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16 Jun 2017

Consumer and Retail What will Amazon do next? Omnichannel’s ‘End of the Beginning’


The Omnichannel wheel seems to have turned one full circle. Amazon is widely and unequivocally credited with killing the largest bookstore chain of its times, Barnes and Noble. More than a decade later, Amazon has tried the self-checkout store – Amazon Go. And now, Amazon is acquiring Whole Foods.

The anti-brick and mortar revolution that Amazon started two decades back is finally showing its true nemesis. It is not killing retail; it is transforming retail. This is the ‘end of the beginning’ for Omnichannel.

Every American retailer is tanking on the stock market today, and rightfully so. The shareholders ought to be very worried. Walmart and Targets of the world brought convenience, choice and best bargains to the consumers. Amazon has done the same with a thoughtful four-pronged strategy:

  • Better choice to the consumer – bring the largest selection of products to the consumer, especially ones that are packaged and structured.
  • Seduce them with and addict them to superior offers (read: phenomenal discounts)
  • Delight them with outstanding hassle-free fulfillment (again and again, with Prime), and
  • Now, breach the last frontier of ‘habitual purchases’ i.e. grocery

The acquisition of Whole Foods is a brilliant move by Amazon. It shortens the time to market on the most frequently purchased category, i.e. groceries and most importantly and makes the distinction between ‘discovery’ and ‘fulfillment’ clear even in minds of consumers who aren’t Amazon-addicts. Look for products in this window (because here is the widest selection) and then, we will get the product to you when you want. yes, even your groceries. Happy Birthday, Omnichannel.

Come to think of it, one should have guessed this. We, at Praxis, had come up with this ‘Praxis Category Matrix’ some time back where we plot product categories in a 2-by-2 of ‘customer involvement’ and ‘supply chain complexity’.

Amazon tried moving to the unstructured category of Apparel – diversity in consumer choice, proliferation in brands and complex supply chain with very limited repeat SKUs. Amazon Fashion grew but probably not as much as Amazon wanted it to. They were moving along the wrong axis. Habit formation is tough to reinforce through a promiscuous category like Apparel.

So, they have decided to pump money behind the other axis. Relatively low involvement but high-frequency giant category – Grocery. I can imagine the discussion to be something like:

“Grocery? But it is operationally complex. And it is local.”

“Well, from where we are, there are only difficult problems to solve. Getting consumers to buy apparel from one portal, one brand is tougher than fulfilling grocery supplies locally. And moreover, because the category is relatively structured, we can actually scale it without adding people at the counter – exactly how we did with books and mobile phones”

“Got it. Let’s do it.”

So, what next for Amazon? Following the matrix, I suspect their next move is going to be to enter into structured digital items – movie tickets, event passes, digital music, digital video (oops, Amazon Prime is already there!). It seems to be all coming together. Amazon is charging ahead to be THE shopping window.

What Google was to Search (discovery), Amazon will be to Purchases. Netflix, Spotify, Expedia, …on your marks!

Authored by (at the time of writing):

Madhur Singhal, Leader, Consumer and Retail Practice

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