The Fashion Retailer Amazon and the Retail outlook x Miya Knights

Latest expert speaker call with Miya Knights and hosted by RBC contained interesting thoughts on how Amazon’s strategy has progressed and on current trends in Retail.

Miya is a proven domain expert and leader, with extensive industry knowledge and networks built over 25 years’ experience as a journalist, editor, publisher, analyst, research director, head of industry insight and content marketing, consultant and advisor. Co-author of two best-selling books, ‘Amazon: How the world’s most revolutionary retailer…’ and ‘Omnichannel Retail,’ keynote speaker and industry commentator, with regular international and national print, TV and radio experience. She has recently joined the KPMG Retail Think Tank.

From your Retail Think Tank work, how have you seen consumer trends evolving in recent months? Is the consumer proving to be more resilient than most people expected? Will we reach a point soon where inflation will be helpful rather than a hindrance to most retailers?

Miya noted that KPMG has found that consumer are spending 117% of total value cost on what is 97% of their number of items, from a food perspective. Even though we have been seeing good growth figures in terms of sales, data has indicated that spending is broadly flat when adjusted for inflation. We are seeing that seasonal fashion is struggling and EBITDA generation is a serious challenge for grocers at the moment. Miya also noted that a large proportion of consumer spending is going to promotions and loyalty and personal membership account penetration is increasing.

Have you been surprised by the shift back to store based retail in recent months and away from online retailing?

Miya has not been surprised by this given that sustained double digit growth for online long term was an unrealistic expectation. KPMG expects online to be 30% of total retail sales by 2030. As stores have re-opened and people are returning to normal, we are seeing that the online and store mix is rebalancing. Miya still thinks that online growth will continue to outstrip store growth but it is clear that omnichannel is the way forward. Pureplay online retailers have more to lose now, for example with changes such as the business rates changes that are coming through in the UK, which favour stores over warehouses. Miya is also seeing trends towards greater near-shoring and a rescaling of sourcing bases.

How has Amazon’s retail strategy evolved over the past year? I think a few years ago you expected it to push more into Pharmacy/Heath Care, southern Europe and possibly Travel Retail. How has it got on in these areas?

Amazon is really a tech company and as such, has found itself over-exposed, in the way much of global tech has, post pandemic. It is also over-exposed from a space/warehousing perspective and a staffing perspective. Bright spots remain AWS on the tech side of the business and the advertising business. We have not seen much additional activity in pharma or southern Europe in the last year – there has been a slowdown in certain areas, as Amazon resizes certain divisions. Miya thinks Amazon is, however, making more of its ‘Just Walk Out’ technology (eg in conjunction with Hudson News and Paradies). It has downsized its electronics team as well (eg as it took some time to get Alexa right and is downplaying the Fire devices a little more now).

How is Amazon getting on in key areas Fashion and Grocery, where it has significant own label penetration?

A number of these newer initiatives have broadly stalled as Amazon re-scales its operations. Amazon has to learn as much as about retailing as Retailers need to learn about technology. Miya believes it has doubled down on Grocery, as it has already invested significantly in this in the UK and the US. A lack of brand recognition and trust in the Fashion and Food areas is a negative for it. It has a high penetration in clothing and non-fresh grocery but lacks penetration in high / fast fashion and fresh. Miya feels it will have to scale either by acquisition (eg similar to the Wholefoods acquisition) or by launching a new brand that is not Amazon.

What do you think of the growth of Shein, and how much of a threat do you think it is to more traditional fashion retailers?

Shein is growing market share on the online side of fashion retail, but this is still proportionally a lot smaller than existing physical fashion retail. Temu is also an interesting business, as it has a similar model in that it has strong, direct relationships with suppliers (ie it can put a garment on the website before it has actually been made). With Shein, customers will have to accept that they cannot get products the next day, with shipping times currently slow.

How easy is it for an online retailer eg Ocado, to offer customers a more edited, curated and potentially more profitable range?

We note that a grocer has to be competitive on range, so in some senses the offer needs to be as broad as it is deep. Ocado is a bit of an outlier as it has been somewhat a victim of its own issues, as it moved over to being supplied by M&S and didn’t fill the gaps left by Waitrose (its previous supplier). Ocado was operating on c.200k orders per week pre-pandemic, which grew to c.400k per week across the pandemic and Ocado introduced additional capacity to support this. This is now at c.300k orders per week but the average order value is c.94% of where it was pre-pandemic and so Ocado needs to manage this dynamic, as well its additional capacity. There are opportunities to make gains through editing and curating the range but Miya thinks Ocado likely has to look at capacity and reselling its own technology.

Are you seeing many retailers generating tech based cost efficiencies, to offset other cost pressures eg a rising minimum wages?

Broadly speaking, America is trying to spend its way out of a recession and Europe is cutting costs and consolidating. For example, Walmart is looking to automate a high percentage of its stores in the next 10 years. This is effectively the world’s largest omnichannel retailer making a statement around human vs automated workforce management. Retailers’ costs are rising in sourcing markets (eg Bangladesh and China) but freight costs have come down as well. De-risking sourcing and using automation to do more with less are the two big forces that retailers are looking to flex more. Stores need to use automation to be more flexible and to test and respond faster.

Do you think retailers are getting more efficient at managing product returns?

Miya does not think this is getting any better. Retailers really have been passing the cost burden on to consumers but should be doing more in terms of automation and flexibility.

How much of an opportunity is AI to retailers?

AI helps retailers to manage by exception (eg better matching supply to demand). There are two sides to this – servicing the customer and better execution. In general, retailers are more advanced in serving the customer (in terms of automation) but there is more to be done in terms of developing execution engines that make use of data. We are seeing more in the way of own brand now also – eg grocers can develop dynamic offerings (eg suggesting parmesan cheese to a consumer buying pasta and tomato sauce). Retailers are still a little wary of AI.

There is a lot more to do in terms of process enhancement through RFID (eg robotics in store for shelf scanning, image recognition and capture to help efficiency in on-shelf inventory vs full stock). She is seeing RFID benefits mainly at the pallet level but she has seen fewer retailers unlocking the full value on a per item level.

How is tech helping sustainability in retail?

The corporate social responsibility directive, which is being introduced in the EU in 2025, means that any listed company will be required to report on sustainability. As such, there has been much more interest in this area. There are vendors that allow retailers to track sustainability data for these ends. Retailers must start looking at this now and will likely have to deepen supplier ties in order to analyse where changes are needed. There are several questions to be answered. Tech is definitely helping, as will rightsizing supply to demand. On the flip side, she is also seeing a lot of research implying that consumers in general are not willing to pay more for sustainability, so the solution for retailers has to be around doing more with less.