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August 8, 2014

A Brush With Evolving Retailers

Posted by Amitabh Mudaliar (View Profile | View All Posts) at 9:27 AM

The Alibaba I.P.O., Explained | The New York Times [Source: https://www.youtube.com/watch?v=2c1od68RiDU]

Why the sudden rush to buy The Everything Store - a great new book about one of the master innovators of our age, Jeff Bezos - the founder of Amazon.com? Well, it seems that the new CEO of another mega-retailer, Wal-Mart, is urging every top executive at his company to read the book about the founding of Amazon.com. Doug McMillon wants his colleagues to learn about the brilliant mind and business strategies of Bezos. The 47-year-old McMillon is on a one-man mission to reinvigorate Wal-Mart amidst a rapidly evolving retail industry.

When enormous, established players like Wal-Mart begin studying Web retailers like Amazon.com, it's safe to say that the retail sector is in flux. Wal-Mart had been accustomed to being so big and so influential that it moved markets. Now, with new entrants beginning to disrupt the retail space with an array of digital innovations, it seems that even Wal-Mart is back at the drawing board.

One of the most interesting aspects of Wal-Mart's reinvention is an acknowledgement that bigger isn't always better. That's another way of saying that the mega-store model that Wal-Mart perfected is experiencing some fatigue among consumers. That's why Wal-Mart's McMillon wants the company to investigate new store concepts that include - smaller, more intimate stores. That's an absolutely radical idea! Sam Walton built his retail empire by leveraging the scale of his superstores. He could undercut just about any competitor's price AND provide everything from bed linens to car batteries under one roof. In fact, in some rural communities, Wal-Mart has become the de facto town center, where people gather to eat, to socialize, to do their banking, and to shop.

The fact that Wal-Mart is acting and thinking in such nimble and savvy ways suggests that the company is intent on remaining No. 1 for a long time into the future. The store has reportedly poured half a billion dollars into a digital commerce program and has opened no less than three online fulfillment centers in Silicon Valley with 1,000 employees. Wal-Mart has adopted what it calls a dynamic pricing system that determines the prices of merchandise based on real-time consumer data as well as how digital retailers are pricing similar items. That's a winning strategy from the digital retail playbook.

If you don't think this is exciting enough, add to this situation that China's mega-retailer Alibaba is entering the North American market this year. Alibaba's online-to-offline strategy could be a huge game-changer in the North American market. It's already a success in China. If it succeeds in a new market, then it could very well give Wal-Mart an advantage of sorts. That's because Wal-Mart already has stores in every major metropolitan area across North America. Maybe, just maybe, the attention that Wal-Mart is giving its online strategy in Silicon Valley is a preemption of the Alibaba strategy. If consumers become more engaged with a re-vamped Wal-Mart Web site and can pick up products (or have them delivered) within the hour, then it could be a full-scale demonstration of the Alibaba online-to-offline model at work. Think about it: Wal-Marts are everywhere. What a customer buys online could arrive at her doorstep within a half-hour.

Here is one prediction I know will become a reality: The current scramble to dominate the retail industry - the one I've just described - will be written about in business school cases and studied for decade to come. We are in the midst of an amazing industry transformation.

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