What alternate universe are we in when I can write the above headline?
We wrote not too long ago (March 2016) about how the retail landscape is changing. In August it continued to churn with Amazon building a drive-up grocery “store” in Seattle and Walmart buying Jet.com for a whopping $3 billion.
Also, in what alternate universe does a conservative, global company like Walmart pay $3 billion for a two-year-old “concept” that isn’t anywhere close to turning a profit?
If you haven’t shopped on Jet.com, you’re not alone, but you should recognize it at least from its TV commercials, in which people’s heads explode and emit purple smoke. Now, that’s cerebral. But in just one year of active sales, Jet.com has reached $1 billion in gross merchandise value and offers 12 million SKUs. Now, that's impressive.
Jet.com is very similar to Amazon – an online platform, a digital retailer with a seemingly infinite virtual warehouse. The key differences are that Jet’s offerings are skewed toward food, household items, even sporting goods – the kind of stuff you’d find in a Walmart – not as much electronics, books and music as you’d see on Amazon.com. In that regard, there’s a certain level of comfort and familiarity for Walmart. Jet.com also encourages bulk buying, akin to Walmart’s sister Sam’s Club.
But the real point is relevancy. Although this was not so long ago, times were different when Walmart enjoyed a meteoric rise to become the world’s largest retailer. Despite some high-profile, high-end retailer bankruptcies, consumers do appear willing to spend more, at least where their food is concerned, and that does not bode well for Walmart’s low-price philosophy. For many, Walmart’s stores have become a joke.
Forbes carried the headline: “Can Jet.Com Save WalMart from Sears’ Fate?” Adam Hartung, who wrote the story under that headline, also cited another then-current news story, that the penultimate Howard Johnson’s restaurant, in Bangor, Maine, was closing (the last one remains in Lake George, N.Y.). His point in connecting the two was relevancy. But maybe the real point was transition.
In a machine-gun of rhetorical questions, Hartung asked: “Will WalMart make this transition? Is leadership ready to cannibalize the stores for higher electronic sales? Are they willing to make stores smaller, and close many more, to shift revenues on-line? Are they willing to suffer Amazon-like profits (or losses) to grow? Are they willing to change the WalMart brand to something different, while letting Jet.com replace WalMart as the dominant brand? Are they willing to give up on the past, and let new leadership guide the company forward?”
Another story, this one in Inc., noted: “In 2001, Walmart was the 5th most valuable company in the world with a market cap of $260 billion. Since then, it’s been dethroned by platform companies, including Apple, Google, Microsoft, Amazon and Facebook, who currently are the top five most valuable companies in the world in that order.”
All of which makes Amazon’s 10,000-sq.-ft. Seattle “store” a curiosity. Geekwire, a technology news site based in Seattle, interpreted planning documents filed with the city to suggest Amazon is building a drive-up facility dedicated to groceries. Amazon will neither confirm nor deny, but reports of their interest in at least some physical, consumer-contact presence have been circulating. For the Seattle store, customers will pick up groceries they’ve ordered online – a model Amazon also is rumored to be building in the San Francisco Bay area.
Relevancy. If Amazon really wants to play in the grocery space, at least a little bricks and mortar is necessary to be relevant. We reported a few months back that Amazon was creating its own private label brands of perishable foods and other traditional grocery store products. John Stanton, our marketing columnist, delves into that on p82 of this issue.
With brands names such as Happy Belly, Wickedly Prime and Mama Bear, the products will include nuts, spices, tea, coffee and baby food, as well as vitamins, diapers and laundry detergents.
Let me also point out our Power Lunch guest column: “A Digital Presence That Drives Results.” It says: “the best way to interact with consumers is to reach them where they are already engaged.” For an increasing number, that’s online; but for many more, it’s in a store.