The war for dominance in digital retail is far from over. Amazon has captured the field for the past 20 years, but much of that can be attributed to first-mover advantage. The digital retail space is in constant flux, and nothing makes this more apparent than recent news of Google forming an “anti-Amazon alliance” with many of the largest retail chains in North America. Recode reported on the latest development in October, which saw Google add Target to a stable of retailers that already includes Walmart and Lowe’s Home Improvement.
This latest news signifies that technology and retail giants are starting to make a concerted effort to cut into the market dominance Amazon has shown in the past 15 years. Retail brands that want to wade into this space need to understand this landscape, and follow the classic advice from Sun Tzu to “be where your enemy is not.” Whether adopting that strategy means emphasizing a clienteling approach in physical stores or adopting an integrated omnichannel approach is a decision each brand must make for itself. But the reality is this: the game isn’t over yet.
Digital retail has long shown expansive growth more generally when compared with the industry as a whole. The National Retail Federation early in 2017 forecasted eight percent to 12 percent growth in e-commerce, which dwarfs the 3.7 percent to 4.2 percent in retail sales expected in the broader market. Digital has also become more prominent in terms of influence, with digital technologies affecting 56 percent of retail sales, according to eMarketer, which can include anything from showrooming to price matching and other practices.
Amazon has been the undisputed leader in e-commerce for years. In the second quarter of 2017, Amazon captured 30 percent of the $111.5 billion in e-commerce sales reported by the U.S. Department of Commerce. Retail sales through digital channels more generally grew 16.2 percent versus the second quarter of 2016, and 23 percent in 2015 alone. Of that increase in 2015, Amazon captured 26 percent according to a New York Times article at the time.
It’s easy to look at the numbers Amazon is putting up and get discouraged that there isn’t an opening for smaller brands. That isn’t the case though. For all its strength in digital retail, especially in book sales, Amazon has yet to fully displace big-box retailers like Walmart, Target, or Lowe’s in their respective verticals. What this means is that the digital retail space isn’t fully settled yet. There is still opportunity for smaller brands to compete in the digital space and find ways that they can provide competitive differentiation.
Google and big box retailers like Target share Amazon as a common enemy. Google competes with Amazon because the retailer recently captured the top spot in product searches, with BloomReach research finding that 55 percent of consumers look for products at Amazon first. The Amazon Echo further cuts into Google’s search business as well, which is likely part of the reason Google released the Google Home earlier this year.
For retailers, Amazon is the 800-pound gorilla in the e-commerce landscape. Amazon cuts into the sales of every major retailer and even many midmarket brands through their ability to price certain products at a loss and make up the difference with other sales. Retailers must determine the best course of action to compete with Amazon, and an alliance with Google can help them do that. For example, the bulk of Google’s recent deal with Target was focused on the retailer becoming a partner in Google’s voice-shopping initiative to compete with the Amazon Echo.
This is a perfect match from a competitiveness perspective. Big-box retailers like Walmart and Target have expansive product catalogs, and Google retains the dominant position in overall search volume. By combining their strengths, the two sides can leverage each other’s advantages to compete against Amazon on multiple fronts. More than practically any other development, these new deals are signs that a digital retail arms race is coming.
For retailers that don’t have the deep pockets of a Google or Target, there is still a possibility to compete effectively in the e-commerce space. To start with, focusing exclusively on the digital retail is a mistake. While e-commerce sales have been growing quickly, digital retail overall only accounted for 8.9 percent of all sales in the second quarter of 2017. Digital commerce may receive all the attention in the press, but that doesn’t mean it’s a substantial portion of the market yet.
Retailers with physical locations have the opportunity to win based on customer experience. According to recent CMO Council research, 25 percent of customers use a complex blend of online and offline channels to engage with their preferred brands. If retailers can optimize the experience that consumers have with the store, they stand a better chance at competing for share of wallet and retaining their market position. In essence, retailers need to an adopt an omnichannel customer engagement strategy to succeed long term.
To do that effectively though, retailers need to integrate behavior, preference, and transaction data from online and offline channels into a central point of control. They need a “command center” of sorts to unify their customer data and orchestrate interactions and experiences across channels of engagement. One solution that can accomplish these twin tasks is a customer engagement hub (CEH). The idea behind a CEH is to blend data from multiple customer engagement point solutions into a single portal, and then leverage that information to provide the next best action or next best offer regardless of channel.
With a customer engagement hub, retailers can react at the speed of the customer regardless of channel – either digital or physical. Imagine being able to leverage in-store beacons to provide coupons to a mobile phone or reach out with a new offer over email based on website interactions. Providing the right message at the right time through the right channel can make a dramatic difference for retailers of any size.
Retailers that want to compete in e-commerce still have substantial opportunity to do so. The alliance Google signed with Target, Walmart, and others makes it clear that digital retail is still wide open and competitive. Retailers that want to thrive in this market environment would do well to compete not on price, but instead on driving a contextually relevant customer experience. Brands that can do that effectively stand to not only survive the digital retail wars, but thrive in the months and years to come.
Author’s Note: Redpoint Global is at the National Retail Federation’s “Big Show” from January 14 to January 16, so feel free to email me to set up an appointment to talk more about the opportunities still alive in digital retail.