Who’s Breathing Down Walmart’s Neck?

Posted on 07. Jul, 2010 by Jon Bird in Bird’s Eye View, Digital & Interactive, Retail Trends

A quick quiz. What’s the second most valuable retail brand in the world today?

If you guessed “Walmart”, “Tesco” or “Carrefour” – or in fact any bricks-and-mortar retailer – you would be way off the pace. According to a report released last week by Kantar Retail* (http://www.brandz.com/output/retail.aspx/), the brand that grew the most in value last year operated no physical stores at all. It is of course Amazon, the Seattle-based internet goliath.

In the last 12 months, the value of the Amazon brand grew 29% to US$27.4 billion, as reported in the “Global Retail Brands 2010” study. Meanwhile the #1 brand by value, Walmart, declined 4% in worth to US$39.4 billion.

This is evidence of just how quickly and dramatically things have changed. As the Kantar report neatly observes; “the future of retailing will emerge from the tension between location, location, location and algorithm, algorithm, algorithm.”

Not so long ago, it was sufficient to achieve market dominance in retail by cracking a winning format then rolling it out as fast as possible until you reached saturation point. Retail, particularly in the US, was about real estate and it was a territorial battle (an old-fashioned military concept, when you think about it). These days, you don’t so much need a share of space as a share of mind (and search engine for that matter), and an ability to connect with consumers by whichever means they prefer at whatever time is convenient to them, in the easiest, most intuitive way possible.

Amazon doesn’t start by asking “how many stores do we need?” to achieve market coverage. As the Kantar report notes, Amazon begins instead by posing the question: “what’s hard about buying this product?” It’s the difference between a company and customer focus. In adopting this stance, Amazon has been responsible for many of the innovations we take for granted today, such as like-product recommendations and customer reviews. They’ve also caused some of the world’s biggest retailers, such as Walmart, to rethink their distribution strategies and adopt a multi-channel approach.

Amazon’s rise doesn’t mean the demise of the traditional physical retail environment, but it does challenge retailers to reinvent the reason for the store’s existence. We are seeing many shops evolve into “experience centres” like the Apple Store; places that set out to engage and entertain the customer with both products and services rather than just “sell stuff”. Purchases will often migrate to e or m-commerce.

Will the reverse also be true? Will we see online giants like Amazon and E-bay start to open bricks-and-mortar outlets? There is certainly a case for this to happen, although operating physical space adds a layer of cost and complexity to online businesses.

This column started with a question, and I’ll leave you with one to ponder: just how long will it take until an online retailer becomes the #1 most valuable global retail brand?

Jon Bird is CEO of specialist retail marketing agency IdeaWorks (www.ideaworks.com.au). Email jon.bird@ideaworks.com.au. *IdeaWorks is part of the same international marketing group as Kantar Retail.

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