This article is part of CMO.com’s November series about commerce and consumerism. Click here for more.
It’s clear that 2017 will be one for the retail history books. In my nearly 20 years of analyzing the sector, I have not seen as many surprising announcements since 1999, all of which pale in comparison to what 2017 has brought us. Amid store closings, the testing of new augmented reality concepts, and new brands, such as Aldi and Allbirds, gaining significant traction, the landscape is a very different place than it was even a year ago, let alone 18.
Just look at what the two leaders of the industry–Amazon and Walmart–have done this year. What follows is a short list of their many actions as they aggressively moved into each other’s turf:
• Amazon made huge offline bets: Amazon bought Whole Foods and launched the following (some as recently as this week): Amazon Key, Amazon Loans, a handmade gift shop and wedding store, one-hour delivery, restaurant delivery, and discounts on holiday offerings from its independent marketplace providers. Alexa (through its Echo home speakers) became a household word and, to many, a household member. To top it off, the company cleared wholesale pharmacy licenses in 12 states.
• Walmart made major moves online: Walmart bought Bonobos, Modcloth.com, Moosejaw, Shoebuy.com, and Hayneedle.com (via the 2016 acquisition of Jet.com, which is orchestrating the expansion effort). To own a piece of the in-home market, Walmart also paired with Google to make sure consumers have more than one choice of store when reciting their shopping lists.
The grocery aisle remains an online laggard versus other retail categories. Despite an overall growth in e-commerce, Kantar Worldpanel reports that, worldwide, more than 95% of CPG sales still happen in the physical store. In the U.S., e-commerce accounts for a mere 1.4% of food and drink sales. According to Nielsen, the weakness is most evident in categories including meat, dairy, bakery, and frozen foods, for which the e-commerce impact is less than 2% of category sales.
In other words, most people still pick up their CPG essentials at the grocery store when buying their food. Amazon’s investments are based on consumers’ indication that they are ready to buy more basics online but haven’t found the right solution. The logic is clear when you consider the dominant role offline plays in CPG and its need to meet consumers at their preferred points of purchase.
Conversely, every consumer in the U.S. lives within 10 miles of a Walmart. To maintain its dominance, the company is working to expand beyond its physical footprint. Key to its success is a more comprehensive view of customer behavior across channels and products than its ever-present store network can provide.
Apparel and furniture were the missing pieces of the Walmart portfolio. Buying into other retail brands helps it to understand customers to whom it previously did not sell. By acquiring but not absorbing these types of retail brands, Walmart will be able to gain more insight into consumer behavior across the retail spectrum, not just its cash-dominant discount customers.
All The Right Moves
The business and retail worlds will be watching how Amazon and Walmart turn their channel-changing efforts into positive financial results, while their competitors launch huge campaigns to defend their own turf. As we turn our sights to predictions for the 2017 holiday retail rush, the gap between online and offline grocery, in particular, will remain versus the acceleration in e-commerce in other categories.
• Food shopping will still center on visits to the grocery store: From now through Christmas Eve, the physical store remains the place to get the turkey and trimmings. While millennials and younger buyers might buy a premade holiday meal when it becomes their turn to host, traditional ingredients, pies, and alcohol will still be bought the old-fashioned way by most consumers.
• Grabbing share of wallet will be the big story for gift-giving this season: Apparel, toys, media, and, of course, gift cards are popular items and easy to buy online. (Doing so sure beats sitting in a tent outside a big-box store while waiting for it to open at dinner time on Thanksgiving evening). Offline retailers that capture share of wallet will be those that offer “not on Amazon” branded selections or can provide gifts and general merchandise in a single trip. They’ll also come to the rescue for inevitable procrastinators who miss the ever-shrinking window for on-time delivery.
• Beyond 2017, warning signs are on the rise for small dry-goods sellers: The fast-moving consumer goods (FMCG) sector will take a major left turn to online in the next two to three years. Deodorant and vitamins will move from in-store to replenishment services and retailers that offer Amazon-like subscription and reorder capabilities (via vendors such as OrderGroove and Kwik). As voice assistants and reorder lists become more common, brands and retailers will struggle to get into the hearts and purses of customers who can simply hit a button to replenish the pantry. This shift will have a huge impact by 2025 as the planogram of nearly every grocery store in the country goes through a shift to emphasize higher-margin prepared foods and fresh groceries, versus what can be picked, packed, and shipped.
For any retailer that is not Amazon or Walmart, this year will cap out as a test of endurance. Reinforcing the retail brand, maximizing data capture, and expertly optimizing marketing channels will be critical for drawing people away from the big guys. So will a seamless customer experience. These efforts will determine whether each retailer enters 2018 with news about growth or store closings.