IN:SIGHTTM: How can domestic retail best respond to Amazon’s presence in the marketplace?
Scott Galloway: A lot of retailers have been making incremental investments in artificial intelligence as an attempt to stay ahead of the curve. However, some of the most successful retailers in the United States, including Starbucks and Sephora, have been the ones making investments in their physical stores and organic intelligence. Consumers don’t go to stores for products anymore, they go for advice.
This doesn’t mean opening more stores, but reallocating money out of advertising and digital marketing into your store experience.
As a retailer, you’re still going to need to provide online/digital offerings but should also realise that moving forward, you will not be able to acquire new online consumers at a lower cost than Amazon. Amazon is the largest customer of Google, and they are extremely strong at search, CRM and overnight delivery.
You want to play where they don’t play, and at least for right now, they don’t have any brick and mortar in Australia.
“Amazon is bigger, stronger, and faster. I think that one of the only ways around this is for Australian retailers to recognise that their local competitors are not their enemies, but their allies.”Scott Galloway, Bestselling Author of The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google.
IN:SIGHTTM: As experience becomes a larger part of retail, how can local players compete with the tremendous amount of data captured in the big four’s ecosystems?
Scott Galloway: At the end of the day, Amazon is simply operating on a different scale. You can apply this to the amount of data they have access to for personalisation, their access to cheap capital, and the quality of employees that they attract. Amazon is bigger, stronger, and faster.
I think that one of the only ways around this is for Australian retailers to recognise that their local competitors are not their enemies, but their allies.
IN:SIGHTTM: Amazon’s whirlwind success overseas is due in no small part to logistical innovations from new warehousing techniques to plans such as Amazon Prime Air. How might Amazon shake up retail supply chains in Australia and what can local players learn from the company?
Scott Galloway: A common knee-jerk reaction when Amazon enters a market is to try to match them on delivery. The reality though is that Australian retailers don’t have access to the same level of capital and distribution networks to even compete.
Rather than trying to mimic Amazon, they should look towards the French/UK model of “click and collect”, leveraging their store base to make it easier for consumers to pick up their orders and bundles that they reserve online.
In regard to Amazon Prime Air, the firm itself describes the initiative as “conceptual,” similar to its recent approval of patents for floating warehouses. Amazon has become a master at storytelling, effectively replacing the need for profits with vision and growth. It’s been two years since Amazon Prime Air was announced, and I have yet to meet anyone who has had a package delivered to them via drones. Have you?
IN:SIGHTTM: Many Australian commentators have described Amazon’s initial Australian offerings as “underwhelming”. Might Amazon’s disruptive influence in international markets be overblown?
Scott Galloway: It’s not a matter of if Amazon will become a disruptive force in Australia, but when. You can look at what has already happened to the Australian media market and see that the big four pose a much greater threat than what meets the eye.
Since 2010, traditional media ad spend in Australia has gone from $12 billion to just $6.5 billion, whereas big tech has gone from $1.5 billion in 2010 to a projected $10 billion by 2020. In 2015 alone, these large players (particularly Facebook and Google) extracted an estimated $4-5 billion out of Australia, equivalent to 35-40% of the local ad market.
As for Amazon, the markets love Amazon. They love Amazon so much that they give them access to capital so cheap that other companies can’t compete. This has created an environment in the United States where we have a premature death of big companies (who are good employers) and a lot of small companies who never get off the ground.
Most Australian retailers trade at approximately 6 – 10x their profits, whereas Amazon trades at about 60x. This means that for every innovation that an Australian retailer can try, Amazon can invest in at least six.
They may be perceived as "underwhelming" but I would not be surprised if that is exactly the position they want to be in.