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Clicks and Mortar: The Amazon effect and the changing face of US retail

POSTED: 14 August 2018

Almost daily it seems the news is reporting yet another massive retail collapse. US household names are filing for bankruptcy - the latest being the spectacular collapse of Toys “R” Us, which followed hot on the heels of Sears - it is clear the US retail landscape is going through seismic shifts. What’s going on? And will anything be left at the end of it?

The golden era of retail

Ah, to yesteryear. Shoppers went about their business. Which in those bygone days amounted to: enter a shop, choose a product, buy it, take it home. It sounds simple, and it was simple.

When retail was simple

Retailers capitalized on the simplicity, adding more stores, bigger stores, encouraging shoppers to buy more. But the general format remained. Not a lot changed, not a lot needed to change.

Until now.

 The internet age

The internet has changed the retail landscape forever. And Amazon is clearly the leader of this pack. And when we say ‘changed’, think, more, bulldozered.

Amazon has swept in with excellent range, low prices and quick delivery. They have not only taken the internet by storm, but the whole US retail market. Already the 7th largest US retailer, and growing. And this is at a time when other more traditional retailers are stumbling. The convenience of ordering from Amazon is attractive to our ever busy and, paradoxically, lazy lifestyles - a click of the button gets you what you need without having to move off the couch.

As a business model, Amazon is on a strong footing. Costs are low. A fulfilment center requires far fewer staff than the same size retail space. And it's scalable.

Amazon is ever steadily growing its share of the S&P 500s Retail Index. Already it makes up 1/3 of the index, and this is continuing to grow. Such is the success of Amazon that we have what is known as the ‘Amazon effect’, relating to the store closures and retail bankruptcies caused by this new giant.

From the Amazon website - No stopping them with their compelling offers

And it makes pretty grim reading. 6,800 store closures in Q1-3 2017. The Bureau of Labor Statistics reports the US labor market has lost an average of 9000 jobs per month, compared to average job gains of 17000 jobs per month in 2016.

Even Grocers who had felt insulated from the Amazon effect are now anticipating an onslaught following Amazon’s $13.7 billion purchase of Whole Foods Market.  Amazon has been building a network of physical stores and experimenting with different formats, you can be sure that when they find their winning formula it’ll be rolled out quicker than we can say grab me an eggplant.

It seems bleak. Heck, the term ‘retail apocalypse’ even has it’s own Wikipedia entry. Surely the end is nigh. Are we doomed to a future of empty retail parks and shuttered stores? Will online become the only option available to consumers?

 A retail apocalypse

The failure of US retail is even more worrying when we consider that consumer confidence is high, unemployment is low, and the US economy is growing. This should equal a retail boom. But instead, retailers are filing for bankruptcy and stores are closing.

Historically there has been a clear overbuilding of stores. As e-commerce gains strength many of these are shutting. Our retail landscape is certainly overstored and the closure of some is inevitable.

We are also seeing a wave of risky retail debt maturities coming due now and over the next 5 years. And this combined with the challenges brought by e-commerce will lead more stores to shutter.

Shopping malls and department stores are the biggest losers to online. And we are also seeing a change in what people will buy online.  Previously the internet was for impulsive product purchases, but increasingly staples are also being purchased online. And, as we mentioned, Amazon is even moving into the Grocery space too. Seemingly there is nowhere to hide.

Let’s take the most recent spectacular fail – Toys “R” Us. Is there anything here we can learn?

‘I don’t wanna grow up, I’m a Toys “R” Us kid’

And this is perhaps the crux of the matter. Toys “R” Us forgot to grow up. The industry changed and Toys “R” Us didn’t change with it. The store format never changed. It was big. It was stack ‘em high. But it wasn’t sell ‘em cheap. And if you want a specific toy, be it a barbie or Legos, you can buy it in the supermarket, you can buy it wherever you see it while you are out shopping, or you can just go online. You don’t need a destination shop specifically to get it.

The end of Toys 'R' Us

Toys “R” Us needed to offer something more. It needed to be an event in its own right; to draw people in with the experience, not just the merchandize. Think of the Lego Store. When you enter the store, sure the products are there to see, but there are interactive workstations too and that’s what we all head to when we enter the store. We want to play, to feel the Legos in our hands. The staff join in. We become inspired. And then we buy.

Toys “R” Us was missing the experience factor, there was no theater. And so in September 2017, Toys “R” Us became the 3rd largest retail bankruptcy in US history, due to struggling to refinance some of its debt.

Is it really the end for physical retail?

Golly, it’s a pretty depressing picture we have painted here. Is e-commerce really going to bring the apocalypse of physical retail? The good news is some retailers are fighting back. Not all traditional retailers are failing.

Take Walmart. If there is one thing Amazon has taught us, it is that logistics expertise is of vital importance. Consumers want the product to arrive in the shortest time frame and for the lowest cost. And Walmart has taken this on board through agile logistics. They have made a series of alliances, for example with and, which has served to broaden their US e-commerce operations. In fact, Marc Lore, founder of is now CEO of Walmart’s US e-commerce business.

The retailers that are doing well are those that have recognized and adapted to changing consumer habits. Physical retailer is still very important but shoppers are more educated before they arrive.

To Millenials and Generation Z, in-store is very important, it isn’t just online. But retailers must move beyond bricks and mortar. Retail is now clicks and mortar, with a blurring of online-offline shopping.

Click and collect - making better use of physical retail

Not quite as catchy as BOGOF, the acronym BOPIS to describe ‘Buy online pick up in-store’ is where retailers are starting to focus.

‘Experiential Shopping’ is a growing trend. Think stores that aren’t stores. You can test products, try things on, learn more about the product by talking to staff. But you don’t walk out with your purchase, that is sent to you via a central warehouse. It is an amalgamation of the physical store and online purchasing.

Amazon is good for convenience and selection. In-store retailers must compete on price but they can also offer consumers an experience and interaction with brands which online retailers cannot. And it is this they need to capitalize on.

Forrester reports 68% of global business leaders list digital transformation as a top priority for their business, which is good news. And yet, only 3% have actually completed a digital transformation project – according to a study by Oxford Economics. 22% are still in the planning stage.

E-commerce has been seen by some retailers as a separate entity. So even those that embraced the digital world, saw it as an addition to what they were already doing. Those that are winning at retail realize it must go further than this, online must be integral to what they are doing.

And this is another area we can point to where Toys “R” Us failed. Their internet option was very much a separate branch of the business, not an integral part of their sale strategy.

Stores need to offer something more than just the merchandize. Otherwise, it is easier to go online, click, buy, goods delivered – all in the blink of an eye. The physical retailers that continue to thrive are realising where they have strengths that online cannot compete with; in particular knowledgeable staff, easy returns, and engaging displays.

E-commerce has certainly brought a big challenge to traditional retailers, but the retail apocalypse is far from a done-deal. By recognizing the benefits of physical retail and exploiting these differences, whilst integrating the convenience of the internet within the business strategy, physical retailers can and are fighting back. Let the battle commence!



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