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How Should Retailers Respond To Amazon?

Amazon’s entry into Australia is likely to be considered, and phased, claims research group LEK.

Its offer will expand as Amazon develops local capabilities.

For local retailers, international examples reveal a number of ways to position for Amazon’s launch.
Improve the in-store experience. Offer value that Amazon cannot match. For instance, in the U.S., Best Buy Developed Magnolia Design Centre showrooms that allow customers to experience and design their own high-end home entertainment systems a concept that is being considered by The Good Guys management.

Re-engineer customer relationships. Improve loyalty programs and shipping offers. In Australia the bulk of retailers including JB Hi Fi and Harvey Norman are not collecting data at the till like US retailers. Very few even offer discount certificates prompting consumers to return to a store.

Amazon’s success in Japanese electronics has been muted by the generous loyalty programs in Japanese brick-and-mortar stores. Rakuten Ichiba, the largest marketplace in Japan, uses the Rakuten Super Points scheme in which customers receive up to 10% back on purchases made through its site. These points are transferable to convenience stores, tourism websites and banks.

Retailers may also wish to consider offering a Prime-like services and delivery bundle — partly to defend against share loss to Amazon, but also simply to match modern consumer needs. Several Australian retailers already offer such an option. The Iconic, for instance, offers a standard two-day shipping time and an express three-to-five-hour option in metro locations for most items. Dan Murphy’s offers a $50 per year subscription for unlimited delivery.

Get big: reinvest profits in building scale. In categories of focus for Amazon, the largest players often survive, and the second and third players are the losers. In the books category, Barnes & Noble remains while Borders is no more; in electronics, Best Buy Outlasted Circuit City.

Double down on private label. The less branded the better. Dixon’s Carphone in the UK developed a strong brand range, with “good, better, best” options. It tailors these brands according to its customer research, and provides competitive prices by leveraging its relationships with suppliers.

Bring the customer in-store through personalization of services, kitting and customization. For instance, Dixons Carphone aims to sell supplementary services like phone screen repairs and tutorials. Last year, profits from these services comprised half of its approximately 4% operating margin. Kitting, or bundling, requires bringing together bundles of products that are typically used together — a set of plumbing supplies, for instance. Customization might involve tailoring clothes to fit perfectly, or personalizing items like sneakers.

For brand owners, Amazon can have advantages if approached carefully. Careful direct engagement is the best path. Amazon has many avenues to range products it views as important, and it has the means to compete with those who do not play ball (from third-party/international sourcing to creation of private-label product to compete with holdouts).

For those that have a distinctive brand, and control SKUs and pricing carefully (with Amazon and across their wholesale relationships), there is little to fear and much to gain from dealing with Amazon claim LEK.

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