Retail in an Amazon World

458664071I grew up in the 60s in Springfield, NJ, which is in northern New Jersey. As a child, I recall the family taking “a ride” 80 miles south just to go to a mall. Not just any mall–we went to the granddaddy of East Coast Malls—the Cherry Hill Mall. The idea of all those stores under one roof was mind blowing. Going to the Cherry Hill Mall was a big event. It was something you talked about to others. Ironically, today I drive past that same mall daily.  It’s still a nice mall, but it’s not so special anymore.

Fast forward 50+ years and most malls (and Hillary Duff) seem so yesterday, so yesterday. That’s because most are. Many malls are trying to transform themselves into town centers. Part indoor, part outdoor. Trendy restaurants, music etc. Not a bad attempt, but for many malls it is too late.

The underlying issue is that shopping patterns have changed and the #1 “culprit” is Amazon. Simply, Amazon has dramatically changed the nature of retail. In July, a slower retail month for most, they created “Prime Day” at Amazon. Started as a gimmick to drive volume in the summer “off-season” they are creating a mega retail event in July when traditional retail begins thinking back to school. And the holiday season is straight ahead. Wanna bet that online sales will increase across the board, driven by Amazon?

Amazon are no dummies. They hook you in with one click shopping, then add on the Amazon Prime “no cost” shipping (obviously for a monthly fee). And Amazon Prime occasionally offers some unique programming. The exclusive showing of the Grateful Dead’s Long Strange Trip documentary did it for me. And as we all know, their latest venture is into the grocery world is the recent acquisition of Whole Foods. And according to Morgan Stanley, an estimated 38 percent of Whole Foods customers, or about 5 million households, are not Amazon Prime subscribers but it’s expected that ½ of those will become Prime subscribers within 2 years.

The June 19, 2017 Forbes article, Assessing the Damage of the Amazon Effect, was an excellent assessment of the overwhelming impact of Amazon. Key quotes are as follows:

“Amazon is the proverbial 800-pound gorilla. Their entry into a market segment reshapes shopping dynamics, upsets the supply chain and exerts tremendous pricing and margin pressure. Books came first and we know how that played out. But, one by one, other categories followed and the dominoes continue to fall. Store closings. Bankruptcies. Once proud and dominant retailers teetering on the brink.

It’s hard to underestimate the magnitude of the Amazon effect. E-commerce represents about 10% of all U.S. retail and Amazon is by far the largest player, with an estimated share of 43%. Last year, Amazon accounted for 53% of all the incremental growth of online shopping, which means they are only growing their dominance.”

And here’s a scary thought for retailers… for the 85 Million Prime customers (and growing) a recent study indicated that among Amazon Prime consumers, when they know what they want to buy, they go directly to Amazon for the best price and delivery options.

So will the Cherry Hill Mall, King of Prussia Mall, and Mall of America continue to flourish in an Amazon world? Perhaps not flourish, but they all will surely survive. But woe be the retailer with a weak reason for being and a secondary mall struggling to retain customers. Alas, they are the meat for the 800-pound gorilla. Chomp. Chomp.

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