Retailers – Wake up and smell the napalm

Amazon seems unstoppable. The online juggernaut is poised to grab additional market share from local retailers this holiday season by equipping its smartphone app with a $15 incentive (or call it what it is – a bribe) for customers. It is available to anyone who while perusing the aisles of a local retailer in search of their object of desire, instead of adding it their cart, scans the barcode, finds it on Amazon and buys it outright from the online retailer. Something equivalent to being enticed to use your wife’s cellphone to call your love interest. This surely has infuriated the ranks of retailers (even those with an online presence but have a bone to pick with Amazon) and has led to cries of unfair practices. The fact that Amazon does not have to worry about paying sales tax (outside of California at least) adds more fuel to the fire.

E-Commerce, and you can find Mary Meeker’s presentation here for reference (Slides 29 & 30), is at about 8% of retail commerce this year and growing at a fair click. It continues to eat away at the retail commerce market share steadily, led by behemoths like Amazon which are whittling away at anything that differentiates today between the online and offline retail experience, by offering services like Amazon Prime delivering products often the next day. That along with a smoother and instantaneous buying experience online, where each customer click is captured and analyzed – helping to derive any actionable intelligence that may be useful in influencing a customer’s purchase decision, are eons ahead of anything comparable – available offline. The best my local retailer could manage is muster a “Did you find everything you were looking for?” at the end of an exhaustive shopping trip that involved chasing down “On sale” items on opposing corners of the 100,000 square footage store, dealing with a threadbare customer service and confusing, misplaced items & price tags. At which point, I am more worried of incurring the wrath of the six people deep express queue behind me that I mumble “Sure I did” while making it a point to find the things I missed, online and feed my need for instant gratification another day.

Local retailers are at a loss on identifying their most loyal customers, an art lost to everyone except maybe coffee shops and corner delis, and most have to wait till the moment of sale for them to recognize and possibly reward loyalty. By then, I have already made my purchase decision and cannot wait to get out of there, that any attempt to cross or up-sell is lost for ever..or till the next time I am in the store..and the cycle begins anew. Its a miracle that more of the local retail market share has not already been waylaid by online retailers, when it is so evident that the retail buying experience is broken. Imagine an online e-commerce site with a buying experience that is handicapped in a similar way and you can count the number of days to the day they will go out of business.

But finally there may be some light ahead with the onset of smartphone based wallets. But, despite 1 in 2 from US owning a smartphone, I could count in one hand the number of local retailers near me who have figured out how to close the loop using smartphone enabled coupon delivery & redemption, as well as reward and loyalty programs. Many national retailers lack even any semblance of a mobile commerce strategy. Starbucks come close, having processed over 26 million mobile payment transactions at the point of sale, but that’s an exception and hardly the norm. With over 70 mobile wallet initiatives currently in market, retailers are running out of excuses not to participate. They should be chasing these guys down and launching trials and comparing experiences and metrics. Yet all we have heard so far (apart from a handful of retailers) is a lot of enthusiasm but very little else. Reasons for this inaction are varied. The complaint most heard is one that of undue costs incurred by the merchant for upgrading to contactless infrastructure. Merchants are right about being unhappy with the current interchange environment and desiring a discussion around reduced interchange in return for assuming the cost of contactless infrastructure upgrades. Visa’s push to EMV also attempts to accelerate this adoption by shifting fraud liability from acquirers to merchants, with out offering much in the way of a carrot.

But if merchants choose to wait for fairness to descend from the heavens, they risk losing sight of the opportunities that are theirs to lose. Mobile wallets has finally offered up an opportunity to local retailers to level the playing field between them and online giants like Amazon. Smartphone technology can be equally leveraged by both local and online(as evident in the Amazon example above) retailers to better equip them to steal, bolster or recapture marketshare. Online retailers obviously have a leg up on competition, equipped with a smoother buying experience, powerful customer analytics, technology that is far from being antiquated and a retail experience that can be quickly reconfigured to keep pace with customer and buying trends. Where as Local merchants rarely think of technology as an enabler to increase foot traffic to the stores or for customer engagement, and still relies on printed coupons and free standing inserts, a medium that hardly appears on the radar of today’s customer. Mobile wallet initiatives has finally started to offer an opportunity to level this playing field somewhat, by starting to replicate some of the structure that has enabled online retailers easily encroach on local commerce marketshare, while simplifying customer engagement.

Mobile wallet platforms rely on customer and merchant adoption (mutually dependent) to succeed. Either due to disagreements on the current interchange structure, or a lack of vision in to how mobile commerce could reverse the customer drain, these initiatives are stalled today. This status quo must change. Retail industry, financial institutions, MNO’s and technology companies with a vested interest in mobile as the payment form factor, must all work in concert to grease the wheels. Mobile Wallet platforms need merchant adoption to be viable. And Merchants need to leverage the full power of smartphones to take on the likes of Amazon.

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Board of Advisors at SimplyTapp - creators of Host Card Emulation driving democratization and open access to NFC in Android. Mobile Commerce & Payments Lead at Experian Global Consulting, serving Experian's clients in Banking, Retail, Consumer Credit & Payments. A strategic adviser w/ over 17 years of international Tech & Business Strategy consulting, advising firms in banking, retail & asset mgmt that seek clarity & insight in to the myriad business models around payments, fraud & commerce. Founded DROP Labs, a mobile payments/commerce strategy & advisory practice. Tweets here. I'm on LinkedIn here.
Cherian Abraham
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