7 Strategies for Successfully Competing Against Amazon
How do I compete with Amazon? How many times have you asked yourself that question? Have you ever thought about if that’s even the right question to ask? Amazon is widely successful. It made $281 billion in revenue in 2019. But with all of Amazon’s success Barron’s estimates Amazon only has a 6% share of the retail sector in the United States. That means there is room for other retailers to be successful and many are succeeding. Running headfirst at Amazon is only something a very large retailer like Walmart, which is nearly twice Amazon’s size, can do. Why? It’s very expensive to make the types of investments Amazon is making to give consumers the level of service they crave. In the third quarter of 2020 Amazon spent $15.1 billion on shipping costs. That’s just in one quarter!
What most people do when trying to compete with a strong competitor is they try to outdo or copy what their competition does best. A better strategy is to focus on being great in areas where it’s hard for your competitor to compete. Amazon, just like everyone else, has weaknesses. Big box retailers are rising on the strength of their store networks. Retailers like Sephora are using personalization to draw customers in, in a way Amazon can’t and the Trader Joe’s of the world have private label products you can’t get anywhere else. If you are struggling with how to compete with Amazon don’t worry there is more than you can do than you realize. Consider these seven strategies which retailers are using and are finding success.
1. Stop obsessing over Amazon
Amazon would not be where it is today if it spent all of its time studying other successful retailers. One of the most remarkable things about Amazon is the number of profitable streams of revenue it has outside of its low margin retail business. Amazon is like having a cloud services company (Microsoft), an advertising juggernaut (Google), a marketplace (eBay) and a traditional retailer (Target) all in one company.
In 2019 Amazon Web Services (AWS) generated 63% of Amazon’s operating income but only made up 12.5% of Amazon’s revenue. Amazon’s retail business had operating margins of -1% in 2019, while AWS’ operating margin was 31.1%. As a separate business AWS could have a $500 billion dollar valuation. Not bad for a “retailer.” How did Amazon get here? It got here by literally thinking outside of the box. Instead of saying I am only a retailer Amazon said, what could I be? Sounds simple but changing the way you think about your business and what it can accomplish can get you moving in the right direction instead of continuously iterating on what already exists. A continual iteration of what was done in prior years is one of the main reasons for the fall of Sears. Innovation matters. If Amazon only looked at others its name would be Barnes and Noble.
So the next time you race to copy Amazon’s latest shipping feat think about whether you are really competing with the right company. The vast majority of retailers cannot compete directly with Amazon. If your name isn’t Walmart or Target it’s going to be hard to keep up.
Instead when you are thinking about how to win in retail think about a set of successful companies you can look to for inspiration. Include Amazon but also look at Walmart, Target, Costco, lululemon, Home Depot, Best Buy, Sephora and dollar stores. There is no shortage of, even during the pandemic, retailers who are innovating and finding success.
Then think about your own ideas and pursue them.
2. Offer omni-channel services that leaves control in the hands of the customer
Who would have thought not having a large store network would be one of Amazon’s weaknesses? Amazon actually has a lot of stores, close to 600. But that’s far less than the number of store, one of its biggest competitors, Walmart has. Walmart has close to 5,000 stores in the United States. Your customers want control. They want to decide when and how they receive their eCommerce orders. Having stores has been a huge asset to retailers like, Best Buy, Walmart and Target.
Target’s Drive Up service which is the same as curbside pickup grew by over 700% in the second quarter of 2020. So if you are thinking that eCommerce success is only about shipping times, think again. Stores are one of the greatest assets in a retailer’s arsenal.
In Aerie’s second quarter of this year digital demand (measured by ordered sales) soared, up 113%. With lockdown measures still in place digital sales represented 70% of Aerie’s sales during the quarter. Despite success within this channel Aerie is still focusing on stores with plans to open 25 new stores this year alone. "We know that stores generate increased brand awareness, expand customer reach, and raise average spend in underpenetrated markets," said American Eagle Outfitter’s Chief Operating Officer Michael Rempell.
Another reason for opening stores is that they are a “highly profitable” channel says Jay Schottenstein, American Eagle Outfitter’s CEO. eCommerce can be a good and a bad thing all at the same time. The revenue is welcomed but eCommerce can be the most expensive channel as tasks like picking, packing and delivery are shifted from the customer to the retailer. The best model is really a combination of brick and mortar stores and digital sales.
Speaking about Target’s performance earlier this year, Michael Lasser, broadline and hardline retail analyst at UBS said: “Target definitely smashed it out of the park…with triple-digit numbers in e-commerce [in the first quarter] and it’s very evident that today more than ever [a] good omnichannel strategy is key for any retailer to survive. It’s not just about selling key essentials but really investing in the omni-channel experience -- something that Target did five years ago.”
If you still believe the headlines that say brick and mortar shopping is dead, consider this, Amazon opened a new brick and mortar supermarket chain, Amazon Fresh earlier this year. They did this in a pandemic! And they did it while their online sales were soaring. With eCommerce expected to only comprise 14.4% of retail sales in the United States in 2020 if you aren’t focusing on stores you are leaving money on the table.
3. Provide personalized service that make your customers feel special
The power of personalization is often discussed but many retailers struggle to get it right. Sephora, on the other hand is a leader in this area. At Sephora, personalization is about giving customers products and experiences that are tailored made for them. In the beauty industry this could not be more important because the makeup or skincare that is best for you is not the makeup or skincare that is best for someone else.
Sephora’s innovative mobile app contains a Virtual Artist. The Virtual Artist uses facial recognition technology to allow customers to try on products digitally. Customers scan their face using the app. Then they can try on different shades of makeup using the app. If a customer likes their simulated look they can quickly and easily buy the products without even leaving the app. Within the app customers can also take makeup tutorials. For example, if a customer takes a contouring tutorial the app will overlay the contouring look on the customer’s face digitally. It is an excellent example of personalization at an individual level.
How many retailers can say they provide a custom and tailored experience each time a customer shops with the retailer? You cannot have better customer service than a service that is made just for you. The level of service that Sephora provides is usually reserved for customers of high-end stores where you can get a personal shopper to provide you with a very customized look. Sephora has done a phenomenal job of serving a mass audience with a personal touch. Even more impressive is the fact that a number of Sephora’s personalized services are offered to customers free of charge (i.e. the Virtual Artist or Colour IQ).
The level of personalization Sephora provides is seen not only with makeup applications but in many other areas. Sephora sends customers discount shopping codes based on their individual behaviour. If a customer hasn’t purchased a particular product in a long time they will receive a code to purchase that product at a discount. Sephora also notifies customers when a product is back in stock prompting the customer to make a repeat purchase. Other notifications users of Sephora’s app receive include: reminders for customers to pick up their free gift on their birthday, location based mobile notifications that tell customers if a new product is now available but only in a store near them as well as notifications about events as a customer approaches a store where the event is taking place. All of these details make a big difference with customers. They make customers feel like Sephora cares about them and what they want and need. Sephora’s personalized touch has not gone unnoticed, for three years in a row Sephora landed the top spot in Sailthru’s Retail Personalization Index.
Everyone wants to feel like they are special and that the retailer they frequent is thinking specifically about their wants and needs. With hundreds of millions of customers it is difficult for Amazon to do that. Amazon’s advantage is in efficiency leaving an opportunity for retailers to focus on providing products and services that are more customized to the needs of individual customers. Think about the local business you like to go to. Weather it’s a nail salon or a coffee shop. You like it when the owner greats you by name and remembers details about your family. The extent to which retailers can figure out how to offer this type of feel good service on a larger scale will give them an advantage.
Do you like this content? If you do subscribe to our retail trends newsletter to get the latest retail insights & trends delivered to your inbox
4. Create a community of highly engaged customers and fans
No retailer has created a greater sense of community amongst its customers like lululemon. As lululemon writes on its website: “our vision for our store was to create more than a place where people could get gear to sweat in, we wanted to create a community hub where people could learn and discuss the physical aspects of healthy living, mindfulness and living a life of possibility. It was also important for us to create real relationships with our guests and understand what they were passionate about, how they liked to sweat and help them celebrate their goals. Today, we do this in our stores around the globe.”
One of the ways lululemon has fulfilled that vision is by offering yoga classes for free, holding events and sponsoring runs. These are not random events but experiences that are highly valued by its customers and foster a sense of community. For example, last June lululemon hosted a Sweatlife event in London. Sweatlife is what lululemon calls its engaged community of customers and fans. The two-day event included unlimited yoga, meditation, talks, workshops and sweat classes. Classes ranged from: boxing and spinning to high-energy trampoline workouts. World renowned yoga teachers like Barron Baptiste and Janet Stone have taught at past Sweatlife events. Hundreds of classes were available at the event in London and 6,000 people attended the event over a two-day period. Elle magazine has called it “a fitness experience like no other.”
It is not easy to create a cult following they way lululemon has. The truth is the relationship most companies have with their customers is transactional. A great community is not the same as a great email list. Community comes from making a genuine investment in your customers consistently over time. Someone is more likely to invest in you if you have already invested in them. By using this strategy from the beginning lululemon has built a community of highly engaged fans some of whom have been part of the Sweatlife community for decades.
5. Develop exclusive brands and partnerships that lock customers in
In 1972 when Trader Joe’s introduced its first private label product, a brand of granola, Trader Joe’s Founder, Joe Coulombe, called it a “game changer” for the retailer. Today, approximately 80% of Trader Joe’s products are private label which allows the retailer to charge lower prices than national brands as it cuts out the middleman and goes directly to suppliers.
As Trader Joe’s writes on its website: “focusing on private label (products with “Trader Joe’s” name on them) simplified a lot of things, and removed a lot of costs – no more slotting fees, marketing fees, middlemen fees… We passed along those savings to our customers (still do), because the value of Value is invaluable. And to us, “Value” means offering the best quality products for the best, everyday prices.”
Many of Trader Joe’s private branded products are customer favourites like its Dark Chocolate Peanut Butter Cups or Triple Ginger Snaps or Mandarin Orange Chicken meaning that customers have to go to Trader Joe’s to get them, generating additional foot traffic and sales for the retailer.
Ulta Beauty is another retailer that has benefited from exclusivity. 25 of Ulta Beauty’s best selling items are not sold directly on Amazon. For example, when Kylie Cosmetics expanded its distribution outside of its own direct to consumer website it did so with an exclusive deal with Ulta Beauty. Partnerships like these give retailers a way to force customers to shop on websites other than Amazon’s.
6. Sell a great product
Retail 101: have the right products and services. Do you really have what your customers want? If you are offering a me-too product is it really better than the competition? The better your product is the less you have to rely on marketing and discounting because over time it will generate positive word of mouth. In the book Contagious author Jonah Berger writes that "word of mouth is the primary factor behind 20% to 50% of all purchasing decisions." You are not going to recommend a product to your best friend you do not think she will like.
Do you ever wonder why people pay over $100 to buy lululemon leggings when competitors such as Nike sell leggings at a lower price point? lululemon’s success is not by accident. Those tights women wear from day to night are backed by years of innovation. Some of lululemon’s technically innovative and trademarked materials include Luon, Nulu, Boolux, and Luxtreme. The technological advances lululemon has made in clothing makes it harder for competitors to emulate its success. It also enables lululemon to charge higher prices and lululemon’s clothing rarely goes on sale.
If you are starting out and are struggling to acquire more customers take another look at your offering. Is it really up to par? It can take many starts and missteps before landing on a killer product. Look at Chick-fil-A. Chick-fil A generates more sales per store than any other fast food restaurant chain in the United States. Its best-selling original chicken sandwich that customers love took four years to create. If you don’t have a great product everything else (ie. sales and marketing) is much more difficult to execute.
7. Invest in your employees
Do you ever wonder why some retail employees seem happier than others? It’s not an accident that employees at retailers like Trader Joe’s and Starbucks seem happier. It’s because they are happier. They are happier because their employers invest in them. Trader Joe’s pays its employees well. Part time crew members (an entry level store position) can make up to $24.75 per hour which is nearly twice the highest average minimum wage in the United States. Captains (store managers) make around $100,000 per year. Joe Coulombe, Trader Joe’s now deceased Founder once said that: “the fundamental difference between Trader Joe's and all other retailers is the income level of employees.” Speaking about his dad, Joseph Coulombe said: “he loved and believed in his employees and he wanted to keep them. And the only way to do that was to pay them well.”
Trader Joe’s also makes it a priority to hire nice people. Speaking about this Trader Joe’s President, Bryan Palbaum said that Trader Joe’s explicitly tries to find people that have “outwardly nice” personalities since it is hard to “train someone to be nice.” One of Trader Joe’s former CEOs, John Shields, said that he wouldn’t hire someone if they didn’t smile within the first 30 seconds of an interview. The nice and friendly people Trader Joe’s hires attracts similar people to work there creating a positive working environment.
Your employees are the first point of contact with your customers. And it’s often front-line employees that make the biggest impact on a retailer’s success. But customer service tends to be an area where many struggle. Most retailers do not excel in this area. Take a page from Trader Joes or Starbucks and increase your investment in your people, it will pay off in dividends.