Last week I tackled Amazon and dietary supplement brands. In this week’s post, I address Amazon’s overall retail impact.
Amazon is creating an offline retail terrain that provides threat and opportunity for today’s health stores. The trail begins with the company’s well documented overtaking of offline retail with its online services. Loup Ventures estimated $125 billion was spent online in Q4 2017. This amount represents only 10% of retail sales despite the apparent overwhelming number of UPS boxes appearing in our doorways. Some predictions estimate the online retail environment could reach 50% of the total market, leaving tens of billions of offline dollars to be contested in more traditional shopping experiences.
The traditional shopping experience is transitioning before our eyes and Amazon is most likely the great influencer. The $13.7 billion Whole Foods acquisition was widely noticed. Many retail pundits predict a 2018 $41 billion Amazon takeover of Target. Amazon is seeking the higher end of the consumer spectrum through its own marketing and acquisitions. Market Research firm GFK MRI reports the median household income of an Amazon shopper is $90,100. The Whole Foods median household income is estimated at $95,200 and the median household income of a Target shopper is $87,000. The U.S. median household income is $55,322—just over half the Amazon, Whole Foods and Target shopper.
The Amazon potential influence with these offline acquisitions is being developed in a convenience store as a small beta program available to select Amazon employees in Seattle, Washington. The experience is called Amazon Go and Just Walk Out Shopping. The technology is the same type used in self-driving cars and computer vision. Without the influence or dependency on clerks and cashiers, shoppers can freely browse, touch, inspect and decide on an immediate purchase and complete it by merely walking out the door and receiving the receipt electronically via the shopper’s Amazon account. The store is currently an intimate 1,800 square feet. Amazon will have much more work to perfect to bring the Go and JWOS experience to the average Whole Foods store size of 39,000 square feet. The task is even more daunting if the experts are correct in predicting the Amazon experience eventually coming to the average Target store size of 135,000 square feet and Super Targets with a footprint average of 175,000 square feet.
Is it a complete flight of fantasy to envision an Amazon Go experience brought to GNC or Vitamin Shoppe? We know Amazon is highly acquisitive, and an acquisition of GNC could likely be attained at some fraction of the current market cap of $245 million. A GNC store size of 1,400 square feet would be very manageable for the Go experience and provide almost 3,000 local community locations. The Amazon Go experience could also be envisioned in the Vitamin Shoppe brick and mortar retail environment providing nearly 800 stores with an average footprint of approximately 3,000 square feet. With a market cap of only $125 million, the acquisition is certainly affordable. Health conscious consumers crave education as well as an experiential environment. The Amazon Go GNC or Amazon Go Vitamin Shoppe could satisfy many of the needs of this consumer.
The silver lining scenario for today’s health store retailer is trust. The obvious missing element to the Amazon Go experiment is human interaction. Humans are not designed to be totally autonomous, and we instinctively want to believe what is related to us in person. Border’s, Barnes and Noble and countless other bookstores are an indication of what the e-commerce experience can do to brick and mortar. Health retailers cannot ignore e-commerce and the technology it takes to support the platform. But, the fact that supplements are even more personal than books provide an opportunity to focus on the needs of the person, not just convenience. Today’s health store retailer can prepare for tomorrow by embracing the opportunity for education, respect and the sharing of trust in the message and human interaction.
In good health,
Scott Steinford is a Managing Partner at Trust Transparency Consulting