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Content Guy's Note: The goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

This week's topic: Why retailers without an e-commerce strategy risk being left behind by consumers and competitors.

And now, the Conversation continues...

KC: There was one day last week where we had stories about how Google expanded Express service to 90 percent of the US, Kroger said it had ClickList at 330-plus stores, FreshDirect expanded its same-day service to Manhattan, Whole Foods tested a partnership that gets it into the meal kit business, and we even found out that Lidl is testing a click-and-collect service in Germany.  Just coincidence, or are we hitting some sort of tipping point?  Because it seems to me that we are increasingly getting to a point where if you don’t have an e-commerce strategy, you are going to be left behind.  You seeing this in your businesses?

Tom Furphy:
We are absolutely seeing this at CEP, Ideoclick and Replenium. Up until about a year ago it seemed that, for the most part, retailers had to be pulled along into e-commerce piloting. But over the last year, we seem to have switched to most retailers hitting an inflection point of moving from questioning “if” they should play in e-commerce to questioning “how” they can best test, learn and expand quickly.

It’s likely that Amazon’s volume and accelerating growth in the space have served as a rising tide to lift all boats. More shoppers are buying online, first thanks to Amazon and then thanks to whatever local options are available to them. It could be their local grocer picking from a store, or working with a service like MyWebGrocer. It could be a Google Express, Instacart or Curbside partnership. It could be FreshDirect or Peapod. It could be meals via Plated or Blue Apron. There is little doubt that more shoppers are trying one or more of these services and many are taking root. Overall the level of volume is moving from a rounding error to a significant amount of volume for some retailers.

There’s a bit of a flywheel of innovation developing. As Amazon and these new services expand, manufacturers and producers are developing more sophisticated capabilities to support e-commerce. This allows them to be better partners to the retailers, bringing innovation to them and even funding toward to the efforts. And, finally, as shopper hunger increases and manufacturer capabilities and support grows, retailers are now experimenting more than ever to figure out how to compete for the new shopper. It becomes self-perpetuating.

Formats and capabilities have always evolved in retail. This is nothing new. It’s just that technology and new models are developing at breakneck pace. Clearly, if a retailer is not experimenting with e-commerce, they are taking their first steps toward irrelevance. It may not become obvious to them for a year or two, but they are being left behind.

KC: I also thought it was interesting that the same day that those stories ran, there also was a story about how Amazon said that orders using its Dash buttons are up more than five times during the past year, and that there are now more than 200 brands represented in this program.  When you combine this with everything that Amazon is doing with Subscribe and Save and the ability to order product using the Echo - technology that they’ve now expanded into their Fire TV systems - I cannot help but wonder if these are technologies with implications that most traditional chains don’t appreciate, and may not until it is too late.  Thoughts?

We should not think of Amazon merely as a retailer with which other retailers have to compete. We should recognize that Amazon is building itself into a shopping utility that strives to be at hand whenever a need arises. This is fundamentally changing how shopping works. Be it a regular purchase, a hard-to-find item, fresh foods or a last minute purchase. Amazon wants to be the go to place for anything a shopper wants, when they want it. And in the case of Subscribe & Save, even before they want it.

I refer to this as Amazon’s “lock in” strategy, where they started early and have a massive lead. Amazon conceives and develops these innovations well before they reach the marketplace. For consumable products, it started with Subscribe & Save in 2005. It then evolved to Dash Buttons, which were originally called Kindle Buttons in 2009. The voice and Echo strategy dates internally back to 2010 and the Dash Replenishment Service, which enables ordering from the Internet of Things, dates back to 2012. Now with ordering available across the Amazon ecosystem, such as through FireTV, ordering is always just a “click”, “press”, “signal” or “acknowledgement” away. And adding two-hour service, pickup points and walk-in stores, if they prove to work, will further cement the lead.

So, yes, it absolutely behooves retailers to develop their own “lock in” strategy. They need to offer their own set of shopping utilities. They should ask themselves what it is that they can offer their shoppers to make them the go-to destination for the products that they carry. They have no time to wait. It takes time to build the strategy, experiment with options, build out capabilities, test and integrate the solutions into systems and stores. As a retailer, anything you are exploring now will still take a year or two to have impact on your shoppers.

It’s time to get going.

The Conversation will continue...

KC's View: