eMacy’s Rises, While eSears Sinks

The Wall Street Journal: “Among a crop of five retailers analyzed by Edison Trends, including Sears, Kmart, Kohl’s, Macy’s, and J.C. Penney, Macy’s has seen the strongest online growth in 2018, climbing 28% in monthly order volume since January. Meanwhile, Sears’s online order volume fell 25% from January to May. Penney looks only marginally better than Sears. Though it, too, operated a big catalog business, Penney failed to make the necessary digital investments to stay ahead.”

“As Sears shutters stores—it announced another 60 closures last month—e-commerce could have been the company’s future. Instead it has fallen far behind traditional retailers, and is way, way behind its big competitors, Walmart and Target . Maybe Sears should have stuck with the catalog.”

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Waiting in Line: There’s No App For That

The Wall Street Journal: “Every day, Mitchell Burton orders and pays for an Italian B.M.T. sandwich on his Subway mobile app, so the sandwich is waiting at the counter. When he arrives, the 32-year-old Baton Rouge, La., parks and recreation worker frequently heads to the back of the line, to avoid seeming rude to less tech-savvy fellow customers. Line skippers sometimes ‘get the stink eye,’ he says, because fellow patrons don’t understand that there’s an app to order ahead.”

“Various ways to skip lines have gained momentum in recent years, as businesses ranging from retailers to movie theaters have come up with ways for customers to avoid a wait, often with mobile apps and ordering kiosks … In theory, order-ahead technology should appeal to everyone.” But: “Some line lovers say technology gets in the way of the personal touch. That’s why Al DiSalvatore sometimes puts his phone down and lines up the old fashioned way at coffee shops in Philadelphia. He likes when the baristas remember his name and order—something that reminds him of his time living in smaller cities.”

“Lining up is part of a gauzy nostalgia for the days before smartphones, which also includes professors banning laptops in class, people stopping at the register to write checks and shoppers skipping shopping online … Erik Fairleigh, 38, who works in communications at Amazon, also has a simple reason for sometimes joining the line. ‘I like to pay in cash,’ he says … Ashleigh Azzaria, a 34-year-old Palo Alto, Calif., event designer, typically chooses to wait in line for coffee at Starbucks, even though she has the mobile app installed and skips the line for bigger orders. ‘It’s my break,’ she says. ‘It’s my time to just kind of decompress, to not be on the phone’.”

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Alibaba Opens Door to O2O Retail

The Economist: “The season for the best xiaolongxia (little dragon shrimp) is just beginning, and so on a recent evening four young friends tucked into a pile of steaming-hot crayfish. But rather than sitting in a restaurant they were at a table surrounded by supermarket aisles stocked with nappies, baby formula and cooking oil … ‘Eat-as-you-shop’ is one innovation of Hema Xiansheng, a chain of fancy supermarkets. And these shops are themselves the showiest elements of a bid by Alibaba … to master ‘online-to-offline’, or O2O, retailing, in which customers use digital channels to buy from physical businesses. Alibaba currently runs 40 Hema stores in ten cities. It wants to open 2,000 in the next five years.”

“Alibaba is hoping to apply its online know-how to them with Ling Shou Tong, a free retail-management platform launched in 2016. Through it, shop owners can order products sourced by Alibaba from partners such as Procter & Gamble. It then uses its logistics affiliate, Cainiao, to ship them. Shops are given advice on what to stock based on Alibaba’s trove of data—plenty of dog food in pooch-loving areas, say. In return Alibaba gets valuable data on spending habits in poorer cities, especially among older shoppers who buy offline.”

“A clearer signal of Alibaba’s ambitions as a provider of services to other outlets came on April 2nd, when it bought the shares it did not already own in Ele.me, valuing the food-delivery platform at $9.5bn. These services span online tools for inventory management to marketing and smartphone payments. They also include labour. Ele.me’s network lets thousands of small restaurants ferry dishes to the doors of some of China’s 700m smartphone users. Through the acquisition Jack Ma, Alibaba’s founder, added 3m delivery people to the 2m of Cainiao, boosting the group’s ‘last-mile’ delivery capabilities.”

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Bingo Box: China Leads Robo-Retail Revolution

The New York Times: “A global race to automate stores is underway among several of the world’s top retailers and small tech start-ups, which are motivated to shave labor costs and minimize shoppers’ frustrations, like waiting for cashiers … Companies are testing robots that help keep shelves stocked, as well as apps that let shoppers ring up items with a smartphone … China, which has its own ambitious e-commerce companies, is emerging as an especially fertile place for these retail experiments.”

“One effort is a chain of more than 100 unmanned convenience shops from a start-up called Bingo Box, one of which sits in a business park in Shanghai. Shoppers scan a code on their phones to enter and, once inside, scan the items they want to buy. The store unlocks the exit door after they’ve paid through their phones … Not to be outdone, JD, another big internet retailer in China … put readable chips on items to automate the checkout process. At its huge campus south of Beijing, JD is testing a new store that relies on computer vision and sensors on the shelves to know when items have been taken.”

“While such technologies could improve the shopping experience, there may also be consequences that people find less desirable. Retailers like Amazon could compile reams of data about where customers spend time inside their doors, comparable to what internet companies already know about their online habits … In China, there is less public concern about data privacy issues. Many Chinese citizens have become accustomed to high levels of surveillance, including widespread security cameras and government monitoring of online communications.”

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Inman Makes Bricks Fashionable in China

The Wall Street Journal: “In the prospectus for its mammoth 2014 stock listing, Alibaba Group Holding highlighted online-only women’s fashion brand Inman as a success story in China’s e-commerce world … Since mid-2015, Inman founder Fang Jianhua has gone in a surprising direction. He’s abandoned the online-only model to open physical stores. To date, Inman has opened 450 stores, mostly in China’s smaller cities. Last year, while Inman’s online sales rose about 39%, its offline business, which is newer and smaller, grew 300%, to 330 million yuan ($52 million), and reached 35% of total revenue. Mr. Fang expects the online-offline breakdown to be 40%-60% in the future.”

“In changing strategy, Inman had spotted several long-term problems. Online sales growth for brands such as Inman is slowing as China’s e-commerce market becomes more competitive, with megabrands such as Uniqlo, Vero Moda and Gap making big online drives. Meanwhile, the costs of online advertising are rising as are the challenges of standing out in a crowded field.”

“In 2015, Mr. Fang figured it would cost less to reach customers in smaller cities through a physical store than via an online store. Given its years of insight into its millions of customers, Mr. Fang thought Inman could manage its supply chain and stores better than purely brick-and-mortar competitors. For example, women in China’s cold, northeastern rust belt aren’t big fans of Inman’s understated cotton and linen clothes, so no need for stores there.” He comments: “The question is not whether a fashion brand needs to be both online and offline. The question is how big you want to be in the two worlds.”

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Ling Shou Tong: How Alibaba Helps Mom-and-Pops

Quartz: “Alibaba has its sights set on a new goal: to bring its cloud-computing technology to all of China’s 6 million mom-and-pop convenience stores. In the process, it’s building out its physical footprint to tap into the 85% of the country’s retail sales that don’t yet happen online. Alibaba is using a retail-management platform called Ling Shou Tong (which roughly translates to ‘retail-integrated’) to help store owners optimize product procurement and boost sales.”

“Ling Shou Tong’s app gives store proprietors recommendations, based on sales analytics, on what to buy and how to display goods in their stores. In the background, it uses Alibaba’s cloud-computing and logistics businesses to create a digitally connected inventory-management system. Store owners can also use the app to place orders, fulfilled by Alibaba and shipped directly from its warehouses, eliminating the need for middlemen.”

Mom-and-pops have given mixed reviews about the impact Ling Shou Tong has had on their bottom line so far. Some say the storefront decorations and in-store training accompanying the platform’s adoption provides a cosmetic facelift to their stores and makes running them easier. Others worry that relying on Alibaba’s product selection forces them to directly compete with the convenience of online shopping.” However, Alibaba CEO Daniel Zhang comments: “We’re working to make the net in the sky and the net on the ground. We will cover all consumers seamlessly.”

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Amazon Has a ‘Basic’ Problem

The Wall Street Journal: “There is one major problem with the idea that Amazon will eat the entire universe … Amazon is good at identifying commodity products and making those as cheap and available as possible … But this system isn’t very compatible with big-ticket, higher-margin items. Could Amazon’s Lab126—famous for both the successful Echo and the failed Fire phone—ever produce something as premium as an iPhone or an OLED TV? Its success in electronics has come from driving their prices to the very bottom.”

“The same goes for Amazon’s other businesses. For example, could Amazon Studios, which has shown little ability to create hits, ever produce a franchise like Marvel’s Avengers or HBO’s Game of Thrones? … Amazon may be mastering commodity goods; its own Basics line went from about 250 products in 2013 to over 1,500 today. But making items widely available at low prices runs directly counter to the way higher-profit businesses work.”

“Consider the makers of high-end handbags, which limit who can distribute their wares and, as a result, who can buy them. Not surprisingly, many of those brands refuse to sell on Amazon at all … The bulk of our everyday goods and services may one day come from Amazon, and everyone from CVS to Uber should watch their backs. Even so, there will continue to be countless competitors that would never dream of branding any of their products ‘Basic’.”

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Why Do Shoppers De-Value Digital Goods?

Harvard Business Review: “Despite the many advantages of … digital goods, companies find again and again that people value and are willing to pay considerably more for … their physical counterparts … experiments suggest that the key driver of this value loss is not the resale value of the good, or how much it costs to make, or how long it can be used, or whether it’s unique or popular. We find that the key difference is that digital goods do not facilitate the same feeling of ownership that physical goods do.”

“Because we cannot touch, and hold, and control digital goods in the way that we interact with physical goods, we feel an impaired sense of ownership for digital goods. They never quite feel like they are ours, and when we feel that we own a thing, we psychologically inflate its value. As a result, digital goods don’t enjoy this premium we extend to things that we own.”

“Ownership may be achieved by increasing users’ feeling of control through touch interfaces, and customization opportunities that involve users in the production or design of the product … people may devalue autonomous devices that require little or none of their input … those devices will not benefit from the value premium extended to goods for which people feel psychological ownership … Because perceived ownership is impaired for digital goods, people may not feel that their piracy causes the same harm to their owners as does the comparable theft of physical goods.”

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Returns: The New Retail Battleground

The Wall Street Journal: “This year traditional and online retailers have expanded the number of locations and routes consumers can use to return merchandise, from in-store kiosks and lockers to the mall concierge, grocery stores, parcel shipping locations and at-home pickup … Online retailer Amazon.com Inc. said it has expanded options for in-person returns this year, with a network of 2,000 ‘locker’ locations, including 400 at Whole Foods stores, where customers can drop off items to be returned. Amazon also partnered with Kohl’s Corp. stores in Chicago and Los Angeles, which are accepting returns of Amazon goods bought online.”

“Wal-Mart Stores Inc. is touting its Mobile Express Returns kiosks, located in its stores, where it says customers can complete the return process in less than five minutes and receive a refund within a day or so. Returns to Target Corp. and Wal-Mart are free—customers can either bring the items back to the store or print a shipping label online and drop off merchandise at a designated shipping location. Kohl’s and J.C. Penney Co. Inc. have similar policies, but don’t cover the cost of return shipping.”

Meanwhile: “Returns have become a ‘battleground’ among online retailers trying to attract and retain customers, said Tobin Moore, chief executive of Optoro Inc., a logistics provider that helps companies like Target and Best Buy Co. to take back and resell returned merchandise … Mr. Moore of Optoro estimates that goods purchased online are three times more likely to be returned as goods purchased in a physical store. In total, Mr. Moore said roughly $90 billion in holiday merchandise—purchased either in stores or online this season—will be returned over the next few weeks, with more than a third of it coming back before the new year.”

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Wausau Story: Mom & Pop Comeback

The Wall Street Journal: “Wausau Wisconsin shows how an economically thriving community might shop in a post-mall age. No longer are shoppers willing to drive distances to hit a clothing retailer. That is an online task. They are willing, however, to make an event of going downtown, to the compact shopping district where two-story brick buildings line the streets, to patronize Wausau’s local boutiques.”

“On 3rd Street, the bell chimed at The Local every few minutes one recent Saturday afternoon, signaling a customer coming in to check out Wisconsin-made Christmas wreaths, coasters cut from pine trees and candles in recycled beer bottles. Owner Alison Magnuson, 26 years old, said shoppers her age want something they can’t find just anywhere. She got the idea to open a physical store with products handmade by more than 30 local artists after selling her own work on the online crafts marketplace Etsy Inc.” She comments: “People want that mom-and-pop store again. It’s all coming full circle.”

“Three blocks from the mall, the century-old Janke’s book store was bustling on a recent Saturday. Inside, in the shadow of a 10-foot bear shot by a member of the Janke family, shoppers were buying children’s games, handmade cards and books by local authors … The store has adjusted to changing consumer demand by offering more educational toys and locally made products, Jane Janke Johnson said. Business is good for now, she said, but the recent acceleration in online spending scares her more than any other trend she has weathered. ‘People will come in here and click, click, click, they’ll buy it in front of my eyes,’ she said. ‘That hurts’.”

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