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Marketing

Amazon innovation leaves other retailers behind

By Jim Mason, Executive Director Strategy & Insight

December 21, 2016 | 5 min read

Once again, Amazon made an announcement that sent shock waves throughout the entire retail world. Amazon will be opening a new physical store concept in early 2017 that eliminates the need for queueing to check out.

Amazon

With customers able to grab products, walk out of the door, and pay automatically through a new app, Amazon has eliminated one of the most significant pain points for shoppers. In key categories, this change will do more to encourage customer traffic than any retail loyalty programme has ever done.

Should the technology be successful, Amazon Go will be one of the most disruptive introductions in retail. This concept has been discussed in retail circles for years, but Amazon just moved it from a theoretical idea to an actual store prototype with Amazon Go. And by doing so, the pioneering company has upped the bar for everyone else. It will set the standard for consumer expectations that all other industries will be compared against.

Is Amazon Go going to change the game? Quite possibly (though Lisa Lacy offers five reasons why it might not).

Is Amazon’s near constant innovation going to change the game? Absolutely.

Let’s consider just a few of Amazon’s recent cross-category, consumer facing innovations. First, there is the sizeable investment in original television programming ($2.6 billion in 2015) to strengthen the Prime platform. Second, the company launched a new product line of private label men’s apparel to strengthen its margins in fashion retail.

Third, the company is experimenting with a HSN/QVC-esque live TV show that will showcase particular products for purchase to combine its retail and television expertise.

Fourth, the company opened a set of physical bookstores to extend its market reach.

Any one of these innovations would be notable with a traditional company, but the sheer number of experiments that Amazon is willing and able to make is extraordinary. It begs the question, what are other companies doing? Where are the other retailers? There are numerous large retailers who could have piloted store concepts that didn’t require check-out lines – none did.

Companies are simply not investing enough in their future. Investment is required in the core products themselves, the consumer-facing experiences, and the systems infrastructure on which the company operates. The rate of technology change has created an enormous opportunity for business transformation, but it comes at a cost. The cost of staying at the forefront of an industry is increasing, and because of this lack of digital investment, companies are accruing a digital debt they aren’t even aware of.

Ironically, this is a time when many companies have significant amounts of cash on their balance sheets. Though instead of investing in innovation, they are buying back their own stock. This a surprising misapplication of capital.

Companies are effectively saying they have nothing better to do with their cash than give it back to the shareholders. Yet how many of these companies have an integrated data infrastructure enabling them to get meaningful insights from their consumers? How many of these companies have legacy systems stretched far beyond their original remit that won’t scale with changing business needs? One could question whether these executive teams understand the level of disruption that will be occurring and the level of investment needed to remain relevant in the next decade.

While there are some good reasons for corporate stock repurchases, many times these share buy backs are ill timed and consequently have poor returns. In essence, companies buy high and sell low (it seems executives may suffer from many of the same challenges as individual investors).

Companies tend buy their own stock at periods when the share prices are highest. Instead of creating long-term strategic advantages, these programmes often just provide short-term improvements to financial ratios.

We live in an amazing time when technology advances enable significant changes to products and services and drive new relationships between consumers and brands. Amazon illustrates how a company that invests in innovation can take advantage of this unique opportunity and continue its growth. Many other companies would be better served by aggressively investing in their future instead of simply distributing cash back to shareholders.

Jim Mason is the executive director of strategy and insight at SapientRazorfish.

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