How Retailers Can Survive and Thrive in the Age of Amazon

Retail has become one of the most difficult industries in which to survive. Behemoths such as Amazon.com increasingly sweep weaker competitors off the map. So, how can retailers compete in the age of Amazon? Unfortunately, there's no “silver bullet” technology that can help here. The key is being able to adapt quickly and experiment with new business models and potential revenue drivers.

Some retailers are embracing radical new types of revenue models that solve a pain in the customer experience. They're doing this by enabling innovative uses of technology and leveraging the Internet of Things. Whether it's renting shoes for one-time use, as DSW has announced, or Volvo offering cars-by-subscription, there are some brilliant ideas out there.

The pain point is key. Bonobos solved the “When I find what I want, they don’t have my size in stock” problem by shipping the item direct to your home after you tried it on. Amazon Go solved the “I hate queueing” problem with automatic checkout. Stitch Fix/Thread/The Chapar solved the “I really struggle to choose the right clothes for me” with sites site targeted at men who don’t like going shopping.

The Chapar, for example, has online registration and uses personal style advisors to select wardrobe items for men, putting together a personalized trunk of clothes to send. Customers can choose the clothes they want to keep and send the rest back for free via a courier.

New business models such as these create numerous issues, however. For example, logistics takes on a whole new flow. Where once it used to be fairly easy due to the single direction of products — supplier to warehouse to store — omnichannel makes it much more complex. There are different fulfillment points, with products moving all over the place.

Technology requirements become massively important. All of a sudden you have to be able to track a given item through the supply chain. Further complicating matters is that specific routes will be very different every time, and you have to factor in the reverse logistics element too. Business processes have become so much more complex than before, and this puts pressure on the efficiency of the new — and perhaps existing — operations.

There are two things to focus on here:

Removing Friction

You need a laser-like focus on the customer problem or pain point to ensure it disappears. To fulfill their needs, you need to consider using the IoT to track products through the supply chain until they get to the customer. You may need a customer-facing app where the customer can browse the rental product catalogue for a request, but also to increase the length of rental or change the return location if required. And all this needs to plug into the finance, operational and logistical systems that already exist. 

Technological Agility

You must have the ability to rapidly support customers from a technology perspective. This means you have to be able to scale in order to fulfill consumer demand should the idea take off.

Innovating may however mean that you're a “fast follower.” Amazon has lots of great ideas that can be copied. If you're going to take the fast follower approach, the key is to make sure your offer is better — with more rapid delivery, wider assortment of goods or a wider geographic range — than the competition you're following. In this case the emphasis on technological agility is even greater.

The Age of Amazon

Whether you're a problem solver, a fast follower or a completely new kind of innovator, you need to take a digital business approach. You need an approach that uses technology to enable the new business model which is focused on the customer and the customer experience.

Competition is fierce and increasingly dominated by one organization — Amazon. Taking steps to radically reduce customer pain points will help you to overhaul your old business model — or to design a successful new one. Technology is the key.

Oliver Guy is the global industry director, retail for Software AG, a digital business platform.