Omni Talk (click here to subscribe) presents Omni Bag — where Chris Walton answers the questions on his readers’ minds about the future of omnichannel retailing, like one of this month’s questions –“What is your position on the recently announced Kohl’s and Amazon partnership?”
Omni Bag is back, and I don’t know if it is Mike and Mike “better than ever” but hopefully it is at least as good as the first go around. In the spirit of continuous improvement and acting on feedback from one of Omni Talk’s most loyal followers, Kevin Iverson, I have shortened this edition relative to my inaugural Omni Bag post.
Question: What is your position on the recently announced Amazon and Kohl’s partnership?
Answer: Candidly, I am not sure. It is too early to say whether it is a good move or a bad move.
Here is what I do know for sure.
One, Kohl’s is in a tough spot. Kohl’s is caught between a demographic rock and a hard place. The only person I know who shops at Kohl’s, within my entire Lion King circle of life, is my 64-year-old mother-in-law, Marge, so I’m pretty sure teenagers aren’t saying, “You know what we should do today after school? We should go to Kohl’s!”
In addition to challenging demographics, Kohl’s high/low pricing scheme could die on the vine soon too, as e-commerce gives consumers more and more pricing transparency with each passing hour and minute. It is possible that Kohl’s pricing, “gimic” could lose its efficacy over time.
Sixty percent off on decorative Santa Claus hand towels might have sounded like a great deal after watching L.A. Law and heading to your local suburban strip mall in 1985, but millennials and Generation Z likely won’t be as enraptured with such a handle given all the information they have at their fingertips in today’s world.
So, Kohl’s has to come up with something new. Their Amazon partnership is at least something new.
Two, the online return market just keeps growing. Recent estimates on Bloomberg indicate that returns represent roughly 30% of online sales, whereas store returns only represent approximately 9% of bricks-and-mortar sales, meaning there is roughly a 3x gap in online return behavior vs. bricks-and-mortar return behavior. With online penetration only poised to grow at or above double digit rates for the forseeable future, the sheer number of online returns either shipped back to retailers or brought back to omnichannel retailers’ stores will surely continue to increase rapidly.
Credit Kohl’s heavily then for seeing this growing online return predicament as an opportunity rather than a problem. Not many retailers are taking this approach. The Amazon partnership smartly brands Kohl’s as a place to return Amazon product as well as a place for its own customers to return their Kohl’s online purchases. If you cannot beat Amazon, Kohl’s must be thinking that they might as well draft on the potential of Amazon’s growing e-commerce business (and therefore the additional Amazon return activity as well) and offer an easier return solution that drives traffic to their stores.
Three, the Amazon shop-in-a-shop concept smells much like a Trojan Horse Part Deux, minus Charlie Sheen. It smells like what Gary Vaynerchuk famously ranted about regarding Toys “R” Us.
Like many retailers, Toys “R” Us outsourced their e-commerce operations at the early part of the millenium. Gary’s argument, if you watch the video above, is that Toys “R” Us and many others are still playing catch up as a result.
One has to wonder if the same strategy could again be afoot with shop-in-shops that sell Amazon’s Alexa voice products. As I present in the video below, Amazon subtly is already planning to use visual scan technology to make the entire physical world their retail store front:
Voice, in a way, is just a similar bet on the same idea — Amazon wanting to make sure they don’t need to rely on physical stores to survive. So, tread carefully, Kohl’s, Amazon could be shrewdly displacing you in a far more bone chilling way than how the wind blows off Lake Michigan in Milwaukee during the winter.
Fourth, we have no idea what Kohl’s long-term aims are. The way I see it — they have two choices: #1) Innovate to compete #2) Understand you can’t compete and abandon ship by readying the company for acquisition or harvest (a la Sears). If their play is #1, the returns angle is interesting, but the Trojan Horse angle ultimately trumps the returns strategy.
If, on the other hand, Kohl’s already understands that they cannot survive in the long-run and this play is therefore a dress rehearsal for an even bigger dance with Amazon, then mazel tov!
If it is only a dress rehearsal, then Kohl’s just may in fact be the smartest retailer in the room (though an even smarter move would be to try #1 at the same time as #2, with a more innovative move, like an entirely new retail concept, under a new brand umbrella, that could molt into your existing store base over time).
So, in summary, it is hard to know what to make of Kohl’s move with Amazon unless we know more about their long-term motivations. Only time will tell.
And, side note, it is really weird to write about an entity (Kohl’s) whose singular possessive form is the same as its plural possessive form. It is probably a sign for you to take seriously if you believe in such things. Marge, your loyal Kohl’s shopper, would most certainly agree.
Question: Do you ever envision a world where in store shopping is done simply through a collection of digital screens?
Answer: 100% no. Creating an in store experience that is solely a collection of digital screens misses the point of omnichannel retailing. Physical stores in the future should exist to answer one fundamental question — “Why come to a physical store to shop?”
People don’t want to come to a store only to do what they can easily do on a screen at home. Physical stores should be about color, texture, instilling buying confidence, and providing delightful memories of one’s experience. Physical retailing should never feel like e-commerce in a store. Stores should be a veritable feast for our five senses — digital may play a part in that, but if digital strays to close to an experience I can get sitting in my underwear, it will never work, and me in my underwear is never good for anyone.
Question: What is the biggest advantage upstart retailers have over legacy bricks-and-mortar players?
Answer: If I were a retail CEO, the #1 thing that would keep me up at night is pricing. If cloud point-of-sale solutions and scan-and-go technology ever reach their tipping point in terms of adoption, legacy retailers are f*cked.
Because pricing online and through these new technological systems is so much faster than legacy retailers can ever begin to replicate. Amazon and other e-commerce retailers can change their prices many times in a day, even by the hour and by the minute. Legacy bricks-and-mortar retailers, in contrast, change their pricing in stores by hand, with live in store labor, most of the time by reprinting paper signs. The lead times on these physical price changes can take days, if not weeks.
How do legacy retailers stand a chance if this lag exists? This discrepancy would be like asking me to race Usain Bolt in the 100-yard dash, after I spotted him a 90-yard head start, and I also had to walk on my hands.
Translation, they stand NO chance.
Their chance is colder than absolute zero, which is impossibly cold.
So, if I were a CEO, I would be focused on making my pricing in store as controllable as possible in real time no matter what the cost. The cost of any proposed solution stands to be far less than the cost of going out of business.
Question: What are some examples of good and bad omnichannel solutions you have seen in the market?
Answer: One of the most common traps around omnichannel solutions is to think digital is always the better answer. The photo below that a reader recently sent to me captures this sentiment beautifully:
This photo was taken at the Mall of America in Minneapolis to highlight the ridiculousness of using a digital solution to replace the standard, easily-readable mall directory.
Mall directories don’t need to be digitized. They work fine as they are. Hordes of people can stand around them easily to find out where they need to go. The above solution, on the other hand, only accomodates single users, meaning people have to wait in line to get the information they require. At the Mall of America, during the busy season, this bottleneck effect likely will become a problem, as the Mall of America, after IKEA, is a close 2nd in the running for 2017’s version of the seventh circle of hell in Dante’s Inferno.
While digital is always great to think about, great omnichannel solutions don’t always need to be digital. Here is a simple example of something super basic that gives people a reason to still go to a physical place:
The picture above is of a place called Choo Choo Bob’s. Choo Choo Bob’s is basically a model train store that realized it can no longer compete effectively in the e-commerce age so Bob changed his business model. Instead of trying to sell trains marked up at levels far beyond Amazon, Choo Choo Bob instead hosts train-themed birthday parties and devotes space for children just to play with simple wooden train sets.
I took my sons to Choo Choo Bob’s for research this weekend. We got there right when Bob put on his conductor hat. We were the first people in the store. Within a half hour, Choo Choo Bob had one packed caboose. I did a count at one point and there were 20 families crammed into about 150 square feet consisting of nine Thomas the Tank Engine tables that couldn’t cost more than $30 a piece to build.
Some of the best solutions are still the simplest solutions. Never are they digital just for the sake of digital.
Be careful out there,
P.S. My mother celebrated her birthday this past week. Like many of you, she is an ardent reader of the blog. She usually catches one or two of my grammatical errors every weak (ha ha) too, and I love her for it.
Please help me to wish her a happy birthday by subscribing to Omni Talk here. She loves to see her son making new friends.
P.P.S. This link I came across this week also gave me a good chuckle. I hope it gives you a chuckle too. I mean John Travolta? Wow, have times changed.
P.P.P.S. Having said that, this is never not funny . . .
<p>Chris Walton is an accomplished Senior Executive with nearly 20 years of success within the retail and retail technology industries. He is well-versed in merchandising, store operations, inventory management, product design, forecasting, e-commerce, pricing and promotions, and tech product development.</p>
<p>Chris was most recently a Vice President with Target, where he led the retailer’s Store of the Future project and also ran the Target’s home furnishing division for e-commerce. He previously worked for GAP, Inc., as a Distribution Analyst and Manager.</p>
<p>Chris holds a BA in Economics and History from Stanford University, and a MBA from Harvard Business School.</p>
<p>He likes to dress as Darth Vader for Halloween, and his wife also frequently asks him to ask Alexa, “to turn off the music.”</p>