Amazon’s sales growth this week showed that the etailer continues to power on. It commands respect from retailers, but its relentless expansion also generates fear. We assess how retailers can best compete with the digital Goliath. Gemma Goldfingle and Alex Lawson report.

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Added value

It’s madness to attempt to compete with Amazon on price in most categories. Value-added services are key to winning and retaining spend.

Services such as Marks & Spencer’s free bra fittings or the help with construction of a flat-pack such as offered by Ikea, can draw consumers in-store. Budgets are tight, but good value is often more than just a low price.

Apple has become synomous with offering something for nothing.

Its team of Geniuses has built a reputation of offering free advice and product tuition without pushing the hard sell.

Service

Although Amazon delivers a good service, it often lacks the personal touch. Excellent customer service standards can be a big differentiator for retailers with stores and can encourage repeat business, observes Verdict practice leader Maureen Hinton.

In some categories, such as the increasingly complex technology that characterises the electronic goods market, service is an increasingly powerful weapon in retailers’ armouries and differentiates specialists such as Dixons from price-led, online competitors.

Dixons, owner of Curry’s and PC World, sees its service proposition as central to its future and a potentially powerful contributor to profits. Through its Knowhow business, Dixons aims to take a rising share of the £500m added-value services market.

Multichannel retail consultant Practicology chief executive Martin Newman believes service can be an integral part of creating a strong brand experience for retailers with stores.

Ocado prides itself on good service

Ocado prides itself on good service

Product

Despite Amazon’s phenomenal range, product still offers a point of difference for other retailers.

Exclusive products are a big driver of visits to particular retailers. Department store Selfridges’ success, for instance, is partly built upon the fact that so many of the brands stocked can only be bought in its shops in the UK.

ECommera chief executive Michael Ross believes retailers will increasingly become brand owners in order to offer customers something unique. House of Fraser had success relaunching heritage brand Biba in its stores, it became the retailer’s best-selling womenswear brand when it was revived in 2010.

House of Fraser’s relaunch of heritage brand Biba was a big hit with customers

House of Fraser’s relaunch of heritage brand Biba was a big hit with customers

Retailers are increasingly creating own-brand lines. Both Next and John Lewis have branched into own-brand electricals, which Ross believes are becoming strong brands in their categories in their own right.

Amazon’s vast product range can also be off-putting to shoppers who are looking for a particular item, and that can benefit niche retailers.

Ross says: “Shoppers want an edited range. Someone looking for a car seat doesn’t want to sift through 500 variations. They want a trusted retailer to pick out the best ones.”

Convenience

Picking up purchases on local high streets is a big attraction for shoppers who want to collect their purchases at convenient locations and times.

Click-and-collect’s popularity is increasing, so much so that department store group House of Fraser launched two stores specifically for that purpose last year. Click-and-collect now accounts for 40% of the retailer’s online sales.

House of Fraser

House of Fraser

Practicology’s Newman says: “Retailers need to make the most of that cross-channel convenience factor that Amazon simply cannot deliver.

“They need to make a seamless experience giving customers the option of buying and collecting across many channels.”

Argos has been transformed into a multichannel business, taking full advantage of its 751 stores as pick up points, and 40% of the retailer’s sales are now generated online.

HMV, which has been hit hard by online etailers such as Amazon, says it “fervently believes” there is a real opportunity to develop multiple channels for people to shop for entertainment goods.

The appeal of collection is evident in Amazon’s moves to extend its convenience options by launching a trial of collection lockers at shopping centres and office blocks in the UK.

Heritage

Retailers such as Waterstones, John Lewis and Marks & Spencer can all point to a lengthy history and strong brand values. Brand identity is still crucial. Engaging with staff and seeing a store on the local high street retains a distinctive character that Amazon cannot replicate.

Entertainment retailer HMV believes its culture is what helps it stand out from Amazon. A spokesman says: “We’re separated by our respective cultures – in our case through staff and a brand heritage and a real passion for music, film and games.”

Such a heritage can be especially useful in categories, such as electricals, in which shopper purchases are infrequent and so there is an emphasis on trust in a retailer to get things right.

Amazon’s lack of heritage selling in some categories means it does not have the same influence as competitors. Kantar Worldpanel communications director Edward Garner says: “Amazon has been in food for a while, but I’m not sure whether it really has any clout.”

Get the basics right

Retailers should take a leaf out of Amazon’s book and focus on getting the online basics right. One of Amazon’s greatest strengths is fundamental: the product that customers order is delivered on time. It sounds simple but, as disruption arising from everything from snowy weather or courier letdowns have shown, it isn’t.

Bad weather conditions

Bad weather conditions

ECommera’s Ross says: “So many retailers are obsessing about mobile or social or focusing on prettifying their websites. Ultimately, to compete they need to get the basics right.”

Store environment

The ability to touch and test a product cannot be underestimated. Whether it is tasting wine in Majestic or testing perfume in Liberty’s new beauty hall, bricks-and-mortar retailers offer much that Amazon cannot: inventive merchandising, helpful advice from staff and the ability to put across brand values into the consumer psyche through layouts or point-of-sale materials.

Customers can touch and test products in great surroundings at Liberty

Customers can touch and test products in great surroundings at Liberty

Experiential retailing has been mocked in some quarters as an expensive folly but additional footfall driven by extras such as cafes and childcare facilities can be a genuine point of difference.

Loyalty

As shoppers become increasingly promiscuous in their habits, the idea of loyalty has been eroded. However, when battling Amazon, several retailers have strong offers to reward allegiance.

HMV Pure makes use of the entertainment retailer’s extensive industry contacts to offer customers tiers of free items – from magazine subscriptions to cinema premieres – depending on how much they spend, while Boots’ long-standing loyalty card gives money off a range of its products.

Boots offers strong rewards to loyal customers

Boots offers strong rewards to loyal customers

Tristan Rogers, chief executive of software supplier Concreteplatform.com, warns that bricks-and-mortar retailers should not take loyalty for granted and should learn from Amazon’s innovations. He says: “On Amazon, you can look at customer reviews which tend to be far more reliable than some salesman on commission in store.”

Supplier relationships

Amazon’s relative youth means it has comparatively few long-term relationships with suppliers. This allows traditional retailers to steal a march by working with established partners, not least because suppliers like to see their products well merchandised in shops where there is also the opportunity to interact.

Although Amazon has entered so many categories, breaking into consolidated markets can be difficult and suppliers have some power to pick and choose contracts.

John Giles, divisional director of food supply chain research firm Promar International, says Amazon’s likely entry into chilled foods could be difficult.

“Amazon can physically build a cool store and a distribution depot fairly easily, it is building relationships with suppliers that is key,” he says.

“In fresh food categories, such as meat and dairy these relationships can be challenging.”

Know the enemy

To compete with Amazon, retailers must understand how the online giant operates. Most fall at the first hurdle, says online retail consultancy eCommera’s Ross.

“Retailers can compete with Amazon, but they need to be smart and apply more than standard retail thinking. Retailers need to understand Amazon’s economies,” he says.

Ross believes how Amazon measures its business performance is radically different from high-street stores and if a retailer wants to compete with the online giant, it needs to think differently.