Former Amazon Real Estate Chief On How Retailers Can Compete With Amazon's 'Get Out Of Jail Free Card'
As retailers struggle to keep up with the convenience of Amazon's two-day or same-day shipping, stores are putting more money toward finding new ways to compete in the delivery space. Cushman & Wakefield national e-commerce practice leader Ben Conwell, who previously served as Amazon's director of North American operations real estate, has an up-close view at the battle for the online customer.
Amazon has made major investments in its logistics network, leasing 1M SF distribution centers, closer-in 500K SF fulfillment centers and a wide network of last-mile depots where products are taken to their destination. It also has plans to increase its vehicle delivery network in a move that Conwell expects will put it on par with FedEx and UPS.
It has been able to make this investment in large part because investors have given Amazon the opportunity to scale up without worrying about short-term profits, Conwell said.
“Amazon has gotten a free pass from Wall Street," Conwell, the keynote speaker at Bisnow's National Retail East Coast Series on April 4, said. "They don’t have to make money. Wall Street has given Bezos a 'get out of jail free' card to make scale and they don’t have to meet profit like the rest of retail."
This has allowed the e-commerce king to guarantee two-day free shipping to 65 million Amazon Prime customers and offer same-day delivery in a few dozen markets, making it even harder for traditional retailers to keep up.
In his position at Cushman & Wakefield, Conwell is working with midsize to large retailers to help grow their online presence and compete in the logistics and delivery space, and he has seen many trends emerging in the intense competition for the online market.
For most retailers, the first step to drawing online customers away from Amazon has been to offer in-store pickup for online purchases. Retailers like Walmart and Target try to leverage their large existing store footprint, something they have that Amazon does not, and drive people into the stores who might make impulse purchases.
Offering this service adds more costs and challenges than retailers expect, Conwell said, because it requires hiring workers who are fully dedicated to pulling online orders. Stores must have airtight inventory systems to ensure with 100% certainty that someone who comes to the store for a pickup order will be able to walk out with what they came for.
"What many retailers are learning is that’s much more difficult to execute than it appears on the surface," Conwell said. "Significant data is starting to come out suggesting a lot of us are using 'buy online, pick up in store,' but a lot of us are having a bad experience and are dissatisfied with the service."
Many retailers have realized in-store pickup is not enough, and they must compete on the home-delivery front, Conwell said. But companies trying to get into the complex game of delivery are increasingly realizing they do not need to undertake the costly effort of building up their own distribution network and can instead outsource the process to third-party logistics companies.
"As online fulfillment and delivery becomes more of a requirement by the customer, we’re seeing retailers recognize they’ve got to pay somebody to do this, it's not a core competency," Conwell said. "I feel strongly that the demand for third-party logistics services is going to be significant over next five to seven years."
Conwell also said retailers are beginning to follow Amazon's lead in experimenting with how elastic online demand is when companies adjust delivery time and fees. Many are beginning to offer customers free or very cheap two-day shipping, but then if a customer is willing to wait five days they will receive a $5 store credit or similar incentive.
With all of these efforts, public retail companies have reported strong year-over-year online sales growth. But Conwell warned observers to put this growth in perspective.
"If you’re getting 5% or 8% of your total revenue from online, if you drill down it's not that rosy of a picture," Conwell said. "Thirty percent growth online will not save traditional retailers when they see their in-store traffic and their in-store revenues doing nothing but eroding."
Retailers putting more money toward their e-commerce efforts as in-store sales shrink has led to the recent spate of store closures, which Conwell expects will be even greater in 2017 than last year.
These retail vacancies will be somewhat, but likely not entirely, counteracted by the reverse trend of purely e-commerce companies experimenting with brick-and-mortar locations. Amazon has begun to open campus pickup locations, bookstores and its Amazon Fresh grocery stores, while smaller e-commerce players like Warby Parker and Athleta have also made the move from online to brick-and-mortar.
"Just as we saw traditional retailers add an online experience, we’re seeing a number of formally pure-play online folks go in the other direction," Conwell said. "I think it's a fascinating trend to watch. It will be a challenge for many of those retailers to find the space that works for them and to ensure they can stock the inventory and replenish those stores to make them successful."
Conwell will discuss these trends and more at Bisnow's National Retail: East Coast Series event on April 4 in New York City.