August 28/September 4: Volume 32, Issue 6
By Steven Feldman
What does Amazon’s purchase of Whole Foods mean to you? Probably nothing. Possibly everything.
At the very least, if you are a Whole Foods shopper, you are going to see lower prices. Gone are the days of referring to Whole Foods as “Whole Paycheck.” It happened immediately after the $13.7 billion deal closed Aug. 28. Shoppers realized an instantaneous markdown in prices on a number of items, including salmon, avocados, baby kale and almond butter. Other foods that will be cheaper after Labor Day include bananas, eggs, ground beef, rotisserie chicken, butter and apples.
But this is about more than cookies and cream. It’s really about retail, specifically, the changing face of retail. And rest assured, this is about much more than online shopping. Sure, Amazon Prime members are certain to see special discounts and in-store mark-downs. People who live nowhere near a Whole Foods store will now have access to delivery—provided they become Amazon Prime members, boosting revenue for the company.
Truth be told, Amazon has had its eye beyond the online experience for some time. It had been dabbling with traditional brick-and-mortar activities for a few years already—from owning a few physical stores to running experiments like Amazon Fresh and Amazon Go. When the news of the Whole Foods purchase broke a few months ago, some experts saw it as a sign the company had finally caved and made a large investment into physical stores in order to grow. What many didn’t see, however, is the fact this acquisition is in complete alignment with Amazon’s view of the world of retail.
So the 2,000-pound gorilla in the room is the question, what happens if Amazon were to buy a national chain that just happens to sell flooring? What happens if one day you wake up and find Amazon to be your competitor? Don’t think it couldn’t happen? Ask the grocery chains who had previously viewed Whole Foods simply as an expensive alternative with prices about 15% higher.
Let’s take it one step further. What if Amazon then purchased a flooring manufacturer to supply those stores so they control the entire chain? That hardwood or ceramic tile floor would conceivably become more affordable to the masses, just like the organic beef and chicken will now become at Whole Foods.
It begs the question: What would you do?
Make no mistake: Amazon’s purchase of Whole Foods marks the beginning of the end of retail as we’ve known it. Or maybe the beginning of the retail industry as it should be. How does this relate to the disruptions that will inevitably come to the flooring industry?
Retail is a ruthless business. It has incredible uncertainty and risk built in. Groceries can go bad in unpredictable ways. The sale of flooring can be affected by unexpected fashion trends, political uncertainty and economic turmoil. To succeed, retailers have to compete on many fronts: they have to invest in the right location; they need to carry the right inventory at the right time; they have to operate with exceptional excellence and provide supreme convenience, often at razor-thin margins.
Technology is going to play a major role going forward in ways none of us have yet to realize. Historically, the flooring industry took a while to adopt technology to disrupt itself. It wasn’t until the 1970s when point-of-sale systems were introduced to replace the very limited electronic cash registers, so retailers could start tracking transactions and tie them to orders and buyers in order to start managing inventory with more certainty. This technology did not reach our industry for decades after that. In contrast, Amazon has approached the problem of retail in a more scientific way since day 1.
Amazon will not be the only company to innovate in this space. The Economist recently unveiled stories of French retailers that had been using software for eight months to mine shoppers’ movements and facial expressions in real time. When surprise, dissatisfaction, confusion or hesitation was detected, clerks were dispatched to help. Sales rose by 10%.
Bottom line: The future of retail is here. Keep your eyes open. Wide open.