Wednesday, May 9, 2018
Overreacting and Under-Responding to Amazon
Is this the answer to Amazon? What was the question again?
The media has given a lot of attention to Amazon as of late. Of course the fact that Amazon owns its own national newspaper sort of amplifies this a bit. But everyone is in a panic, and every time a company goes bankrupt or earnings are down, Amazon is raised as the whipping boy. Toys R Us is going out of business, we're told, because of Amazon. Sears going out of business because of Amazon. Amazon is behind every downturn in business.
But as I noted before, maybe these companies are struggling because of the massive amounts of debt they incurred through private leveraged buyouts. They have solid business models, they're just saddled with excessive debt - and they cannot service this debt. As interest rates rise, more and more companies will fall victim to this problem and the leveraged buyout and venture capital frenzy might finally grind to a halt. Amazon is a blip on the radar compared to the debt issue.
Nevertheless, many old line companies are in a panic about Amazon and feel they need to "do something" to show they are being responsive. And often these efforts are really unnecessary and
half-hearted half-assed. For example, Walmart just ended its agreement with Lyft and Uber to deliver groceries. This is an attempt to counter Amazon's delivery of groceries from their Whole Foods division. The media was agog when Amazon bought Whole Foods, which is a specialty high-end food retailer that serves only a tiny minority of the country.
We were told that our fresh kale would be droned to our houses from Whole Foods via Amazon. The reality is most Americans eat Cheetos and orange soda - not kale - and they buy it at the Safeway or Walmart, not at Whole Foods. Only a few yuppies in major cities shop at Whole Foods - and these are the same people who write articles in newspapers. So newspaper reporters tend to focus on things that affect their lives, blithely assuming we all live lavishly in Manhattan or DC.
The reality is, home food delivery hasn't take off - by drone or otherwise - as most people still like to go to the grocery store and thump the melons and pick out their produce. Oftentimes, you don't know what you want to buy until you see what is available at the store. It is hard to impulse-shop on Amazon - but is is great for buying things you already know you want.
Home delivery of groceries has been around since the dawn of the grocery business. If you watch any old time TV shows from 1950s, there was always a grocery boy delivering a box of groceries to Aunt Bee or something of that nature. Most grocery stores offered home delivery for shut-ins and whatnot. Peapod, division of Giant Foods (as I recall) was offering home delivery of groceries back in the 1990s. Why is it that when Amazon does something, we all act like it is a miracle, even though people have been doing the same damn thing for eons?
Simply stated, Whole Foods is not a threat to the major grocery business anymore than Balducci's is. Balducci's in case you didn't know is another one of those high-end ultra-expensive grocery stores that's centered in New York City. Don't get me wrong, Balducci's sells wonderful things - it's just that you and I can't afford to shop there on a daily basis without going broke or becoming even fatter than we are. They bought out the store Mark used to manage. Back then, we used to buy all our groceries there. Mark would come home with a negative paycheck, even with a 40% manager discount. We were "whole paycheck" decades before Whole Foods - and we learned early on that it made no sense.
Walmart cancelled its experiment with Uber simply because not enough people wanted their groceries delivered. People who shop at Walmart tend to be middle class and lower - although a few upper middle-class people like myself sneak in to snap up a few bargains.
Sadly, this reflects the nature of modern American business management. Mangers are reactive, not active, and feel they need to be seen "doing something" in response to market changes. Rather than pay attention to the bottom line and just offer better services and products, they have to come up with crazy new ideas.
Walmart is also been promoting its ship-to-store promotion so you can buy things online and avoid paying shipping costs, and then pick them up at the store. This might be an interesting option although I have yet to try it, as I haven't bought anything at Walmart's online store in a long time. Walmart has even set aside a pickup area at the store, prominently placed in the front with orange benches. They also have painted the outside of the store with a giant orange sign saying "Pick Up." The problem is, at least from what I see at our store, is that the benches are mostly being used by people waiting for a taxi or Uber or the bus from the senior center to take them home. There isn't a flood of people ordering stuff online to be picked up at the store. In fact there aren't a lot of people ordering things online from Walmart, which I think is the problem. But we'll get to that later.
Not to be outdone, Lowe's has done a similar thing, putting a kiosk at the front of the store with a huge sign saying "Pick Up." The problem with Lowe's pickup kiosk is that, once again, it's sort of a
half-hearted half-assed effort to offer up something to say they are countering Amazon - but not following through. On a recent trip to Lowe's, we couldn't find anybody to help us in any of the departments, nor could we find anybody to help us at the checkout. Nevertheless, there was one employee permanently stationed at this pick up desk, with nobody actually using the service. In other words is a total waste of an employee who could be put to better use actually helping paying customers, instead of the phantom pickup customers.
My neighbor called ahead and ordered some materials to be picked up and paid for them in advance with his credit card. He asked me to use my truck, and we borrowed a trailer from another neighbor and we drove over there to pick up the materials he ordered. When we got there, we found they hadn't pulled any of the materials for pick up, and my friend was quite upset. They had all day to do this, but didn't see an urgent need, as this "pickup" thing seemed less important than warm bodies in the store or deliveries that needed to be loaded on their delivery truck. They offered to deliver the items to his home the next day for free, which he gladly accepted, which save him the delivery charge. He was buying several hundred dollars worth of materials and it really wasn't that expensive for the delivery charge, even if he had to pay it, so one wonders why the pickup thing is even necessary.
A couple months prior, we had been to Home Depot looking for a built-in ironing board for our new laundry room. Home Depot used to have these on display in the store, but when we asked an associate, they brusquely told us they didn't have them and then walked away. I later went online and found out that Home Depot does sell them online, but only has one model available. I ended up buying it from Wayfair, at a much higher price, in order to get the model that I wanted. We're talking about an item that cost a few hundred dollars, so is that loss of a good sale for Home Depot. Multiply this by 330 million Americans, and you can see why it isn't "Amazon" that is the problem.
(By the way, I went on Amazon, but all they had were cheap particle-board ironing boards from China. Amazon isn't the answer to everything - and again, what was the question?).
And this gets us to the ultimate point. These half-assed attempts to compete with Amazon are just backfiring. Nobody wants home-delivered groceries - or very few people do. Nobody wants to pick things up at the store that they ordered online - they want it shipped to their home. If you have to go to the store, what's the point? Each one of these retailers also has an online website where they sell products - just like Amazon, but crappier. Usually their websites are not very well done and not very effective. Of the three, Walmart probably has the best website, although it does sell a lot of third-party items - and Walmart is always getting into some trouble when people put racist t-shirts for sale on the site.
The Home Depot and Lowe's sites are okay, I guess, but really could be a lot better and have a better selection. It doesn't seem like they're putting a lot of effort into online sales. They are not leveraging their brick-and-mortar presence to promote online sales. As I noted before, we once bought something online from Home Depot after an associate told us the product wasn't available in the store but could be shipped to our house. He went to a terminal and with a few clicks and a credit card swipe ordered the product for us.
And I can only imagine the rationale for these shitty, half-assed attempts at e-commerce. In some meeting room somewhere, the guy in charge of the brick-and-mortar side intentionally crippled their e-commerce site, because he was afraid it would take away sales from his stores and make him look bad. We used to do nonsense like that at GM - intentionally take away legroom on smaller cars, in order to "punish" our customers, who refused to move up to a larger or more expensive car. They moved up to a Toyota instead. Rather than look at the big picture, people only looked at their own fiefdoms.
Thus, it seems to me that these companies are over-reacting to the alleged threat of Amazon by coming up with cockamamie schemes, which are just merely efforts to show that "we're doing something" to respond to Amazon. But these efforts really aren't paying off. Meanwhile the weapons they do have - their brick-and-mortar presence and their own online web-portals - are languishing. Or at the very least they could be done a lot better. I don't order things on Amazon because I hate brick-and-mortar stores. I order things online because they have them in stock and the prices are marginally better. I go to the store, driving nearly 20 miles, only to find they don't have what I want - and there is no one around to help me.
Sadly, this reflects the nature of modern American business management. Mangers are reactive, not active, and feel they need to be seen "doing something" in response to market changes. Rather than pay attention to the bottom line and just offer better services and products, they have to come up with crazy new ideas. We saw this at GM in the 1970's and 1980's. How do we compete with Japanese imports? It's a crises! Instead of just making better quality cars at lower prices, they came up with the Vega - with a crazy experimental engine that blew up after 60,000 miles. And weird things like shipping the cars vertically to save money. The idea of confronting the hard problems on the assembly line was rejected out of hand. A decade later, they did the same thing with Saturn - instead of just making better Chevies, they felt they needed to "re-invent" the small car business. The result was just another Chevy, for the most part - it did nothing to compete with the Japanese or offer anything different that other GM divisions.
If you want to compete with Amazon then compete with Amazon online. Because that's what Amazon is, an online retailer. Amazon doesn't have "pick up at the store" or any such nonsense as that, because they don't have a store. Worry less about droning groceries and worry more about making your online presence work.
And maybe take that real estate and employees wasted on "pickup zones" and put them to work making the brick-and-mortar experience better. Because when I am waiting in line at the register and see an employee sitting behind a "pickup" desk doing nothing, I wonder where their priorities are. Brick and mortar has a future, for companies that are not saddled with debt - and companies that simply don't give up because of the threat of Amazon. Do your job well, and Amazon is not a concern.