Blog Post - Frank Kochenash , Jan 28 2020

New retail formats from Amazon: grocery and fashion

New retail formats from Amazon: grocery and fashion

One of my “2020 trends to watch” was Amazon’s launch of new store formats. Amazon seems primed to make moves in both grocery and fashion. Here are some thoughts and speculations…

Grocery

In November, as reported by CNET, “Amazon is opening a grocery store in Woodland Hills [Los Angeles area] in 2020 …” Business Insider also reported on the pending store opening.

A few things we know:

  • The store will not be branded Whole Foods, but Amazon says this launch is not an abandonment of Whole Foods. The new store’s branding is not yet disclosed.
  • The store will not use Amazon Go technology.
  • The store will be smaller (~35,000 sf) compared to a typical grocery store (~60,000 sf). Note however, that the smaller format compares similarly to those of Trader Joe’s or Lidl or even Target’s smaller format stores.
  • The store is expected to have lower price points than Whole Foods.
  • Additional stores are reportedly planned in Philadelphia and Chicago.

A few things I suspect:

  • While the experience will not be Go powered, I think it may include an option for a “logged in” shopping experience to enable a more personalized in-store experience. A consumer may have the option to provide Prime credentials when entering the store to gain access to new shopping features.
  • I expect the user may also be able to check out using their Prime credentials and a payment method on their Amazon account (via the Amazon app).
  • The shopping experience may contain options that merge the online Amazon experience and the in-store experience. I suspect shelves and price labels will be smart and synchronized with online pricing. There may be an app feature where a shopper could “Add to my Amazon cart for delivery to home,” thus providing the option for either delivery or take-home fulfillment. A stretch example: biddable in-store media.
  • The store will likely be more powered by voice-user interface AI. “Where are the dried porcinis?” could be directed to the app carried by the shopper or enabled at strategically placed customer service kiosks.
  • I expect the experience will be a convenient conjoining of in-store shopping and Amazon Locker pick up, plus drive-by store-pickup. It will provide options.
  • Assortment is a key unknown. I suspect assortment will be more heavily weighted toward Amazon’s private labels (PLs) than their website currently is. It will still need to have a relatively broad selection of national brands because its store brand assortment is not yet as established in consumers’ minds. However, I think this is where Amazon makes a larger strategic bet on low prices that will be more competitive to Lidl and Aldi (Trader Joe’s). Amazon has pointed out several times that its private label brands’ share of total sales is ~1% and much less than other retailers. This seems to be the opportunity to drive awareness and concentrated sales of its own brands.

Fashion

Compared to grocery, I believe Amazon’s launches in Fashion (noted here in Quartz) will be more focused on the online experience. But this is not to say it can’t have a big impact. I believe we will see a shopping experience that is still Amazon but separated from the main Amazon.com website (e.g., different look and feel and maybe different url, but leveraging same Amazon account and credentials). I also think it will be a more “Tmall-like” experience in the sense that the Fashion store will be organized around brands, rather than around products. Letting brands do what they want to may be the key to unlock success in this category which Amazon has found very challenging to date.

Note how this could help Amazon with brands like Nike. My notes on their “split” last fall were basically comments of disappointment but appreciating that there’s opportunity if the two of them can figure it out in the future. Last week at NRF, Nike and Zalando announced a partnership in Europe. Nike presented 4 criteria for marketplaces with which it will participate. Basically, a good marketplace for Nike needs to be big, contribute incremental sales, have a great customer experience, and it has to guarantee it has authentic Nike product. It is likely that those all made it into Amazon’s business requirements document as they designed and built their new fashion store. The 4th criterion is the most challenging. Let’s see how far they go.

Lastly, the fashion launch is likely to leverage a linear media experience as well. Amazon will debut a new fashion competition series called Making the Cut in March on Prime Video. It will be co-hosted by Heidi Klum and Tim Gunn. Amazon says it will be an “instantly shoppable” experience, but it’s unclear what that means. I suspect it will involve integration with Alexa voice shopping and purchase direct from Fire TV.

Implications for brands?

How to play?

Think of your brand’s APIs (application program interface). An API is basically a protocol that allows separate software services to work nicely with each other. In this matter I’m speaking conceptually as well as literally. These new experiences are retail “stores,” but they are all essentially processes, driven by software services, with inputs and outputs, some of which involve brands. How will your brand interact with these new services? What data or products or experiences can you provide to Amazon to help your brands distinctively succeed? For example, if Amazon is going to light up in-store personalization, what data can you provide Amazon to help them showcase your brands better than your competitors can? If you know the stocks are filled with Amazon PL products, what can you provide Amazon so that when a consumer ‘logs in’ to the store upon entry you can promote your brand and avoid the consumer even needing to make a choice?

How to engage?

If Amazon Fashion does open up a platform where brands can more completely control their presence—more like a Tmall store (including, potentially assortment)—be ready to take advantage of it. Consider allocating some budget for the site build and optimization.

How to compete?

If you’re in the grocery categories and Amazon goes with a PL-heavy strategy, dust off your Lidl-compete and Aldi-compete playbooks and be ready to implement in the localized markets where Amazon launches first.

Contact one of our Amazon specialists here or visit our Amazon service page.