Walmart and Amazon’s head-to-head battle for retail dominance has been keeping the industry on the edge of its seat for nearly two years. With Walmart’s noisy purchase of Jet.com for $3.3 billion last year, countered by an even louder $13.7 billion Whole Foods acquisition by Amazon in June, the power players have held the world captive in anticipation of their next move.
“They’re both saying, ‘There should be two big retailers in the marketplace — one being Amazon and one being Walmart,’” explained Farla Efros, president of Chicago-based HRC Retail Advisory. “Walmart is buying up all these online companies to garner knowledge and to understand how to serve the customer from an online and e-commerce perspective. And Amazon is doing the same thing with its brick-and-mortar [expansion].”
In the past year alone, in addition to Jet.com, Walmart has purchased ModCloth, Moosejaw, ShoeBuy and Bonobos — all bids for a larger digital and fashion footprint.
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Meanwhile, Amazon — which made its first big brick-and-mortar play in 2015 with the launch of bookstores — took a larger stab at physical sites with its Whole Foods deal. But it also launched a series of fashion products, including a delivery service and a line of private-label footwear and apparel.
Acquiring “expertise” has long been a tool of the trade for successful firms, but Walmart’s and Amazon’s frenetic expansions have stirred both curiosity and angst in an already pressured retail environment.
“At the end of the day, there will be blood as new winners emerge in the radically changing landscape,” said Jeff Van Sinderen, a Los Angeles- based analyst with B. Riley & Co. LLC. “More market share is gravitating into the hands of fewer powerful players that have the wherewithal to survive. We anticipate that many weaker companies simply will not have the merchandise content or financial strength [to do the same].”
Indeed, across the industry, partnerships are forming as a survival mechanism.
The latest example is Aldo Group’s game- changing purchase of Camuto Group, which brings together two storied footwear names.
Other notable deals include Steve Madden’s Schwartz & Benjamin buyout, Marc Fisher’s Easy Spirit purchase and Caleres’ acquisition of Allen Edmonds. And Coach’s Kate Spade buy and Michael Kors’ procurement of Jimmy Choo could portend a new kind of retail reality in which luxury brands must be part of a larger “house” to maintain relevance.
“From a strategic perspective, the disruptive forces in the industry are driving various types of consolidation as prominent companies seek to gain market share and leverage through acquisitions, while smaller companies exit stand-alone status — sometimes accompanied by challenged profitability metrics — by becoming part of a larger company’s infrastructure,” Van Sinderen said.
But what about smaller brands that are unwilling or unable to find a life raft through mergers?
“They have to be lean in terms of people, cost and infrastructure,” Efros said. “They cannot overhire, and they must stay very clear and focused on what they have to do. They can’t get intimidated by the likes of Amazon and Walmart.”
She further warned: “Small brands will never be successful if they spend their lives chasing.”
Trust Issues
On the heels of intense wheeling and dealing, rumblings of antitrust violations have intensified, particularly in regard to Walmart and Amazon.
“It’s true — people are concerned,” said George Hay, antitrust litigation expert and senior professor of law and economics at Cornell University Law School. “The traditional brick-and-mortar retailers are worried that Amazon’s way of doing business is going to jeopardize their future — what you’re seeing is a kind of protectionism.”
However, he added, an Amazon or Walmart monopoly is far off into the future — if it exists at all. “The claim that [Walmart and Amazon’s activity] is tending toward monopolization is silly because a monopoly generally means there’s only a single supplier or maybe two or three [in an industry],” Hay explained. “Retailing is nowhere near that. You’ve got hundreds of [other options]. Even Amazon’s share of total retail sales would be very small.”
Still, fashion brands may be rightfully concerned about the consequences of Walmart and Amazon gaining so much influence in the industry. In this regard, Amazon has already ruffled some feathers.
Last month, the e-tailer introduced a program in which it buys products at full price from third-party merchants and sells them to consumers on its site. In some instances, Amazon has reportedly approached third-party merchants after a manufacturer declined to distribute products through its platform.
Birkenstock, which made the bold move to walk away from Amazon in January, has accused the e-commerce behemoth of soliciting its authorized sellers in order to gain access to product.
“This is modern-day piracy on the high seas,” David Kahan, CEO of Birkenstock Americas, said of the e-giant’s new Fulfillment by Amazon program. “How can a major retailer who is not a vendor’s partner entice authorized partners to sell them via a back channel?”
Kahan’s public clashes with Amazon began in July 2016, when he argued that it created an environment where “unacceptable business practices” and knockoffs abound. Of Amazon’s latest FBA program, he further warned that if any Birkenstock retailer took “Amazon up on their offer to purchase, they would violate our policy and be closed as an account immediately and forever.”
Athletic giant Nike is testing its own potential solution to the brand equity problem that plagues enormous online platforms such as Amazon: If you can’t beat ’em, join ’em.
The brand in June announced that it was testing a pilot program with Amazon in the U.S. to offer a limited Nike product assortment.
“As we do with all of our partners, we’re looking for ways to improve the Nike consumer experience on Amazon by elevating the way the brand is presented and increasing the quality of product storytelling,” Nike president, chairman and CEO Mark Parker told investors.
Prior to the announcement, some experts estimated that upwards of 80,000 pieces of Nike merchandise were being sold on Amazon by third-party sellers. Experts believe that Nike’s endgame of attaining better representation on the site is key to yielding strong dividends. “This is why Nike has been hesitant to partner with Amazon for so long: There is no experience that the customer engages in to [foster] loyalty — the Amazon experience is purely transactional,” Canaccord Genuity Inc. analyst Camilo Lyon said. “You go to Amazon because you hope to get the best price, quickest delivery and an easy return policy — not because you come out feeling so much more embraced by the brand.”
Winner Takes All
While concerns about megafirms building monopolies are justified, experts said those overtly preoccupied by the issue could be missing the larger point.
“The main thing to focus on in the next two to three years is: Does it look like consumers are going to be better or worse off?” Hay said. “And the answer is almost certainly that they’re going to be better off as a result of all of this innovation and shaking up.”
By many accounts, the U.S. consumer is healthier than ever. The unemployment rate continues to hover around 4.5 percent, personal income is accelerating on a month-to-month basis and cheaper fuel costs have afforded many Americans extra disposable cash.
Meanwhile, the infinite reach of the internet and social media have empowered U.S. shoppers to the extent that the future of a brand can be jeopardized by a single keystroke.
“What is a very viable risk for brands going forward is to not give proper attention to the value of how consumers have started to shop with respect to online reviews,” Lyon noted.
Numerous studies have shown that consumers influence one another far more than many traditional retail tactics. Case in point, a 2017 study by digital creation-and-support platform Websitebuilder.org found that 68 percent of millennials trust online reviews, while only 34 percent trust television advertising.
“By and large, the consumer simply wants the best product at the best price, and they want it fast and easy,” Van Sinderen said. “Those desires will often be more powerful than any anti-establishment pushback might be.”
Ultimately, shoppers will decide how successful these new partnerships will be. Because no matter how big or how strong retailers and brands become, nothing beats the power of the consumer.
