I visited an Amazon local store in U.S. You can call it a pickup location. Interestingly, that is the very reason that makes it a brilliant idea. Amazon is trying to flip the logistics burden: instead of going to your house to deliver, it offers you the choice to come to its store and pick up your purchased items. In that store, you cannot buy anything physically. Largely, people come there to pick up items.
It offers deep convenience as it solves the problem of delivering items when people are at work, and away from homes. It also reduces costs for the shopper since you do not have to pay shipping cost. Generally, Amazon will save money doing this. It plans to have many of them across American cities. The implication is that Amazon will increase its real estate or rent expenses. Sure, the stores are very small, and rent cost will not be that significant, when compared with the savings for not sending people to homes to deliver items.
Leaving work at 5pm, place the order at 1pm and on your way home, you can pick up the items at Amazon Store. This is one way Amazon is showing that the “e” in commerce is all but gone. We are in the age of hybrid-commerce because winning this will involve winning on atoms besides conquering all the competitors in bits and bytes. I have written extensively on the marginal cost element of ecommerce and how the logistics component dominates that. So, Amazon is doing all necessary to reduce that cost with these pickup stores.
[Updated this section Nov 20th with news of this Alibaba deal] Alibaba is also betting big on brick-and-mortar retail. The Chinese e-commerce giant paid $2.9 billion for a 36% stake in Sun Art, the largest operator of Walmart-style stores in China. These firms are pushing into offline shopping.
Alibaba Group Holding Ltd.’s $2.9 billion deal to buy a slice of China’s largest hypermart chain pits it against Wal-Mart Stores Inc. in the world’s largest retail arena.China’s biggest e-commerce company agreed to acquire 36 percent of Sun Art Retail Group Ltd., which operates about 400 hypermarkets under the Auchan and RT-Mart banners. As part of the deal, France’s Auchan Retail SA will raise its stake in the Hong Kong-listed company to a similar level, and form an alliance with the internet giant to tackle the same Chinese food retail sector Wal-Mart’s targeting.
The physical world is where the money is: “The U.S. online grocery market is estimated to generate sales worth of about 14.2 billion U.S. dollars in 2017, with sales forecast to reach 29.7 billion U.S. dollars by 2021.” But “in 2016, U.S. grocery store sales amounted to about 626.98 billion U.S. dollars” . Simply, to win in grocery, you need a physical element.
I predict that within the next few years Amazon may offer coffee and tea in these local stores with devices where people can order things while they drink!
Nigerian local entrepreneurs should consider how the market is changing and adjust. It may be time for them to start striking partnerships with local stores. Amazon bought a local Indian supermarket primarily to have pickup locations to reduce delivery cost. That also helps it to mount more pressure on the physical competitors. Alibaba has been operating supermarkets for three years now, and opening new ones. If U.S. and Chinese markets are not easy to deliver great value via pure ecommerce, Nigerian market should not be expected to be different. Konga and Jumia should study these elements, even as they roll out their own pickup stores, to explore if they need to move into the physical commerce with more vigor.
---Visit our Store for my books, cases, notes, etc. Now, enjoy our consolidated subscription for all contents (past, present and future).
-- We offer Advisory Services (tech, strategy & Africa).