business news in context, analysis with attitude

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, we talk about how and why complacency can lead to certain death.

And now, the Conversation continues…

KC: I was intrigued over the last couple of weeks when there was a story in USA Today about how Kroger, while seeing some hit to its profits because of investments it is making in both digital and store-centric initiatives, seems to be making progress in terms of market share in specific regions.  And then, just days later, there was a story in the Wall Street Journalsuggesting that Kroger is having trouble keeping up with the likes of Amazon and Walmart.  Is it possible that both things are true - and I don't just mean for Kroger, but for any retailer trying to compete these days?  That you can be making progress, but, alas, it never is enough progress?

Tom Furphy:
It's a little hard for me to wrap my head around. I agree that Kroger has been busy with their store-centric initiatives and have been working on many new e-commerce efforts. At least as far as e-commerce, Amazon and Walmart are making faster progress and on a larger scale. It could be that Kroger is gaining share in some markets on a gross rate basis but losing overall on a dollar and share basis to Amazon and Walmart.

If Kroger is gaining share, and we know that Amazon and Walmart are also gaining share, that means there are others in the market who are losing share. My guess is that retailers that aren’t solving customer needs using great stores and digital experiences are losing share. This could span large traditional, smaller chains and independents and other formats. I don’t follow markets like analysts or media, so I’m not sure exactly where the slippage is.

It is hard to keep up these days. Kroger is seeing large percentage gains in their e-commerce business but is likely getting out-gained on an absolute basis as Amazon and Walmart gobble up more of the market. The Amazon and Walmart innovation engines are revved high. They are making many big bets, on large stages, that drive a level of scale that is hard to keep up with. Fighting against massive customer bases, Amazon Prime and these aggressive innovation engines is a tall order.

KC: If this can be - and often is - true, then I guess my next question is how one should gauge the appropriateness and effectiveness of investments that one is making, because it almost sounds as if most retailers are likely to end up being in the position where they are like the ball club playing .550 baseball, which ought to be good enough, except that they’re almost always looking up at the juggernaut that is playing .600 baseball.  What the hell do you do?

Being complacent will lead to death. And being a little good or moving slowly will not ensure long term viability. Small or few investments will cause your win percentage to go from .550 to .500, then to .450 over time. The only way to improve your average is to innovate enough to enable more opportunities for wins. To do that you must take more chances, test, measure, expand or kill programs, learn and apply the learnings quickly. Complacency will only serve to alienate your customer over time as you become less capable of serving their needs versus your competition. The innovation cycle is accelerating. If you’re not accelerating as quickly you are falling behind.

It’s not easy. You need to make bets now that recognize the customer two or three years from now. If you’re only investing in today’s customer, that’s not good enough. Today’s customer will already be tomorrow’s customer by the time your investment reaches the market. Serving today’s customer well is important to keep them from straying. You still need to invest in basic technology to be relevant today. And you have to hit on all the traditional elements such as in-stocks, great products, friendly service, good prices and clean stores. You have to keep nailing the basics, while impressing your customers with helpful and relevant innovations to keep them with you.

I cannot over-stress the importance of truly focusing on your customer. It sounds so clichéd and obvious, yet so many retailers are poor at it. This focus helps you understand your customers’ needs and can provide insights to help you build solutions to help them in meaningful ways. From here, what to invest in and the appropriateness of investment can be determined by working closely with tech companies and other innovators. Draw off their R&D and experiences. Map their solutions to the needs of your customers.

You should constantly seek to test and measure capabilities to determine their appeal to your customers. Be willing to iterate based on what the measurements are telling you. As the measurements hit your targets, and effectiveness is determined, scale the programs. Then keep measuring them to determine how they need to evolve. It’s hard work. But this strategy can enable you to become a .600 club over time.

KC: I also think that it is important to think about these questions in the context of the report that came out the other day saying that more stores have closed or been announced to be closing in 2019 - almost 6,000 - than closed in all of last year.  It just suggests an almost dystopian scenario for the US mall and shopping industry…

We talked about stores losing share above. These stats are the evidence. As Amazon and other new online retailers thrive, and as certain traditional retailers become stronger in e-commerce and develop compelling omnichannel experiences, customers convert to those retailers. The retailers and formats that don’t keep up are left behind. This will not change.

Stores aren’t dead. But bad stores are dead or dying. Bad stores have always been replaced by better stores. The better stores of today are often part of an omnichannel experience that integrates digital and ecommerce. Or, they’re just so darned good at being stores, solving problems and immersing their customers in experiences they can’t get otherwise, that they will continue to thrive as the weaker stores shutter.

The Conversation will continue…

KC's View: