The Amazon effect

Does the so-called “Amazon effect” really spell doom for brick-and-mortar retailers?

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.

Buyer beware

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.”

(Continued)

 

Smart motoring

As the internet sales manager for Smart Motors in Madison, Justin Jackson handles all incoming prospects that inquire online, from Cars.com to AutoTrader.com, and from Smart Motors’ own website to a couple of other sites, as well. Consumers submit a request for various reasons, which could be price, information about a car, and availability — the list goes on and on — regarding new or used vehicles. The dealership will take all those incoming prospects and give them a call, email, or text, and try to answer their request.

When people go online and select the components of their dream car, Toyota.com actually fields those and passes them on to local dealerships. “You can build your car and put in a request and pick us as a dealership, and we get that information and see how we can best fit them,” Jackson explains. “Some people submit that just so they can see what type of price they are looking at with all those extras included. Others are just trying to see exactly what they can add to the vehicle, and then we offer various other things not from Toyota that they can add to that car, and we try to help them out the best we can.”

Thus far, Amazon has played a small part in how Smart Motors approaches customer service, but Jackson knows it’s only going to grow. “A big thing with Amazon is Toyota accessories [for new cars],” he notes. “They do have some stuff on their site that has Toyota accessories — floor mats, lug nuts, and different bumper applications. There are a few things that they offer that are Toyota genuine accessories that have changed the way we do things as far as somebody wanting different floor mats or stuff like that.

“For used cars, it’s a little bit different. You can get virtually all those accessories on Amazon, but that’s the only place they have impacted us as a dealership.”

Even though Amazon’s impact is likely to grow, Jackson predicts another tech giant — Facebook — could have an even larger impact. “Facebook will kind of light the flame where an outside retailer can target car dealers,” he says. “For example, if you look at what AutoTrader or Cars.com does with their platform as a search engine, Facebook is trying to design that as we speak and is really close to having it, so you can go to your social media and you can look up cars at the same time.

“If you look at Craigslist as a model, Facebook has a similar model, and I think other retailers like an Amazon are watching what Facebook is doing currently and will soon model that.”

As a millennial consumer, the 30-year-old Jackson says Amazon and social media platforms have not only heightened consumer expectations, they have changed the entire landscape. “If you look at YouTube, which gets about 4 million daily views, manufacturers are going to that channel to showcase what they offer. If you look at Twitter, consumers not only get people to follow them, they can also follow Toyota and get information on new cars, as well as current incentives on other cars.”

If it sounds like the best way to combat the Amazon effect is to be active on social media, Jackson says there is no doubt about it. “If you don’t have a presence on social media, it’s sad to say but you could
be phased out,” he states.

In general, if you look at the Amazon effect, it’s changing everything around us, including the traffic in grocery stores and shopping centers. “You could do it sitting on your couch at home, and that’s what people are doing due to the convenience of it, and it’s also keeping people honest,” Jackson states. “It’s keeping prices honest. It’s figuring that if you go to the store and it’s $20, and you’re like ‘Wow, that seems like a good deal! Let me check on Amazon and see if that price is actually a good deal,’ and you see it for $15, then you’re like, ‘Might as well buy it on Amazon.’ That’s taking people out of the stores.”

Millennial mindset

Jackson’s fellow millennial, Tamar Myers, doesn’t appreciate being typecast as this or that, although she acknowledges that millennials are influencing this digital shopping trend.

Myers, 24, is managing editor of the Poynette Press and Lodi Enterprise, and she lives on Madison’s east side. She definitely shops more online, but lives in both the online and in-store worlds. In each case, when she shops, she shops with a purpose. “I don’t do a lot of mall shopping and wandering around,” she states. “I just want to go in and get out in a lot of cases, especially in the larger retail stores. If I can’t do it fast or quickly, what’s the point?”

While East Towne Mall is only about 10 minutes away from her home, she’ll often travel to the Johnson Creek Outlet Mall 30 minutes away because there are certain things — blue jeans — she’s more inclined to visit a certain store for. Citing the cost savings, she also prefers to buy clothing at thrift stores.

Sometimes, it’s hard to find specific brands or niche products in a store. For example, Myers can find a specific kind of protein powder on Amazon, but she says it’s a hassle to go to a mall and try to find the exact same kind.

“I think there are trends in certain generations, but I also think there is a lot of individualism,” Myers explains. “Young people have different motivations with online, as well.”

If Myers were a retailer, she would build brand loyalty with the deft use of social media. She’s noticed that restaurants in particular use social media for engaging consumerism and offered kudos to Hilldale Shopping Center for publicizing weekend yoga classes on social media.

“Having special events and publicizing them can make people feel loyalty to your brand and feel connected with the brand because that’s something Amazon can’t really do,” Myers states. “They can’t make you feel connected to a buyer. It’s kind of impersonal. I know they are trying to make it personal, but usually you go on and it’s a few clicks and you’re done.”

Survivor island

Grocery stores, department stores, and hardware stores may no longer be the only “go-to” places for everyday products, but all that means is the competitive landscape just got more consumer-friendly.

The survivors will be the ones that offer something different while responding to shifts in shopping behaviors, as demonstrated by the Hot 100 list of retailers identified by the National Retail Federation’s STORES magazine. The list, notes STORES Media Editor Susan Reda, includes a mix of traditional and digital retailers that establish a symbiotic relationship between digital and physical retailing.

Online companies make up six of the top 10 companies, but the majority of retailers on the full Hot 100 list are either traditional retailers or retailers that sell both in-store and online, including the Eau Claire-based Menards (No. 43). Fewer than 10 companies are purely e-commerce.

The advantage of differentiation is not lost on Scott Chalmers. “I would think truthfully that anybody that sells the exact same product online has something to worry about because if somebody can buy it cheaper, sometimes unfortunately people will go with the cheaper price,” he notes. “I weigh what kind of service I’m going to get, what kind of warranty I’m going to get, and if somebody is going to stand behind the product, so I would go to that kind of retailer.

“If someone is selling the exact same item that someone else can buy online, they are going to have a difficult time. They need to do something different.”

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