only refers to Amazon’s Prime Day. It doesn’t include Alibaba’s online “Singles Day” which runs in November each year. It generated another US$14 billion of sales in 24 hours in 2015.

Based on Amazon’s Prime Day growth, Singles Day should top US$22 billion in November this year. Oh, and China is in our back yard, and Chinese shoppers trust and love Australian and New Zealand brands.

If as an Australia and New Zealand supplier you need help accessing Alibaba in time for this year’s huge event, talk to companies like The Clean Food Co to see if you can access the whole of the Chinese market in one fell swoop.

Exciting times.

Kevin Moore is a retail expert and the chairman of Crossmark Asia Pacific Holdings and Mirador Retail Technology. He is also the founder of TheRoadToRetail.