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posted: 1/26/2014 5:00 AM

Retail in the age of Amazon: Virtual shopping replaces reality

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  • Since coming onto the scene about a decade ago, Amazon has rapidly turned from an online bookseller into a tentacular behemoth that sells anything and everything cheaper than the companies that produce it, laying waste to everyone else's profit margins.

      Since coming onto the scene about a decade ago, Amazon has rapidly turned from an online bookseller into a tentacular behemoth that sells anything and everything cheaper than the companies that produce it, laying waste to everyone else's profit margins.

 
The Washington Post

At the National Retail Federation's annual convention -- a festival of consumerism housed in New York City's soaring Javits Center with 30,000 attendees and dozens of lectures on the wizardry of modern commerce -- the hottest ticket was for a lunchtime talk about a company that wasn't even there presenting. The enigmatic title: "Even Amazon Can't Do This … Yet."

"If you don't think Amazon is a problem for your business, I don't care where you are in the world, you are wrong. You are living under a rock. It's time to come out," declared consultant Lee Peterson of WD Partners, to an auditorium so packed that people were standing at the back and sitting in the aisles. "The very concept of online shopping has become synonymous with Amazon."

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They listened carefully as Peterson laid out the problem, raising camera phones in unison to capture the slides he presented about a customer base that sees little need to frequent physical stores since the advent of Amazon Prime.

And it wasn't just that session: Just like much of the International Consumer Electronics Show revolves around Apple's products even though the company stopped attending years ago, the chatter at last week's retail extravaganza was a response to Amazon.com's seismic influence.

Since coming onto the scene about a decade ago, the Seattle company has rapidly turned from an online bookseller into a tentacular behemoth that sells anything and everything cheaper than the companies that produce it, laying waste to everyone else's profit margins.

And the retail world is still desperately seeking solutions. (Amazon chief executive Jeff Bezos owns The Washington Post.)

"The elephant in the room is Amazon apparently doesn't need to make a profit, where other retailers do," Hamish Brewer, chief executive of JDA Software, said in a keynote panel. The room curdled, as if Brewer had uttered something unfit for polite company, but Brewer forged ahead. "If you're going to chase Amazon on price only, I don't think that's going to be a successful strategy. We have to, as retailers, develop strengths that Amazon doesn't have."

The retail service industry has gone into overdrive trying to give retailers new ways to fight back. At the convention, flocks of Brazilian and European executives milled about in two giant expo halls, peering at the latest grocery checkout stands and interactive digital signage. Tech companies hawked their analytics platforms with the help of pop-up shops by Momofuku Milk Bar and Godiva.

The good news, for them: The playing field is starting to level up. A few years of overhauling technological infrastructure and rethinking distribution is turning traditional retailers into the kinds of entities that have a chance to survive in the new world Amazon has created. The bad news is that they're not focusing on the one thing Peterson pointed out that Amazon does not do well -- interaction with actual people in actual stores that have traditionally been better at selling merchandise than any newfangled technology could ever manage.

If you really want to claw back some market power in the age of Amazon, you need to do a few things: Let your customers discover, purchase and have your products delivered anywhere they please. Make your physical stores into interactive fun zones. And, meanwhile, learn as much about the people buying from you as possible.

That overall approach can be encapsulated in one easy buzzword: "Omnichannelization" (a.k.a. "Amazon response").

Let's break that down. "Channels" are the ways in which retailers communicate with their customers, from their storefronts to their websites to their mobile applications. "Omni" means that you have to use all of them and that consumers need to be able to switch among them, ordering something online to pick up in a store, finding something in a store and getting it delivered to their home, whenever they want -- the only way to compete against a company that makes buying everything as easy as one click.

"From our perspective, it just means additional complexity," said David Telford, director of market development with QlikView, one of the hundreds of data companies that have sprung up to help retailers manage the nightmarish logistical challenge that kind of universal availability presents. One of the biggest of those is eBay, another purely online company that has developed an enterprise arm to manage ordering and deliveries for companies that don't feel up to the task.

"We're the anti-Amazon," said Ted McCaffrey, the eBay division's director of sales.

Much of the change has happened behind the scenes as retailers start turning their physical stores into warehouses that can respond much more quickly to online ordering. A whole lot of it hasn't hit the street yet -- and could totally upend the consumer experience when it finally does.

Tata Consultancy Services, for example, presented a "shoppable window" with special glass that allows passersby to browse through goods for sale even while the store is closed. A start-up called Beehivr builds apps using Apple's iBeacon technology to guide people through a store, sending notifications based on whether they're in the dress section or the shoe aisle. A new kind of "digital watermark" can be implanted in everything from product packaging to magazine ads, or even the audio of a soundtrack playing overhead, allowing retailers to broadcast information to anybody who can be taught that the information is all around them -- if only they would download the app that decodes it.

That's one of the biggest X factors in all these new strategies meant to make shopping easier than breathing: Will people actually use them?

Take a brand-new technology by Los Angeles-based start-up Actv8.me, which has developed a way for television commercials to push alerts to a viewer's phone about the clothing everyone on a show is wearing, or even send coupons for the products in an advertisement. All of it can be personalized as the networks learn more about the preferences of who's in front of the TV. When it goes live this fall, the program could solve a huge problem for broadcasters: getting people to actually watch the advertisements that generate their revenue.

It only works, though, if viewers can be taught what's going on. "You just hope that consumers understand it," Actv8.me chief executive Brian Shuster said when asked what he worries about most with the program. "And if we make it simple enough, they will."

Those are the new technologies that seem to have real potential. Sometimes, the aspirations for omnichannel retailing seem more akin to fantasy than mere magic -- with limited real-world utility.

IBM, for example, had a set of virtual-reality glasses that allow shoppers to wander through a store as if in a video game, picking up "coins" to redeem for discounts. Taking it one step further, the Indian technology company Wipro showcased a 3-D "virtual shopping" app that allows you to "walk" through a "store" without even leaving your living room, browsing items without the bother of crowds.

It might seem odd that someone would choose to simulate a shopping experience remotely rather than going to a physical store or buying from a typical retail website. But salesman Ramakrishna Kashikar argued that video game culture is so pervasive now that there's no telling how far consumers might want to take it.

"The world has become so virtual," he said. "Even Amazon has to do this kind of thing, or else they're going to be wiped out."

The flip side of all of this: Letting consumers access goods electronically allows companies to learn everything there is to know about your relationship with them and leverage it to sell you more.

"Loyalty" programs are ubiquitous now, but they're not just a consumer convenience -- they're also a way for companies to anticipate your needs. Think about going to get a sandwich at Quiznos and, because the store recognizes an app on your phone as you walk through the door, the person behind the counter already knows you like American cheese and no tomatoes.

Introducing that level of panoptic intelligence into the customer relationship must be done delicately. A small company that develops customer management software for mid-size retail operations, Springboard Retail, showed off what a sales associate could know about customer "Albin Douglas" when he walks in a store. Since Douglas has bought mostly blue shirts in the past, the associate could recommend a new selection of blue shirts that just went on sale. It's all in the interest of making the in-store experience just as intelligent as the online one.

"A lot of people predicted that brick-and-mortar would go away. We're trying to help them rebuild those relationships," Springboard's Allen Williams said.

But isn't it possible that customers might be more creeped out by people knowing things about them that they used to entrust only to a computer?

"They kind of will be, I think," Williams acknowledged.

Springboard may have the right idea, as consumers get more used to the reality that companies are tracking them everywhere, to put that knowledge in the hands of actual people who can use it to re-create a sense of community that's been lost in the digital age.

Indeed, that was the answer to the question that drew so many convention-goers to Peterson's session on how to beat Amazon. He presented the results of a large survey that showed that consumers find dealing with salespeople more frustrating than satisfying, even though face-to-face interaction is the one thing Amazon can't offer.

"To me, that's a travesty," Peterson said. "If you're worried about defeating Amazon, I think this is number one. Invest in people. Hire people who like people. Retail is like having a party in your house every day."

The rest of the convention, though, seemed to be going in the opposite direction. Most of the innovations on display focused on how to take people out of the process, including huge vending machines that sell everything from hot meals to Kindles, lockers where you can pick up whatever you've ordered to be delivered to them, and battery-powered price tags that can be manipulated from a central computer rather than having someone spend hours changing them one by one.

One of the few attempts to put people back in the process came from a three-year-old company called Needle, which recruits "brand advocates" to answer questions about products online for $10 to $12 an hour, with the chance to earn a more flexible schedule or free products for good performance. The company had a whole corner of the convention floor, where three live "advocates" -- a part-time student, a stay-at-home mom, a freelance photographer -- sat in chairs in front of a giant shrink-wrapped camper van doing their jobs, chatting away with customers for the companies they represent.

In another time, they might have dealt with the shopper face to face. In the future, it's as personal as most shopping is likely to get.

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