Keeping up with, or replicating, Amazon is key to retailers’ success, says AlixPartners research

Online retail behemoth Amazon is many different things to many people, but one thing all other retailers have in common when it comes to Amazon is that they are falling behind and at a rapid pace in many cases.

That essentially served as the thesis of recent research report issued by AlixPartners, entitled “No, you can’t compete with Amazon. Stop trying.” That is a title that clearly leaves nothing on the table to be sure, but it is justified in more than a few ways.

In its report, AlixPartners noted how “whether it is making an acquisition, striking a big trade deal with a major brand, or introducing a new product or service, Amazon will never stop innovating or taking risks. Amazon’s assortment and growing list of offerings continue to attract new customers, and its massive infrastructure helps it execute with speed and precision. And we can complain about the financial ‘pass’ it’s getting all we want, but that’s not going to change. Investors are betting on an Amazon future, and customers now expect the services that Amazon pioneered from all their retailers, not just Amazon.”

How true that is indeed.

AlixPartners added that, not surprisingly, retailers continue to struggle in terms of how to compete with Amazon, adding that it has also met with retailers that maintain their retail category is Amazon-proof, a notion AlixPartners decried as laughable and not a strategy at all.

So, what’s a retailer to do then? AlixPartners says the first step is to “bite the bullet and copy Amazon on the dimensions that affect your specific channel.” It took that notion a step further in explaining how Amazon is ruthless when it comes to innovating and adding customer value through things like loyalty program, cheap and speedy delivery, low prices, unique assortments and easy returns. These are not new concepts, it stressed, even though many retailers are not making the grade.

This is where the report’s data comes in, analyzing 25 leading retailers’ (each with more than $800 million in annual revenues) offerings and capabilities, with the key finding being that none of them match up with Amazon for what AlixPartners dubs “table stakes” for things ranging from fast shipping to free in-store returns.

These findings were very telling, especially for the truly logistics-focused ones, including:

• 2 retailers offer free, fast shipping (two-day);
• 8 retailer offer free returns by mail;
• 17 retailers offer free shipping on orders less than $50;
• 17 retailers ship from store;
• 20 retailers offer Buy Online pick up in store; and
• 23 retailers offer free returns in store

As the numbers explain, retailers have plenty of room to run, not walk, in order to be at least on par with Amazon in order to build a solid foundation for future growth while cautioning that getting on par alone is not enough to get back to growth.

Standing in the way of this, according to Foster Finley, a managing director at AlixPartners, is the extent to which businesses are pretty deeply wedded to where they come from, specifically speaking to longtime retailers that have managed retail outlets and leveraged retail distribution processes that are slow to abandon their ways of doing things.

“That has been their secret to success for a long time, whereas Amazon has been all about being able to rapidly get products in peoples hands….and I think that is why we see a great divide,” he said. “There are some retailers that have gotten good at some aspects of e-commerce, or omni-channel, distribution, but when we look at big, well established retailers they have really been loathe to really go full bore into this area, which is what we are seeing. Rather than replicating Amazon, they need to figure out what uniquely as a retailer do they need to do from an omni-channel or e-commerce perspective that provides differentiation and profitability, as opposed to just trying to replicate what Amazon is. An old colleague of mine said that replicating the behavior of a competitor does not make you the peer of a competitor.”

Finley provided a follow-up to this, saying that the reluctance of businesses to wholesale abandon or try to really transform themselves from what they are and who they have been.

What’s more, he made it clear this is not solely applicable to e-commerce retail, noting it applies to several verticals like food, climatized items, and bulkier items, while also factoring in key brand demographics and how to separate oneself from the competition, including Amazon in many cases.

Looking ahead, Finley said retailers need to take pages out of the Amazon playbook in order to stay competitive and grow, and, most importantly, compete with Amazon. That may be done through adding more regional distribution centers in close proximity to major metropolitan centers, which is the core means by which they are able to offer time in transit that is available, although this can be “exceptionally expensive,” when relying on UPS and FedEx to do that, he noted. And some retailers are reluctant to have multiple miles of inventory around the country with some degree of comfort.

“A retailer may be more comfortable with high turns, rather than miles of goods that are accumulating dirt, debris, and dust on them and instead moving things that can be turned pretty quickly,” he said. “Amazon is also using 3PLs to house certain products in areas, where they don’t have their own facilities, which is a proximity play that is important for a certain demographic of customers, and those customers are taking advantage of that.”

Keeping up with Amazon is really the new normal for retail shippers and their related logistics processes and operations. And with imitation being the most sincere form of flattery, it stands to reason that more pages of the Amazon logistics playbook will continue to be torn out over time, not just to compete with Amazon but also to simply survive.