First, let’s define “pureplay” retail: for retail, the kind of consumer selling where you mostly buy low and sell high and optimize the middle to drive as much margin as possible. And by pureplay, I mean that this is the only or vastly the primary way that you make money. With health benefit management and other forays into health care services, it’s hard to argue that CVS and Walgreens are pureplay retailers, as just one example.
Second, when you look at the leaders in the retail industry today, you see more of the same – companies who look less like a retailer and more like either a conglomerate or a services firm. When Amazon is not a retailer and Walmart is a tech company, you know that we’re not in retail Kansas any longer, Dorothy.
is not a retailer
Amazon is not a retailer. The revenue from selling merchandise they bought low in order to sell high is the smallest part of their business, and arguably the least profitable (many argue it’s actually a loss leader). Amazon makes their money from leverage, and they leverage everything, from the very site that sells products (offering it up to sellers and as a marketplace) to the eyeballs that view the site (Amazon operates the largest retail media network), to its logistics and fulfillment network, from its warehouses down to its gig delivery drivers. And then, of course, there is Amazon Web Services (AWS), which takes every technology advancement developed by the dot com business and turns that into services it sells to others, from Just Walk Out and personalized recommendation algorithms down to server space in the AWS Cloud.
This could all probably be tolerated in the competitive world of retail, except that Amazon also introduced Prime, its subscription service that started out merely offering “free” 2-day delivery and now has expanded to include its content creation arm that puts it solidly in the media space as well as personal media storage for photos and songs and more.
There have been a lot of companies that have tried to go head to head with Amazon and failed – I just personally deleted my old Boxed login, even though their website mysteriously promises to be back in business in March. Boxed, as you may recall, swore it would be the Amazon-killer.
is a (tech) services company
The only traditional retailer that has come close to truly competing with Amazon is Walmart.
Over the last several years, Walmart has evolved away from pureplay retail. Some of the things that Amazon is known for, Walmart pioneered, like retail media networks. And some things Walmart has copied from Amazon, like its marketplace, subscription, and logistics services. Walmart doesn’t sell compute power or AI algorithms – yet. But when your CEO spends as much time at the Consumer Electronics Show as he does at the National Retail Federation Big Show – and when their tech-focused booth space on the expo floor rivals AWS in floor space – then you can’t really claim that you’re “just” retail.
Walmart’s need to leverage more of its assets for more than its own brick and mortar stores is more than just a competitive need against Amazon. The supposed profit advantage of online selling has been thoroughly disproven, and the overall pressure on retail margin has been predictable since the first online land grab. Consumers are spreading their attention across more and more touch points.
Retailers need to be every place where consumers are, which means they are spending more and more on customer engagement without really opening new spending avenues. It’s still the same consumers who hit you up on Instagram as shop in your stores. But if you’re not on Instagram, they may stop coming to your stores. Omnichannel, like it or not, is more a cost of maintaining the status quo than it is a way of unlocking new channels of growth. And the more channels you have to maintain, the more you spend in order to chase the same exact level of consumer spending that existing before a new channel opened up.
What’s big is also small
For any fans of the show Mythbusters, you’ll already know that one cardinal rule of the show is that what works on a small scale is not guaranteed to work the same way on a large scale, and vice versa. In retail, however, this may not be true, and the proof lies in DTC’s struggles.
Any business model that cracks the code on a new way of engaging customers is going to shoot up like a rocket at first. It’s that gestalt moment of right place, right time. All the flash sale sites had their moment in 2007-08 by using technology to make it easier to load a catalog of random closeout goods right when the Great Recession created a glut of inventory in search of some way of getting cleared out quickly. You only have to look at the sad remains of Zulily for the current state of that once-hot market. Zulily couldn’t even make it through one last holiday before ceasing operations.
In the same way, DTC was in the right place at the right time to capture consumer attention on social media and turn it into single posts that drove thousands of unit sales. But then the cost of customer acquisition went up as everyone else piled in to try to capture the same results and “free money” ran out, and all of a sudden the future of DTC is wholesale. And physical stores. DTC did not kill physical retail, not even close.
The problem is leverage
In short, the future of DTC is leverage – leveraging major retailers’ distribution, leveraging that antiquated concept of being where consumers are in the physical sense – like at malls or main street/high street type shopping centers.
And the future of big box retail is leverage. Walmart is copying Amazon’s strategy of leverage, slowly but surely. The only thing they’re really missing is Walmart Cloud. Can they bring enough that’s different to be able to differentiate from Amazon? Is there enough space for two giants to battle it out but still make enough money between them to both be successful? Probably. But they’re staying in the game by seeing how they can rent out pretty much everything they have to anyone else trying to sell things to consumers.
You can see evidence of the importance of leverage everywhere in retail these days, and it’s this prevalence that points to the end of an era:
- DTC leverages other retailers’ physical distribution to physically get in front of consumers
- Grocery stores leverage their locations into restaurant and food service
- Luxury brands open hotels and cruise lines and restaurants
- Celebrities leverage the product know-how of brands to get into fashion collaborations and crossovers – and brands leverage celebrity influencer status to get their products in front of consumers in new ways
- Even traditional retailers must find ways to make their stores more than just selling spaces, by leveraging back rooms for fulfillment and store employees as customer service reps and return depots – not to mention adding services, like travel services, or pet care, or free styling or tailoring services
The Retail Bottom Line
Can retail survive as “just retail”? Everything from the locked horns of Amazon and Walmart down to DTC’s struggle for survival suggest that maybe the golden age of pureplay retail is coming to a close. Sears, a brand that lived through the pinnacle of retail and only retail, is down to 13 stores. Walmart, a brand that grew up during that age (and might’ve been responsible for some of those Sears store closings), now finds itself staffing a tech services booth at NRF. Since the rise of internet retailing, the act of physically uniting a customer with a product has become commoditized. So yes, the end of pureplay retail has been coming for over twenty years now, and it may have finally arrived.