The Amazon effect
Does the so-called “Amazon effect” really spell doom for brick-and-mortar retailers?
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From the pages of In Business magazine.
With rumors of their demise still circulating, brick-and-mortar retailers refuse to succumb to what folks at the brand marketing and research firm FutureCast call “the Amazon effect.” In other words, the internet-enabled explosion of online retailers and e-commerce led by Amazon, marked by its superior convenience and innovative distribution model, has not only made the smartphone history’s most devastating consumer tool, it means brick-and-mortar retailers must compete with heightened customer expectations.
Amazon CEO Jeff Bezos has been alternating with Microsoft Cofounder Bill Gates for the title of world’s richest person — his net worth hovers somewhere around $90 billion — and anyone who took solace in Amazon’s disappointing second quarter profit was quickly brought down to earth by the realization that its record sales are being plowed into the construction of an even more extensive network of warehouses for its fulfillment capacity.
Clearly, the man is gunning for total world domination and many believe that he’ll achieve it, thanks in part to the benediction of millennials who favor his business model. So what’s a local retailer to do? To find out, we interviewed representatives of local businesses that are differentiating themselves, playing catch up, and have more than Amazon on their minds. We found they are more adaptable than the purveyors of doom give them credit for.
If Scott Chalmers is worried about the Amazon effect, it doesn’t show. Chalmers, the president of Madison-based Chalmers Jewelers, didn’t need the retail behemoth to know it was time to differentiate with custom jewelry. He simply saw certain trends in his own industry and didn’t like what was unfolding with what he regards as the inferior quality of mass-produced jewelry.
Using a CAD design program, an employee of Chalmers Jewelers designs a ring for a customer. To differentiate itself in the market, the Madison jeweler focuses on custom jewelry.
Chalmers doesn’t believe that diamonds, rubies, and sapphires should be purchased online — especially diamonds. The rough-cut color and quality varies, despite what it might say about color and clarity on a piece of paper. A diamond could be cheaper because the actual crystal could be grayish or yellowish in color, or have a slight haze to it. Such characteristics result in much cheaper diamonds.
Chalmers considers it part of his job to educate the public on the difference, and he does so with the help of social media marketing. The store has gone so far as to take a diamond purchased from an online diamond jeweler and have its own gemologist examine it. Then it purchased another diamond from its own cutter, supposedly the exact same description. There was a distinct difference — the crystal structure of the online diamond had a milkier haze to it.
“That’s not described in the clarity, that’s not described in the color, that’s not described in the measurements, or the weight or anything,” Chalmers states. “So when people are buying these online, they really don’t know what they are actually getting and what they are paying for.”
The way Chalmers Jewelers competes with mass-produced jewelry is to “go custom” with the help of computer-aided design software so the store can regulate things such as the weight of the gold, the thickness of the prong, and the quality of the side diamonds.
Watches are easier to compare online, but Chalmers has noticed that online shoppers are buying either discontinued models or refurbished models that he would not want back, and 90% do not come with a manufacturer’s warranty. As a result of that and the lack of a profit margin for watches, he’s getting out of the watch business.
With a nod to the millennial mindset, Chalmers plans to open a custom design studio at East Washington Avenue and Blair Street where consumers can participate in the design of their jewelry. Unlike Amazon, there is no immediate fulfillment, as it takes 30 days for the end product to reach consumers, but next-day delivery is not part of the value proposition.
“What I’m finding is that millennials want to be a part of something and they want to create something. They don’t want to be sold, they want to be part of the entire process, and they love it.”
As a consumer, Chalmers says he buys only known brands from Amazon and he believes most others do, as well. “The things they can buy online, from what I’ve seen, are things they can actually recognize,” he states.
For the life of the frame
Modern technology gives and takes away. Just ask Brittany Graber, owner and president of Ulla Eyewear in Hilldale Shopping Center. She is the first to admit that Amazon keeps store retailers on their toes, but she’s extremely excited about Apple’s plans to move its local Apple Store from West Towne Mall to Hilldale.
“We know the foot traffic will definitely go up,” she states. “I’m especially excited because our store will move to a space across from them in November/December.”
Looking to frame the issue: The Ulla Eyewear staff (from left): Brittany Graber, Margot Lanham, Mardy Kaufman, Neil Sekhon, and Amy Schye.
As for competition from Amazon, Graber contends that eyewear is unique because the best possible fit with the frames — on the bridge of your nose, behind the ears — cannot be achieved without a store visit.
However, there is one aspect of eyewear service the store is working to improve. “The biggest thing for us is probably the turnaround time is a little harder,” she acknowledges. “I know that with Amazon, people want everything immediately.”
The recommended process for obtaining new eyewear is to start with an eye exam, get a lens prescription from the optometrist, and bring the prescription into an eyewear store to get it filled and select new frames. There is industry concern about skipping eye exams in the process of ordering new eyewear because those exams can uncover problems such as glaucoma and Type 2 diabetes. Even with the proper course of consumerism, Graber is looking to compete on a timelier basis by adding an optometrist to conduct exams on site.
That should happen within the next six months, but another step under consideration is the purchase of a lens edger that fits lenses in the chosen frame. That requires a good inventory management system because “each one of these lenses will have a different prescription,” Graber explains, “so if you don’t have those in stock, you’d have to get one in.” That would eliminate any time saved by not having to send the lenses off to a lab, but Graber believes the investment could pay off in the long run. “They say you can calculate how much money you’ll make back after buying this piece of machinery,” Graber notes, “but what it comes down to is turnaround time.”
Another way the retailer competes is to leverage social media platforms — Facebook, Instagram, and Twitter — that also compete with Amazon. “Our demographic is actually 40 to 70 years of age, and a lot of those people are on Facebook,” she notes. “It’s making us evolve more, push harder, and continue to be innovative, but the customer experience in the store has to outweigh what they get from the media feed and online shopping.”
That experience must involve understanding customer needs and solving problems with previous eyewear. “Above all else, trust is so important because they want to know that when we’re giving them feedback about how a frame looks on them and whether it fits well, that we’re being completely honest. It can be an hour-long process, or it can be a little more depending on the consumer’s needs, but it can’t just stop with the order. For the life of the frame, we must take care of the customer.”