Walmart, Amazon, And The Retail Apocalypse
Last week saw some familiar nouns in the news. Walmart announced it is going to use robots to perform mundane tasks in its stores, Amazon announced it was raising its minimum wage in distribution centers and stores (and challenged its rivals to go $1 better), and UBS decided that we’re going to see 75,000 store closings in the US by 2026.
On the surface, this is enough to strike fear and loathing in the hearts of all retailers. But there is a bit more to these stories than meets the eye.
When we parse these stories, it starts to smell a little differently. It smells like clickbait. In fact, the title of this article was intentional. Ask yourself, if I hadn’t mentioned Amazon, Walmart and the apocalypse in the title, would you have clicked through? I’ll bet more than half of you wouldn’t have. That’s how the media makes the sausage. And sometimes the information is useful and interesting. And sometimes, (as is true in 2 out of 3 of these stories) it’s not useful and simply annoying.
Let’s start with the “retail apocalypse.” How many times are senior stock analysts going to ask junior associates to write this kind of report, extrapolating numbers out in a spreadsheet (something they certainly learned to do in B-school) with little to no knowledge of how the industry actually works. Our friends over at IHL got a copy of the original report, and certainly found a lot to quibble with. We may be competitors, but we still agree on a lot. Greg Buzek (president and author of the piece) is a gentleman, so he didn’t quite say what I would say: the piece is baloney.
The report ignores the Omnichannel path to purchase, which invariably runs through stores. The report ignores buying on line and picking up in stores. The report ignores the fact that average transaction value was actually up in stores during the 2018 holiday season as were total sales, even though traffic was down slightly. The report ignores the fact that pureplay retailers are opening stores now - even Amazon (we’ll get to them in a minute).
But that’s what happens when you look at numbers in a vacuum. You get distorted results, and for whatever reason, the term retail apocalypse is eye candy. My retail friends: don’t be fooled. It’s not great for your stock price, for sure, but you can’t fix a half-truth. You have to ride it out and wait for the world to catch up with reality.
Okay, let’s move on to Amazon. It raised its minimum wage to $15 in stores and distribution centers. It's worth noting that Amazon runs a total of 10, count-em, 10 Amazon Go retail stores. Now, last year there were reports that this number would rise into the thousands by 2023. Let’s see if that actually happens (it won’t). So what’s the pay scale like in distribution centers? Interesting find on Walmart, right here; the starting wage is lower ($13) but the average wage is $17.42. So how did the Amazon story become news? Because it’s click bait. And just like Amazon is the only retailer I know that gets free front page stories about price reductions at Whole Foods Market, it’s the only retailer I know that gets front page press for raising the base pay in 10 stores.
This isn’t to say that retailers aren’t under tremendous pressure to improve their in-store work force. They are. And that means improving the pay scale of that work force. In fact, it is one of my five predictions for 2019 - that retailers will be under tremendous pressure to raise in-store and distribution center wages. Of course, the key question here is, how do those raises get funded? That’s where the Walmart story is genuinely interesting.
Here at RSR, we have been saying for years that it’s time for retailers to optimize non-selling functions in stores so that in-store associates can spend more time in customer-facing activities. That’s essentially what Walmart is doing. Why have a worker wash the floor when you can have a robot do it, and spend a little more money on your customer-facing workforce?
While not all of us can afford to buy robots for our stores yet, Walmart does give us a very good example of how to make stores more productive and profitable. That becomes the ask for retailers in general. What can YOU do to optimize non-selling functions in your stores?
I need to end this piece by saying I am an Amazon customer. I should really tally up my annual spend, because I know it’s a lot. Some things are just easy enough to buy through them. I needed envelopes. I ordered them through Amazon. Printer ink? Sure. But big ticket items and cosmeceuticals are more costly, and I am compelled to check prices on other sites. Amazon doesn’t win the price wars anymore. They still win the convenience wars, but not price. And honestly, I suspect if I didn’t work from home and traveled to an office every day I’d likely do more in-store shopping. Once you’re out, you’re out.
But wherever I shop, one thing is clear. Click bait is becoming really tiresome. Please don’t believe the hype. Think about who YOU want to be as a retailer. Why do you deserve to exist? Exploit that. Don’t chase Amazon, and don’t chase Walmart. As the saying goes, “You be you.” And if you do that, you’ll survive and thrive.
Let’s get real. Enough is enough.