Amazon, evolving trends in retail prove a challenge for suppliers

Technology has given today’s shopper more power and retailers aggressively tailor their business models to win the consumer’s spending, an amount being reduced by subscription commitments, said Paul Cantrell, global team leader for NPD Group.

He said consumers, particularly Millennials, have signed up for subscriptions on everything from razors, meal kits, Netflix and Amazon Prime. The subscription payments reduce some consumer’s ability to shop brick and mortar. He said retail sales growth is largely flat and that’s a reason why.

Cantrell, along with Dirk Herdes, vice president of retail services at Nielsen, spoke to suppliers on retail trends Tuesday (Dec. 12) at the WalStreet Fireside Chat sponsored by the Greater Bentonville Chamber of Commerce.

Herdes said the fast moving consumer goods categories are experiencing little growth in stores and one of the biggest trends he is witnessing is the health and wellness craze which is happening across the entire big box store. He said suppliers have to do a better job connecting with consumers in stores and online about health and wellness.

“It’s no longer just pharmacy OTC, but it’s about superfoods and clean label on everything from diabetic candy and yogurt, who are categories that are experiencing growth. Suppliers have to communicate to the shopper that health and wellness is important and that happens through clean labels and solid content online,” Herdes said.

“It’s no coincidence that candy sales have improved, despite being an indulgent item. Suppliers cleaned up the labels and started reformulating the products to have less refined sugar. Consumers reacted by spending more in this category.” Herdes said.

Cantrell agreed that health and wellness is a trend reshaping retail. He said over the past seven years deductibles on health insurance for average consumers have risen 80% and healthcare insurance premiums have risen 25%, according to a Kaiser study. He said salaries are not keeping pace with the cost increases and consumers on average have less money to spend.

Some of the categories reaching saturation levels online are technology at about 30%. Growing in that direction is pet food, which had a 10% online share a year ago rising 18% this year. Cantrell said the auto parts category is also poised to grow its online share and categories like toys which were once almost completely experiential is likely to disappear entirely as a speciality retailer.

“Let that sink in, Toys R Us filing bankruptcy and we’ll find out in January how many of those stores will close. I was recently in a Toys R Us store and thought what a great experience for a kid, but it’s not resonating today. In the future, I suspect if you buy toys you will do so at Amazon, Target or Walmart, but there won’t be a speciality store,” Cantrell said.

PRIVATE BRAND PUSH
Herdes and Cantrell also spoke about the private brand push from retailers which is now growing at about 15% annually. Herdes said the resurgence in private brands is happening across all categories

“If you’re a brand supplier, where does that put you in five years?” Cantrell said. “Gen Z doesn’t care about brands. When I was a kid a fight would break out if someone swopped my STP sticker. Years later people where being killed for their Nike shoes and today kids are nearly brand oblivious,” Cantrell said.

He said in the future retailers will look for items they can margin up and then push those over branded products. He said drip pans for grills or other replacements parts are one area retailers could invest in private brands.

VOICE COMMERCE
Cantrell said voice commerce adds another wrinkle for branded suppliers. For instance, voice activated shopping with the aid of Amazon Echo already defers to Amazon batteries when the customer says reorder batteries.

“If you want Duracell you have to override the default by calling the specific brand you want,” Cantrell said. “In the next 4 to 6 months I suspect active Amazon Prime shoppers will get an Echo Dot device sent to them for free because Amazon knows that households who used voice-activated shopping spend 40% more than those who don’t.”

Herdes said this is problematic for brands given a consumer might simply say order soap. How Amazon decides what soap to ship is outside the supplier’s control. He said there are 2 billion Pinterest searches a month and the majority are brand neutral and more project oriented. Consumers are shopping for ingredients, not brands.

He said good content is the great equalizer. Brand suppliers have to be proactive with relevant, optimized online content if they plan to make it because the algorithms used by retailer bots to pull products via search or fill products via voice commerce are based on optimized content as well as price.

AMAZON PLAY
Cantrell said Amazon is by far the fastest growing retailer through this holiday season and apparel is a big reason. He said apparel margins are between 60-80%, which is why Amazon is vying so hard to win share in this space. He said Amazon is a technology company that happens to be in retail and there is no calling a buyer to talk about a product if you are on a supplier sales team.

He said retail has always been a business about people and relationships, but that’s not how technology player Amazon sees it. He said Amazon can buy its way into any category it wants and that’s going to continue to be a problem for department stores like Macy’s, Kohls and JC Penney who can’t compete on price with Amazon.

“If you rep Kitchen Aid mixers then you had one baseline product in Walmart stores, but a whole line of more expensive models at Macy’s. Now Amazon has them all and they are priced lower and can be delivered in less than one day to half of the U.S. households,” Cantrell said.

When asked what suppliers can do to protect their brand equity in the face of Amazon’s cutthroat pricing strategy, Herdes said one of the best investments a supplier can make is research about its shopper base. He said the insights and understanding about the customer’s wants and needs are always going to be relevant whether selling online or in brick and mortar. It’s important for all suppliers to know how consumers are shopping their category online. He said it doesn’t matter if it’s 1% of sales or 50%, consumer insights and relevant content are a must-have for any suppliers hoping to survive.

Lastly, Herders said the investment Amazon is making in media will likely catapult the company into one of the largest movie makers and media content providers in the world in the next five years. He said it’s another way Amazon is playing to win some of the $224 billion media/ad market worldwide. He said Walmart has about $200 million of that share.