Why Amazon Is The Greatest Thing That Has Ever Happened To Your Retail Business.
On the 12th of April, 1961, a single radio broadcast echoed around the airwaves of the United States, delivering with it a message that would spark a tectonic shift in the course of the US economy; a catalyst that would spur a 50 year transformation in the prospects of the world’s largest superpower.
It wasn’t a presidential change, it wasn’t a speech or declaration of war — in fact, it wasn’t even something done by the US government or a US citizen at all.
On this day, the USSR successfully put the first man into space. Yuri Gagarin in his Vostok 1 spacecraft spent 108 soul crushing minutes orbiting the earth before descending back to solid ground.
Shattering barely begins to describe the impact that this one event had on US administrators and the public at large. For the longest time, the USSR had been positioned as the US’s inferior communist superpower counterpart — years behind in any spaceflight endeavours.
Barely a month after the Vostok 1’s historic flight, US president John F Kennedy appeared before US congress, delivering his now famous declaration that a US astronaut would land on the moon before the decade was finished (a mere 8 years).
Whilst we all know how this story ends, what we rarely think about is what would (or wouldn’t) have happened had the Soviet Union not hurled Gagarin into space that day. Would Kennedy have been able galvanise the might and will of so many branches of government, society, the private sector and the public at large to achieve such a spectacular feat without the pretext of their arch enemy humiliating them?
This brings me onto the topic of Amazon and the value of having a powerful adversary — a forcing factor to concentrate your efforts on an ambitious and noble goal.
Why Everybody Needs An Enemy
If you listen carefully to the old Aerosmith song “Dream On”, you can hear a line uttered so quickly that it is almost lost in the flow of the lyrics — “you’ve gotta lose to know how to win”. Anyone who has ridden the rollercoaster of any competitive pursuit, be it business, sport and so on, will understand the true weight of this line. You’ve exerted every ounce of effort through every fibre of your being and still come up short. Whilst crushing, it is often only then that you gain the gift of perspective. If you’re lucky enough to live to fight another day, this new found perspective puts you in a position from which you can start to reflect on your flawed approach, re-strategise, and set yourself up to win at the next turn. Whether your enemy was another human or company, a physical factor like time or money — the “face” of that enemy is etched into your brain, serving as a constant reminder of the loss you suffered AND the commitment to the new, better path ahead.
For the United States, that was the USSR — in our current colosseum of commerce, this agent of defeat for many traditional retailers is Amazon.
So why precisely in this instance, is having such a potent opponent such a boon for the retail industry as a whole?
A Driving Force For Cultural Change.
Any leader of a large, established and complex business will tell you, amongst their top 3 complaints about the organisation is the aversion to change … more specifically, how slowly change happens. This isn’t an article on the inner psychology of the human species and our hatred of change, but suffice to say, we’re not good at embracing it. However, the times in which we have been reliably “good” at change are usually during some kind of existential crisis — war, famine, financial crashes and so on.
Simply look at the re-gearing of the entire US economy to win the space race — from a more concentrated effort in the education sector, to honing private industry in the development of advanced materials, systems engineering, aeronautics and so on.
When you are faced with the prospect of rock bottom as you stare into the unforgiving abyss, no idea to save yourself seems too silly, no pace of adaptation is too fast.
To take this point to the extreme, legendary inventor Dr. Nakamats, who invented the floppy disk along with thousands of other products, would routinely nearly drown himself to trigger his brain’s creative response and spur himself into action. (disclaimer: clearly DO NOT TRY THIS AT HOME)
Whilst I’d be very disappointed to see company execs holding their employee’s heads under the water to instigate some form of sadistic cultural change — the basic principle of “necessity is the mother of all invention” is no more applicable than here.
In summary, leaders can use this kind of upheaval to drive new agendas and instigate long-lasting and embedded cultural nimbleness in a way that could not even be imagined during times of peace and prosperity.
Clear The Dead Wood.
Everybody has heard the old saying “the rising tide floats all boats”, well, Warren Buffet has his own expression suggesting the opposite is just as true; “Only when the tide goes out, do you discover who’s been swimming naked”.
There are a no shortage of trash retailers in the world, and to put it bluntly, they’re currently getting murdered. Whilst this may sound heartless, the sooner the world is rid of these bottom feeders, the better for the rest.
Why am I so aggressive on this point? Not because I have some personal sociopathic hatred of Aunt Betty and Uncle Joe’s corner trinket shop, but because whilst these businesses may appear to be isolated companies, with no impact on any others, the reality is that they are part of a far more complex web that is gradually drowning every other one around them.
Firstly, having a plethora of these poor experience players infecting the landscape, paints a negative image in the minds of consumers as they are forced to wade through the mental morass of options. This is an extremely problematic phenomena as it can be negatively impacted by a highly brittle part of our psychology into avoiding all experiences in this category.
As Daniel Kahneman and Amos Taversky’s research in the 1970’s discovered, we inherently fall victim to a “representativeness heuristic”, in that we extrapolate the properties in one or a small number of examples across all things that seem like they should belong in that category. By way of a simple example — if we visit a crappy electronics store to buy a new laptop and we have a wretched experience at that store, any other similar stores will fall into our mental “no go zone”. We’ll look to actively avoid such experiences — including wonderful companies that may have inadvertently been caught up in your brain’s “scorched earth” approach. Logically then, the higher the overall standard, the better light consumers will see that category of company in.
A second problem of keeping “bad company” around you is the “guilty by association” effect, which inadvertently pulls down really good companies … or, at the very least, makes life a lot harder for them.
This gets manifested in a number of facets of business life. Take for instance, credit scores for commercial lending. Look at the retail industry at the moment for instance — due to the high rate of business failure, poor outlook and other dire indicators, banks see that the sheer membership of that class of business is a risk and will inherently bump down your score, no matter how amazing a business you are.
Once you start looking, you will see this kind of discriminatory behaviour at play everywhere you look — from supplier term reductions, lease negotiations (forcing prepayment), staff hiring (making it hard to recruit good staff).
So simply, sweeping the decks of these businesses that have been “coffin dodging” at the expense of the truly great and sustainable businesses is something that is going to only be expedited by a dominant predator in the ecosystem (in this case Amazon) — and this is a great outcome for the remaining high performing companies that are actually value accretive to the industry and economy as a whole.
Pick A Damn Strategy!
Look at most department stores today and what do you see as their cohesive strategy?
“We’ve got low prices AND we’ve got a gazillion locations AND we compete on service AND we do dropship ecommerce of our private labels AND we have the best range …. oh and did we mention we’ve got a loyalty club?“ … the list goes on — by trying to compete on everything, these companies aren’t particularly great at anything.
One of the silver linings of introducing an “apex predator” into the mix is it forces you to choose a route. As the wily beast begins to block off more and more of your routes to success (or at least survival), you must pick the thing that you think you have the best chance of winning on.
Military history provides a litany of examples of this version of “play to your strengths” philosophy. Take for example Afghanistan, over its long turbulent history Afghanistan had been a thorn in the side of almost every major empire who sought to control it. Why was it so hard to conquer? Well, local militias and armies had known for centuries that their natural advantage lay in using the landscape they were born into and had adapted to so well as a central thesis in their combat strategies — in plain english, make the enemy fight in caves, up rocky mountains and in conditions where their superior firepower & equipment were completely nullified. What Afghan warriors knew better than others was that you didn’t need to fight every battle, but only fight those where you can have a distinct natural advantage.
Today’s companies facing Amazon need to think like Afghan militia — seek out and find those areas where your natural advantages are apparent. If you’re small, you’re nimble, if you have an unbelievably deep knowledge in one very narrow category, go there.
This is not rocket science, but in reality, is very hard to do when we see others chasing down opportunities that we see as assailable, fighting battles we think we can win.
All businesses can use the spectre of this juggernaut breathing down their neck to their advantage by driving home three key things when picking a strategy.
- Accentuate points of difference and find new ones. Different trumps slightly better.
- Tighten up why you exist for customers and why they should care. A strong mission and purpose permeating all aspects of your company is one of the last, most enduring assets you have.
- Focus on the small number of things that can be and obsessively want to be great at — rather than the thousand things you can be okay at.
The charge of the Amazonian Empire rolls on but there will always be external uncontrollable factors trying to chip away at your business. Amazon will own frictionless retail, so you must forge an alternative path. To deliver an experience rich in customer delight at every touch. When building your stage and gearing up the workforce of the future it is essential to focus on your advantages- your heritage, your estate, in store theatre and crucially people. Create personalised and experiential shopping journeys that are simply unavailable online – Allow human to human connections to build your brand.
Don’t try and beat amazon at their own game. Start a new one and define your success.