Blog: AI BOOGEYMAN — Chapter 2
Retail AI & Jobs “Amazoned” By Online Shopping
Retail bankruptcies, and predictions about the imminent demise of big-box retailers — have reached almost apocalyptic proportion. As far as predicted job losses go — retail Industry is not alone. Similar disruptive changes are affecting other industries, too!
To succeed in today’s competitive market, retailers must take steps to increase visibility and to further enhance the emotional side of their brand! No, it’s not enough to add a slew of online tools — to look like Amazon.
As IT and Artificial Intelligence are redefining consumers’ habits — shopping for food and groceries receives its rightful attention. So, what do all the big-box retailers do?
· They try to look alike, and deal with the competition by rushing into costly AI acquisitions!
Instead of hoping that AI is going to miraculously cut the operating costs and trim the workforce — the focus should be on how to redefine the problem, move away from a devastating race to the bottom, and create a much bigger growth opportunity — while at it.
As per recent report by Washington Post: “the typical 27-year-old man’s annual earnings in 2013 were 31 percent less than those of a typical 27-year-old man in 1969. The data suggest that today’s young men are unlikely to make up for that decline by earning more in the future”
So, it’s not surprising to see the findings from Pew Research, such as:
· In 1971, the middle class represented the majority of American earners. The percentage of middle class Americans has fallen from 61% in 1971 to 50% in 2015
· The share of aggregate income held by middle-income households plunged from 1970 to 2014 and is now less than the share held by upper-income households
Not that manufacturing jobs in US are showing healthier statistics than the embattled middle class. As WEF reports: “In the two decades from 1979 to 1999, the number of manufacturing jobs in the United States drifted downward, from 19 million to 17 million. But over the next decade, between 1999 and 2009, the number plummeted to 12 million”
And MIT concludes that: “A massive 30-year decline of employment beginning in 1980, led to the liquidation of more than a third of U.S. manufacturing positions. Employment in the sector plunged from 18.9 million jobs to 12.2 million”
In addition: “Since 2000 alone, millions of workers have lost manufacturing jobs paying $25 per hour plus health and retirement benefits. Often the only alternatives were service-sector jobs without benefits, paying $12 an hour”
The only positive signs are attributed to advanced manufacturing industries — that led to increased productivity. Strangely enough, and despite significant losses of manufacturing jobs — the total output of the U.S. manufacturing sector is growing, impressively:
For years, though, middle class shrinkage and disappearing manufacturing jobs were attributed to globalization. And nobody encapsulated it better than United States presidential candidate, Ross Perot. His description of the “giant sucking sound” — remains the most recognizable quotation on anticipated job losses, caused by North American Free Trade Agreement (NAFTA).
More recently, however, and due to Artificial Intelligence (AI) Renaissance — there is a new manufacturing jobs nemesis — the AI Boogeyman. And Boston Consulting Group reports: “that it costs barely $8 an hour to use a robot for spot welding in the auto industry, compared to $25 for a worker — and the gap is only going to widen”
So according to Bureau of Labor Statistics, although since 1970s, more than 7 million factory jobs have disappeared — the total job market, as a whole — has added more than 50 million jobs over the same period. Just not in …. manufacturing.
As much as blaming robotics and automation for job losses is fashionable — a quick look at employment figures at Amazon, begs to differ. As company grows and increases the scope and size of its offerings — so do their job figures!
Robotics and automation allow Amazon to do more, much more. And to do more, the company is hiring more people. A good example of “Keep It Simple, Stupid” principle at work!
It’s also worth noting, that some of the automation technologies introduced almost 50 years ago — didn’t eliminate the jobs they were supposed to vaporize. Instead, humans and machines COEXIST- to the benefit of happier customers. You may ask: does manufacturing still matter to the US Economy?
According to McKinsey, as a country, USA still ranks second in the world for manufacturing output:
· “The United States continues to lead the world in some manufacturing product categories, including aircraft and refined petroleum products. It is the world’s second-ranked producer in other categories, including computers, plastics, and cars (a category in which it ranks behind China but ahead of Japan and Germany)
· It accounts for 60 percent of the nation’s exports and 70 percent of private-sector R&D. It is one of the biggest drivers of trade, innovation, and productivity growth — all factors that define a nation’s competitiveness in the global economy”
According to Daniel Kahneman, Nobel Prize winner in Behavioral Economics, losses are twice as important, as gains — in moving the action needle. This is what you can find by digging inside his Prospect Theory.
So, it’s not surprising at all, that retail bankruptcies and predictions about the job losses and imminent demise of big-box retailers — have reached almost apocalyptic proportion.
It took me less than 5 seconds to find some of the most worrisome headlines on Google — pertaining to retail industry:
• “The rise of Internet shopping and growth of off-price retailing are mega-trends reshaping the retail industry”
• “Traditional brick and mortar retailers must look at their business structure and decide where to cut administrative staff, and which stores to close, in order to survive”
Similarly, pwc shows that 52% of shoppers are likely to buy from offshore online retailer. Such trends are further supported by Private Equity financing, which fuels ever growing acquisition appetite of e-commerce participants. Ouch!
Recently, I was asked for an opinion on this very subject by a $400MM/year retailer — selling outdoor gear, clothing, and services. With all the negativity around, it’s easy to get overwhelmed and lose the BIG PICTURE. Their BOD is rightfully concerned!
Similar disruptive changes are affecting other industries, too:
• Utilities — and their squeeze by Distributed & Renewable Energy plus Storage, resulting in $trillions of stranded assets being written off
• Telcos & Cable Industry — experiencing unprecedented churn from cord-cutters and VOIP services — kissing long-distance revenues, goodbye
• Automotive Industry — already facing LEGISLATIVE threats in so many countries. Not a day goes by — without hearing of yet another authority mandating EVs and disallowing combustion engines in the next few years
• Music & Big Movie Studios — being all threatened by content produced and distributed directly to consumers by Apple, Netflix, and Amazon, etc., etc.
Should I go on? All such industries are afraid to see their Kodak Moment — the same way Retail Industry is. So, my message to corporate executives is often the same: instead of feeling sorry for yourself, start listening to people who are able, and willing to help!
The trick is to focus on a big picture — and not to get caught in too many numbers. After all: Blockbuster, Kodak & Nokia had strong accounting departments for years!
If Walmart just tries to be “like” Amazon, it will lose 70% of possible revenue streams. So, instead of needlessly competing for a slice of remaining 30% — I advise companies not to fall into such a trap.
I often recommend generating huge secondary and tertiary revenue streams — all linked to your unique factor endowment. Such strategy is scalable and sustainable — and as a side-bonus, you also get an option for revenue smoothing.
Need a hint? Don’t forget that most big-box retailers are a part of established shopping centers. Considering that shopping centers generate much bigger foot-traffic than individual tenants — smart retailers can take advantage of such fa gift!
So, my message to many shopping center owners is as follows: stop thinking of what tenants can do for you and start thinking more of what you can do for your tenants!
Look on the bright side: according to Forester, online sales in the United States are expected to reach $523 billion in the next five years, up 56% from $335 billion in 2015. That’s HUGE! No matter the size of the actual markets — a rising tide lifts all boats!
Retail AND Online industries will all have to face Internet of Things (IoT) realities and master Artificial Intelligence (AI) applied toward: Business Intelligence, Product Information Management, Supply Chain Management, Customer Experience Management, etc., etc.
So, does it all boil down to creating a better customer experience? In short: yes! To succeed in today’s competitive market, retailers must take steps to increase visibility and to further enhance the emotional side of their brand!
No, it’s not enough to add a slew of online tools to look “like” Amazon. The writing is on the wall: you’ll be joining Toys “R” Us, Payless, Sears, and Radio Shack — if your value proposition is not 10x better than Amazon Prime’s!
All big-box retailers, including Walmart, need to embrace necessity for differentiated positioning — offering unmatched authenticity! But things are even worse for retailers much smaller than Walmart.
Such are facing problems from both ends: online pressures from Amazon entering the high-end of the market by acquiring Whole Foods, AND cut-throat competition from Walmart — trying to do the same, at the low-end.
As IT and AI advances redefine consumers’ habits — shopping for food and groceries receives its rightful attention. Your competitors are all trying to look alike. In addition, they deal with the competition by rushing into costly acquisitions.
My message: instead of doing what you’re doing, your focus should be on how to redefine the problem, move away from a devastating race to the bottom, and create a much bigger growth opportunity — while at it.
Amazon did it! While profit margins from selling groceries are EXTREMELY low & hover between 1–3% — acquiring Whole Foods brings new, and much bigger revenue streams to Amazon.
Such higher margins are linked to Amazon Web Services (AWS). Did you really think that following Amazon’s acquisition, Whole Foods is going to outsource its cloud-based logistics to IBM?
Is it time for me to repeat the GENIE question again? AWS service translates into additional $billions and VERY HIGH MARGINS added to Amazon’s bottom line. Simply brilliant!
Unfortunately, the fear and uncertainty linked to digitization often hides and obscures realities. The fact is: it’s not technology innovation, but exponential increase in value offered to buyers — that makes all the difference.
Over the last 12 years, I’ve been passionately advocating the wisdom of Blue Ocean Strategy. As a result, I frequently mentioned such strategies to various BODs & Advisory Boards. Recently, BOS authors elegantly commented on Fear, Uncertainty & Doubt of retailers being Amazoned!
“Our question: is Amazon dooming retailers or are retailers dooming themselves?”
Because when you look at retailers today — say department stores in the U.S. — and you remove the signage, you’re not going to know if you are in a Bloomingdale’s, Lord & Taylor or Saks Fifth Avenue.
Moreover, if you look at those organizations today versus 30 years ago, they look virtually the same. It’s because they are focused on competing within the industry instead of creating, which is what Amazon is doing.
So, while Amazon may be accelerating their demise, these retailers got on that track all by themselves”
When asked, what retailers should do considering devastating e-commerce/online competition, the authors replied: “First make creating, not competing, their key strategic agenda. Without it being their number one priority, they are not going to move the needle and get out of the shrinking red ocean they are in.
Too many companies spend 90 percent of their time worrying about reality and only 10 percent doing something about it. That is not a formula for success. It needs to be the other way around.
Next, they need to get super-clear about the current state of play. They need to wake up. Many organizations are living in an illusion; they’re in the past”. “Imitation is not the path to the future.
The best defense is offence. And the best offense, is creating new markets that open new value-cost frontiers. So, the way for retail to succeed is to stop competing head to head, and certainly not to imitate Amazon. It’s to shift and start creating.
When companies do that, they will build a strong future”. An innovative mindset is a first step to take in order to avoid red oceans of intense competition!
“Being competitive is a great thing. But the path to being competitive today is very different than the path in the past. Competing works when demand outstrips supply because there’s a lot to gain by beating your neighbor. But we’re no longer in that world. That’s the past.
Today, supply exceeds demand in virtually every industry. To move forward and be super-competitive, companies need to create. They need to open new value-cost frontiers. That’s what unlocks new demand. That’s what allows us to seize new growth and thrive”.
As challenging retail transformation is — remember this: it all starts with being open minded to outside advice and…. staying curious.
So, happy retailing! And many productive and fulfilling years while at it!