1) Amazon Go opens to the public, a year after originally intended

Why it’s interesting

  • Amazon Go, the company’s cashier-less small-format grocery store, opened to the public this week. The project has been in development for over five years, and was supposed to open to the public in early 2017, but ran into a number of issues with how its instant checkout technology dealt with multiple shoppers in the store at once.

Why it matters

  • When Amazon delayed the public unveiling of Go, many writers opined that the technology was dead or seriously flawed. But internally, this wasn’t a big issue and, as with most coverage of Amazon, the media’s perspective missed the bigger picture. According to CEO Jeff Bezos, Amazon gives itself five to seven years to realize anything it spends time on, and hiccups like this are par for the course. Moreover, Go emerged only five years since its inception—an early release. Without a full grasp on Amazon’s strategy, many people significantly overreact when things go wrong for the company, an inevitability when it is attempting to do something as boundary-pushing as “eliminating checkout lines.”
  • The company was tight-lipped about future plans for this technology, and even though it denied it would make its way into Whole Foods, which is notorious for its long lines during rush hour, it likely will in due time. There is surely more Amazon has yet to figure out with Go, especially how peak demand impacts the system, but it  is nonetheless a big step forward for Amazon retail technology, and for eliminating long lines.

2) Richemont buys Yoox Net-a-Porter, becoming the first major luxury holding company with a serious ecommerce operation

Why it’s interesting

  • Richemont’s purchase caps quite a journey for YNAP. Richemont owned a controlling stake in Net-a-Porter before it merged with Yoox, which gave Richemont a 50% stake in the combined group—now it will own close to 100% of the entity.
  • While YNAP will retain the same management, it’s not that healthy to change owners and culture so many times in such a short span of time. Employee attrition is worth watching.  

Why it matters

  • Richemont’s latest move makes it the first luxury holding company to have a serious ecommerce operation, putting it ahead of Kering and LVMH. Kering has a deal with YNAP to handle the ecommerce for all of its brands while LVMH owns 24 Sèvres, which it launched from Le Bon Marché, the flagship department store it owns. However, it’s unclear what 24 Sèvres’ scale is, but it is likely nowhere near the size of YNAP, which made over $2.5 billion in sales in 2017. While Richemont likely has no incentive to cut off the deal with Kering, it should be worrisome for Kering and its brands to have a function as essential as ecommerce in the hands of a competitor. This might be positive news for Farfetch Black & White, it’s own mono-brand offering.
  • It’s still surprising that Richemont is so far ahead of the other two groups when it comes to thinking about ecommerce and digital more broadly. It speaks mostly to the power and curse of culture, and how hard it is to evolve. Maybe LVMH or Kering need to buy Farfetch before it goes public, since it’s going to take years to build up a competitive skill set all by itself.

3) Young people are shopping less at warehouse stores and opting to buy more products online

Why it’s interesting

  • The Washington Post recently reported on the decline of warehouse stores such as Costco and Sam’s Club (owned by Walmart). Older shoppers prefer these stores while younger ones are opting for online equivalents such as Boxed and Amazon. Warehouse stores are hiring fewer workers and closing locations as a result. Walmart just announced it will close 63 Sam’s Club locations, though some will reopen as ecommerce fulfillment centers.
  • To combat the change in shopping demographics, Costco is shifting more of its business to include perishable food, which is harder to order online and receive in a timely manner.  

Why it matters

  • There are a significant number of companies, workers and real estate properties tied to the success of warehouse stores. As more real estate needs to move to ecommerce fulfillment centers, which have vastly different physical space requirements than consumer-facing stores, a lot more consolidation is on the horizon. It doesn’t help that many of the product categories warehouse stores are built for are just as easy—if not easier—to buy online than in-store. At the same time, features like Amazon Dash Buttons make reordering items online even more streamlined.
  • Warehouse stores are successful for two main reasons: 1) Shoppers often pay membership fees, which compel them to shop more where they have already spent money; and 2) Roaming a store for hours means you will buy a lot more than originally intended. Online retail, however, allows a customer to shop for individual items more easily, rather than a full shopping cart. Companies like Amazon have mitigated these challenges—most obviously with Prime, which compels shoppers to default to Amazon, but more interestingly with Prime Pantry, which charges a flat shipping fee per box and features a counter that tells a shopper how much of the box is full, thus simulating a physical shopping cart. It absolutely gets you to buy more.  

4) Bankrupt retailers are using Chapter 11 bankruptcy to extract major rent concessions

Why it’s interesting

  • In 2017, 17 retailers with more than 100 stores filed for bankruptcy, but only four—Limited Stores Co., Wet Seal LLC., Vanity Shop and Hhgregg Inc.—ended store operations entirely. Some simply closed select stores to cut down on rent costs. Others received large rent reductions or renegotiated leases that allowed them to maintain operations, marking a distinct shift in what concessions landlords are willing to make for companies.

Why it matters

  • Given the explosion of retail bankruptcies over the past year, it’s telling that companies now see Chapter 11, which allows the company to reorganize its finances but still operate, as a negotiating tactic to extract significant rent concessions. This can sometimes include 80-90% rent reductions.
  • This trend is bad news for real estate investors and other financial investors such as debt providers, whose returns and rental rates are getting slashed. Sure, companies might need a fresh start, but this allows a company plagued by mismanagement and a lack of innovation to get off clean while their suppliers and supporters foot the bill. The problem will only worsen as there are dozens of retailers that might need to take similar actions in the coming years.

5) Target unveils new fragrance, bringing more “cheap chic” options to its beauty aisle

Why it’s interesting

  • Target’s new perfume line, “Good Chemistry,” jumpstarts its initiative to sell a series of natural and toxin-free beauty, personal care, baby and consumer goods by 2020 that abide by Target’s “cheap chic” philosophy. Target is turning to its own private label products in order to catch-up with beauty’s high-rollers such as Sephora and Ulta, as this category continues to dominate consumer product spending.

Why it matters

  • This development underscores the importance retailers like Target are placing on private labels. When most products that third-party retailers sell are available from many different stores including Amazon, it’s hard to stay out of a pricing race-to-the-bottom. Instead of playing that game, or relying on it so heavily, moves like “Good Chemistry” give Target a unique product customers can only find through the company.
  • It’s too early to tell if Target can morph into a bigger beauty destination, but with sales happening at both the high and low end, Target might be able to make a dent in the low and the middle of the market. It’s possible that it will also start unique product collaborations with influencers and other sought-after brands, as it has done with apparel.