May 16, 2018 • Volume 14
Amazon and Kohl’s, friends with benefits?
‘Business jujitsu’ is a term that I find myself using pretty frequently these days, in reference to the contorted relationships that many businesses find themselves in with companies that have complementary assets, but also compete with each other. ‘Frenemies’ is the more commonly used term to describe these relationships, but I prefer business jujitsu because it evokes a strategy more than a state of being. Something that you do, not something that happens to you.
A few weeks ago in The E-Commerce Observer we looked at Best Buy’s relationship with Amazon, questioning whether Best Buy was letting the fox into the henhouse by carrying TVs with Amazon’s Fire TV operating system. This week we have some data to add to the discussion, thanks to analysis done by Gordon Haskett Research Advisors [we’ll call them GHRA so that I don’t have to type that name out more than once].
Battling retail woes together
Back in October, Kohl’s began a limited experiment with Amazon, where it allowed Amazon customers to return items bought on Amazon to Kohl’s stores, including some, but not all, Chicago area stores. All of the details were not clear (like, whether Amazon is paying Kohl’s), but we know that Kohl’s employees took the returns and packed and shipped them back to Amazon, and that Kohl’s provided reserved parking spots for package returners.
GHRA used geolocation data to look at incremental visits to Kohl’s stores as a result of Amazon returns, and broke out returners into new and existing shoppers [those who had or hadn’t shopped that particular Kohl’s since July 2017]. The analysis found that stores in the Chicago area that accepted Amazon returns saw store traffic levels 8.5 percent higher than Chicago stores that didn’t accept Amazon returns. And it found that 56 percent of returners were new or lapsed shoppers, compared with just 43 percent in the control sample of stores.
This is very interesting analysis that sheds a lot of light. It doesn’t definitively make the case that it was a great deal for both parties because there is a lot we don’t know about the deal and how consumers acted. But armed with these new facts, the decision is looking shrewd on Kohl’s part. We know that Kohl’s, like virtually all brick and mortar department stores, is struggling to drive store traffic and this seemed to help turn that around.
The future of retail as we know it
By doing this deal, Kohl’s might have made it easier for Amazon to sell products competitive with merchandise [say, Chicago Cubs t-shirts] that Kohl’s sells, which could deter Kohl’s from having made the deal. But some of these shoppers would undoubtedly decide, after having been frustrated that the t-shirt didn’t fit, that they might as well just buy one at Kohl’s instead. And they might pick up other items while they’re there.
Kohl’s calculation seems to have been that the opportunity for incremental visits to its stores warrants some risk of enhancing Amazon’s appeal to consumers and some store labor expense. It seems, for now anyway, that it is working.
Walmart and Flipkart make it official
Brick and mortar retailers in the U.S. are in a tough spot with investors when it comes to e-commerce. Retail investors inordinately invest their dollars with Amazon because of its growth and e-commerce market dominance, and punish brick and mortar retailers when they make moves to invest in e-commerce. Amazon buys Whole Foods for $14 billion and its stock price goes up by about the same amount as the deal cost. Walmart buys a controlling interest in Flipkart, the Indian marketplace, for $16 billion and takes a $10 billion hit to its market capitalization.
This is partly driven by Amazon’s track record of success for investors and partly driven by the fact that Amazon didn’t have to pay an e-commerce growth premium for Whole Foods, while Walmart had to pay an e-commerce growth premium, an emerging Asian market premium, as well as a competitive bidding premium for Flipkart. The only thing that could have conspired to make Flipkart more expensive for Walmart would be if Flipkart owned Fortnite. I suppose that it makes sense for investors holding a highly liquid Walmart stock to bug out when Walmart makes a move that changes its earnings profile, but the alternative of sitting tight with a brick and mortar model that is close to fully penetrated in the U.S. doesn’t seem like a good alternative. One could argue that the selloff in Walmart’s stock following the Flipkart deal makes it a bit cheaper for new investors that are aligned with Walmart’s stated goal of becoming a key global e-commerce player.
My take: I very much believe that e-commerce is the most important thing to hit retail since the chain store and that any credible global retailer has to own one of the dominant global powers in e-commerce. Walmart wasn’t going to be able to buy Amazon or Alibaba, and Flipkart has the promise of significant growth, as e-commerce accounts for less than 5 percent of Indian retail sales, compared with 10 percent in the U.S. and 15 percent in China.
I’m not qualified to say anything smart about the price that Walmart paid for Flipkart, but it seems pretty clear to me that the alternative of letting Alibaba, Rakuten, or Amazon get it would have only made its next acquisition more pricey.
Online grocery approaching a tipping point
Last week I presented a snippet from an upcoming presentation on CPG trip trends in The Observer, looking at the growing trend toward click & carry in grocery. This week I’ll share another tidbit.
Before that, though, I want to make a plug for the Nashville Board of Tourism. Nashville is like Vegas without the excessive sin. Gambling, marijuana, and prostitution are illegal in Tennessee. But if you’re willing to trade unbelievable live music for sinful predilections, Nashville is the place for you. And, no, I haven’t been compelled to include this plug as part of a plea deal.
Now onto the data part. We wanted to see whether online CPG, which is plagued by small, unprofitable, spearfishing orders, had seen any shifts toward healthier trips [or baskets, or orders, whatever term you prefer]. The news is good: comparing April 2017 through March 2018 to the same period two years prior reveals an increase in CPG average order sizes of 9 percent, from $53.05 to $57.82. In the same period, overall online order sizes have declined by 6 percent. So CPG is bucking the trend by 15 points.
What’s driving this split? We are seeing the beginnings of an important shift in online CPG from traditional dotcom models [where UPS, FedEx or USPS deliver a box with one or two shelf stable items] toward full assortment grocery. Full assortment grocery grew by 100 percent the past 12 months and 76 percent in the 12 months prior to that. Traditional dotcom CPG grew by only 30 percent in the past 12 months and 36 percent in the 12 months prior to that.
The penetration of full assortment grocery is still small, representing less than 5 percent of CPG orders, but if it maintains its current growth trajectory it is on pace to account for 50 percent of online CPG sales within about 10 years.
If you are a CPG brand or retailer and the full assortment grocery channel isn’t key to your 2018 strategic plans, you’d better be loading your 2019 budgets to catch up. We are entering an era when consumer grocery shopping habits are going to be up for grabs in a once-in-a-generation kind of way.
Ken Cassar is vice president, principal analyst at Slice Intelligence, where he looks at trends in the e-commerce industry armed with Slice’s robust set of online sales data.
Ken brings a rich online retail background to Slice Intelligence. Most recently, Ken was SVP, Media Analytic Solutions at Nielsen, where he developed several innovative digital commerce measurement and advertising effectiveness solutions. Prior to Nielsen, Ken was an analyst at Jupiter Research, where he was an early thought leader, trusted adviser, and media source on e-commerce. His prescient outlook on fledgling e-commerce industry was a key contributor to Jupiter’s dominance as a digital media zeitgeist at the dawn of the Internet.
Ken has an MBA and Bachelors Degree in Political Science from the University of Connecticut. Ken aspires to stay technologically ahead of his teenage children, as evidenced by his ‘Gadget Geek’ Slice profile. He also has the appropriate jacket for every occasion.