CAMBRIDGE, MA: Amazon's acquisition of the Whole Foods Market grocery chain last week has accelerated the trend towards a fusion of digital and physical retail, according to an industry figure.
Writing on the Harvard Business Review site, Darrell K. Rigby, a partner in the Boston office of Bain & Company, noted that, despite Amazon's forays into grocery, food was still considered a relatively safe category for traditional retailers.
"Now it's clear that Amazon aims to sell customers everything, and therefore no retail spaces are safe," he said.
"If Amazon can acquire its way into groceries, what will prevent it from entering department stores – as Alibaba has done in China – or furniture and appliance stores, electronics stores, or even drug stores?"
The acquisition will have left all such retailers questioning their existing strategies, which Rigby suggested have been built on questionable premises, including the idea that they can add digital capabilities faster than Amazon can add stores and that Amazon's competitive space of e-commerce accounts for only around 8% of US retail sales.
"The only viable retail strategy is to try to advance and merge digital and physical capabilities faster and better than Amazon does," he argued. "That means retailers must learn to compete head-on with Amazon in two fundamental capabilities: agile innovation and expense management."
Some smaller players like Warby Parker are managing this, he said, while some larger operations like Walmart are also responding with strategic acquisitions of their own in the digital space.
But for many it may already be too late. Rigby cited research from IHL Group which asked top retail CIOs how much their IT budgets are currently increasing and how much they should increase to compete against Amazon.
Budgets are growing by 4.7%, it reported, but they would need to increase anywhere from 87% to 237% to start closing the gap.
Writing on the Harvard Business Review site, Darrell K. Rigby, a partner in the Boston office of Bain & Company, noted that, despite Amazon's forays into grocery, food was still considered a relatively safe category for traditional retailers.
"Now it's clear that Amazon aims to sell customers everything, and therefore no retail spaces are safe," he said.
"If Amazon can acquire its way into groceries, what will prevent it from entering department stores – as Alibaba has done in China – or furniture and appliance stores, electronics stores, or even drug stores?"
The acquisition will have left all such retailers questioning their existing strategies, which Rigby suggested have been built on questionable premises, including the idea that they can add digital capabilities faster than Amazon can add stores and that Amazon's competitive space of e-commerce accounts for only around 8% of US retail sales.
"The only viable retail strategy is to try to advance and merge digital and physical capabilities faster and better than Amazon does," he argued. "That means retailers must learn to compete head-on with Amazon in two fundamental capabilities: agile innovation and expense management."
Some smaller players like Warby Parker are managing this, he said, while some larger operations like Walmart are also responding with strategic acquisitions of their own in the digital space.
But for many it may already be too late. Rigby cited research from IHL Group which asked top retail CIOs how much their IT budgets are currently increasing and how much they should increase to compete against Amazon.
Budgets are growing by 4.7%, it reported, but they would need to increase anywhere from 87% to 237% to start closing the gap.
Data sourced from Harvard Business Review; additional content by WARC staff
