Value Is Everything

(Note to readers: This article was originally published on this blog May 6, 2017. It applies as much today as at that time- This time let's add Personal Value, the Value of People. I was reminded of this article when reading the groundbreaking book "The Value of Everything" by Mariana Mazzucato- Highly Recommended reading for you if you want to think seriously about the future of our economy and capitalism)

Value Is Everything

Value- It is a word we have used hundreds of times. The definition of value (there are several) as it relates to economics:  “a measure of the benefit that may be gained from goods or service” or for marketing: “the difference between a customer’s evaluation of benefits and costs.”

It is significant that both definitions imply some finite mathematical calculation- “difference.” Or “measure.” In some cases this may be immediately quantifiable, in other cases true value can only be known after benefits are given or revealed.

Neither of these finite measurable is the case in the apparel world. Other than the difference of the same item from one store to the next (or one web site to the next), most of value perception in apparel purchase decisions is subjective.  There are a lot of abstract comparisons to be made:

1.     Price of not same but similar item in same shop- 2 pair of jeans, for example. Same content, different price. Based on what do you make purchase decision?

a.     Brand perception

b.     Price

c.      Aesthetics- hand feel, colour, FIT.

d.     Whether this is a need purchase or impulse. If value comparison not clear in your mind, you can choose to do nothing.

2.     Price of similar items in different shops-All of the above, plus the “believability” factor- Do you believe the sale is real, and will the price be reduced 5 minutes after you walk out the door?

3.     Magnitude of discount or comparative price value- IF you felt the original price was a good value, a smaller discount will get your attention. IF you felt the original discount was too high or just a template for further discounts, you will need a higher discount to overcome your price objection.

4.     Function/urgency for the purchase- Interview suit vs. sweatpants. Again, price will be a consideration, but there is much, much more in the decision based solely on PERCEPTION- of the brand, the item itself and how you perceive it makes you look, etc.

So yes, you can calculate the price difference in price between item a and b that you are considering to purchase, but is that the major factor in purchase decisions? It is not. I believe;

1.     The final decision is based on VALUE, not PRICE. Price may figure in the decision, but in almost every case it is not the deal maker or breaker.

2.     There is a complex set of PERCEPTIONS combined with calculations which tips the scale toward purchase. Most especially this is the case because pure mathematics cannot provide the answer. These perceptions are as strongly related to the seller as they are to the item itself.

Value is critical in another area: human resources. If you pay $100,000 per year to an individual that can run an entire business for you (virtually mistake-free), versus paying $50,000 to 3 individuals who do the same job (at that level, expect mistakes and omissions), you are not paying too much- you are creating VALUE.  Now let’s say you populated an entire office with this type of individual, you have the perfect scenario: a. your business is run smoothly and efficiently b. your expense is minimized and c. your fixed cost is insulated for business downturns OR may not need to be increased when business grows.

Not everything takes a village, and, if you operate under the principle of Think Big but Be Small, you have every chance to have a low-cost, sustainable business and a damn good staff (whom, if you keep paying well and empowering to operate as they are capable of, will probably stick around)

All over the world today, companies are guilty of hiring lower-paid staff (maybe due to inexperience rather than incompetence) rather than spend more on someone who can do the job with maturity as well as anticipate or handle problems, thus reducing cost and risk. The consequences are far-reaching, and we see companies get into trouble and even disappear, but nobody changes the way things are done. Why?

The fish stinks from the head. Management is responsible and guilty. What is the main reason for this? As always, fear. Fear of change, fear of risk, fear of changing the way things have been done since forever. Clearly, this fear is brought on by the prospect of holding the bag if change doesn’t work. But, with all due respect, that makes no sense. Why? Because if you do nothing, you are holding a worse-smelling bag than if you tried and it didn’t work out as planned. That being said, if you think it through and hire the right people, simplify and streamline your procedures, there is no reason it shouldn’t work. I have done it repeatedly and it has never failed.

I always love the idea of Creative Destruction, which finds its roots in the Hindu Trinity: For something to be born, something must die (Hindu: typically Brahma the creator, Vishnu the preserver, and Shiva the destroyer/regenerator- see https://en.wikipedia.org/wiki/Trimurti ) What that means for us, for it is eternally true and we see it in our world and markets in vivid color, anybody or any business that fails to change with the markets or the world cannot be regenerated, thus dies (see: Sears). So the choice is simple: change or die. That is a no brainer for me-you?

Another relevant cliché: lead, follow, or get out of the way.

Amazon’s Market Share is—Declining? Don’t sell the stock!

Amazon and the Future of Ecommerce

A few days ago, the following graphic was published on LinkedIn:

How is that possible, with everyone being at home and relying more than ever on online purchasing?

So, logically speaking, IF this is true, then either:

• Total Online Spending increased dramatically, at ecommerce sites other than Amazon, OR
• Total Online Spending did not increase dramatically, and people found viable alternatives to Amazon.

I tend to think that the first is more likely correct. Why? Because Amazon, pre-Covid-19, was the easy way to shop; people with limited time running to work or to social occasions, events, etc. found it convenient to shop using Amazon’s super effective platform. Now, with more time on their hands, AND with Amazon showing its growing pains, people started to look for alternatives and found them. 

What do I mean by Growing Pains? Everyone knows how quickly Amazon has grown. The numbers look like this: 

By the above graphic, Amazon’s revenue has grown 162% 2015-2019. IF we assume the 20% CAGR that Amazon has achieved, the 2020 revenue number is $336B, which would have effectively tripled revenue since 2015.

During that time, and pre-Covid-19, Amazon still managed to achieve a standard of one-day delivery for most items. Which brings me to question, did Amazon emphasize- no, push- speed over quality?

My recent experience may be a case in point. We ordered a Japanese Donabe (traditional clay cooking) pot from a seller at Amazon, which was fulfilled from the Amazon warehouse. The pot arrived with a crack inside, so was returned; the replacement arrived totally shattered, and its replacement was also cracked and returned. Third time was not a charm, in this case; the fourth time was. Why? Because we found a Japanese specialty store that shipped the pot well packed, and marked Fragile, which resulted in a perfect delivery. After that, guess what? We bought a second one, which also arrived in perfect condition. Above and beyond the money the freight and returns cost Amazon, they lost a customer permanently for this sort of merchandise. You cannot blame the courier, because they treat all merchandise the same, and any idiot knows that you better protect your goods from that.

So, for us, several hundred dollars of spending resulted in a negative net result for Amazon, and a big positive for the specialty seller. 

The question is, Does Amazon Know or Care? My answer would default to yes for both, if not only because Jeff Bezos, since the beginning in 1994, has been and is, the most customer-oriented business leader that I have ever seen.

That being said, it may take some time for them to make the changes that will reduce the frequency of eventualities like this. IF they don’t, then we can watch the decline. 

BUT, in the meanwhile, take a look at the following: 

and this:

(Once you have Alexa, they pretty much own you for most of your purchases)

And this:

And this:

Looking at the total forecast  of E-Retail: 

the total growth in million USD from 2019 to 2020 is $54,672. Yet earlier, we said that, if Amazon maintained its 20% CAGR from 2019-2020 it would grow by $56 billion. 

So what is the most likely truth? EITHER the forecast for ecommerce growth is way understated, OR Amazon will comprise the entire growth (even though it is somewhere between 33 and 50% of online spending), OR the forecast is correct and Amazon’s growth will slow dramatically.  (I recognize that the first number includes AWS, Amazon Media, etc. but that is not a major % of their business-yet)

What is my prediction- never afraid to give one of those and my track record is pretty good? And I am not taking the chicken way out here:

1. As I have said in previous articles, I believe online shopping (not including omnichannel) will become the DEFAULT activity for most people worldwide;
2. Therefore, the percentage of ecommerce to total retail sales will jump dramatically to 35-40% of total.
3. Amazon will be the first port of entry for almost everything, but become a Generalist- like for Toilet Paper, Cereal, Basic Medicine, etc.; at the same time, we will see dramatic growth of specialists who can serve Everything Else.
4. Brick and Mortar sales will shift from large Department Stores, to nimble Specialty retailers where there are not so many crowds and service can be found; longing for fulfillment and not anonymity, the Customer Experience will be paramount; those Specialty retailers will also be able to fulfill ecommerce needs. 
5. Regarding the specifics of food retailing, staple items will default to stores like Amazon and Walmart; shopping trips to brick and mortar will be relegated to fresh food. Eventually, as fresh food delivery improves, and Amazon gives up the $35 threshold, that may also shift to ecommerce. This all presents an opportunity for specialty food retailers like meat stores, fish stores, produce markets, etc. A throwback to when I was growing up and that is all there was. Again, the customer experience is paramount.

So, Amazon will be fine, and should be happy that the scenario I have just laid out relieves them from being all things to all people. The growth of the main part of Amazon will slow percentage-wise, both because the base is getting bigger and bigger and because there will be alternatives. But still healthy, in double digits.

Amazon stock is $2410/share today; $3000 is within reach. How high it goes after that depends on how Amazon handles the next few years evolution and growth. My money is on Jeff Bezos, unless he has an epiphanic episode that reduces his adoration of the Customer.

Politico Magazine Report: Coronavirus Will Change the World Permanently. Here’s How. AKA “The Big Hug”

In my recent articles, I have been insisting that the world will never be the same after the Coronavirus all clear is sounded. From a business standpoint, I have been insisting that online shopping, especially Amazon, will be the default method (currently ecommerce only occupies around 15% of retail sales in the US); this will extend itself to areas where it was previously not a major factor, such as grocery/food.

I also have been saying that people will change, not only in themselves, but in how, where and when they relate to other people. What I call “The Big Hug” will be people cherishing the benefits of the social contact from which they are all but banned now. How will this manifest itself?

This past March Politico Magazine, in a report entitled, “Coronavirus Will Change the World Permanently. Here’s How.” received some opinions from experts around the country regarding different elements, those being: 

Community

Tech

Health / Science

Government

Elections

The Global Economy

Lifestyle

Remembering the comments, theirs and mine, are just opinions, this article will focus on the Community and Lifestyle areas. Let’s look at some of their comments and then I will add my own two cents:

The personal becomes dangerous.

Deborah Tannen is a professor of linguistics at Georgetown and author, most recently, of You’re the Only One I Can Tell: Inside the Language of Women’s Friendships.

Quotes:

This loss of innocence, or complacency, is a new way of being-in-the-world that we can expect to change our doing-in-the-world. We know now that touching things, being with other people and breathing the air in an enclosed space can be risky. How quickly that awareness recedes will be different for different people, but it can never vanish completely for anyone who lived through this year. It could become second nature to recoil from shaking hands or touching our faces—and we might all find we can’t stop washing our hands.

My comment:

Yes- we will never be the same and we will bifurcate our approach to meeting and being near people into those we know and those we don’t.

The comfort of being in the presence of others might be replaced by a greater comfort with absence, especially with those we don’t know intimately. Instead of asking, “Is there a reason to do this online?” we’ll be asking, “Is there any good reason to do this in person?”—and might need to be reminded and convinced that there is. Unfortunately, if unintendedly, those without easy access to broadband will be further disadvantaged. The paradox of online communication will be ratcheted up: It creates more distance, yes, but also more connection, as we communicate more often with people who are physically farther and farther away—and who feel safer to us because of that distance.

My comment:

What I said, Amazon, et. al. that we can trust online will become the default. Distance will be the norm, closeness the luxury and the exception, or the less frequent.

A hunger for diversion.

Mary Frances Berry is professor of American social thought, history and Africana Studies at the University of Pennsylvania.

Quotes:

After the disastrous 1918-19 Spanish flu and the end of World War I, many Americans sought carefree entertainment, which the introduction of cars and the radio facilitated. Young women newly able to vote under the 19th Amendment bobbed their hair, frequented speakeasies and danced the Charleston. The economy quickly rebounded and flourished for about 10 years, until irrational investment tilted the United States and the world into the Great Depression. Probably, given past behavior, when this pandemic is over, human beings will respond with the same sense of relief and a search for community, relief from stress and pleasure.

My comment:

The question here is what will “community” mean and which circumstances will provide less stress and more pleasure and which the opposite. Again, the bifurcation of “those we know” and “those we don’t.” Not saying parties and dances won’t happen- but attendance won’t be second nature anymore.

Less communal dining—but maybe more cooking.

Paul Freedman is a history professor at Yale and author, most recently, of American Cuisine: And How It Got This Way.

Quotes:

For the past few years, Americans have spent more money on food prepared outside the home than on buying and making their meals. But, now, with restaurants mostly closed and as isolation increases, many people will learn or relearn how to cook over the next weeks. Maybe they will fall back in love with cooking, though I won’t hold my breath, or perhaps delivery will triumph over everything else. Sit-down restaurants also could close permanently as people frequent them less; it is likely there will be many fewer sit-down restaurants in Europe and the United States. We will be less communal at least for a while.

My Comments:

This is a big one. First, I agree that sit down restaurants will lose business to people wanting to cook and, for those who can’t or won’t, prepared food or restaurant delivery; restaurants need to adjust to this lifestyle change and maybe even provide their own boxed meals. But I can see dinner parties and pot lucks becoming the rage.

Even more- The supply chain will have to adjust dramatically. What percent of  grocery inventory are idiot proof meals in a can or frozen, for microwave, etc.? Will people either cook their own or go for Uber Eats? I think so.

A revival of parks.

Alexandra Lange is the architecture critic at Curbed.

Quotes:

Urban parks—in which most major cities have made significant investments over the past decade—are big enough to accommodate both crowds and social distancing. It helps that it is spring in the northern hemisphere.

Society might come out of the pandemic valuing these big spaces even more, not only as the backdrop to major events and active uses, but as an opportunity to be together visually.

After this is all over, I would love to see more public investment in open, accessible, all-weather places to gather, even after we no longer need to stay six feet apart.

My Comments: 

I like the recommendation here. More parks is good for urban dwellers, Coronavirus or not. Parks and outdoor venues with ample space will tolerate more people with less social stress.

The tyranny of habit no more.

Virginia Heffernan is author of Magic and Loss: The Internet as Art.

Quotes:

This current plague time might see a recharged commitment to a closer-to-the-bone worldview that recognizes we have a short time on earth, the Doomsday Clock is a minute from midnight, and living peacefully and meaningfully together is going to take much more than bed-making and canny investments. The Power of No Habits.

My Comments: 

So, we have a terrible reality check on the preciousness and brevity of life. “No Habits” to me means get out of your routines and Live in The Moment- with Others.

A healthier digital lifestyle.

Sherry Turkle is professor of the social studies of science and technology at MIT, founding director of the MIT Initiative on Technology and Self, and author, most recently, of Reclaiming Conversation: The Power of Talk in a Digital Age.

Quotes:

Perhaps we can use our time with our devices to rethink the kinds of community we can create through them. In the earliest days of our coronavirus social distancing, we have seen inspirational first examples. Cello master Yo-Yo Ma posts a daily live concert of a song that sustains him. Broadway diva Laura Benanti invites performers from high school musicals who are not going to put on those shows to send their performances to her. She’ll be watching; Lin-Manuel Miranda joins the campaign and promises to watch as well. Entrepreneurs offer time to listen to pitches. Master yoga instructors teach free classes. This is a different life on the screen from disappearing into a video game or polishing one’s avatar. This is breaking open a medium with human generosity and empathy. This is looking within and asking: “What can I authentically offer? I have a life, a history. What do people need?” If, moving forward, we apply our most human instincts to our devices, that will have been a powerful COVID-19 legacy. Not only alone together, but together alone.

My Comments: 

Not only alone together, but together alone. That is the most insightful and thought-provoking comment of all that have been made about Post-Corona- including mine. Think about it: If we see being alone in the same light as we previously saw being together, that changes everything.

IF she is right, the message for brands is: the Internet has become a source of personal identification and empathy for people, so lose the underfed and blank-faced models and let’s see YOU.

Which, in summary, is my point. Everything changes, but how? We really don’t know for sure. I feel pretty sure that the digital world will become the Default, but in what ways and how, especially when it regards personal interaction, is yet to be seen.

So, who will you hug first after the all clear sounds?

Amazon: The Evolution Solution/Now the DEFAULT Solution

I published the below article, "The Evolution Solution" on October 30th, 2017. 

In the article I pointed out how Amazon did not just show up, it evolved into what it is today, April 17th, 2020: The Default Solution.

At that time, Amazon's market cap was about $528 billion (about 100 times that of Macy's); today, in the midst of unprecedented historical events which caused rising disruption of industries and employment, it is $1.16 Trillion. 

It is said that, in business, you need a vision, hard work, and a little bit of luck. Amazon has all of those and more than a little bit of luck. 

Prior to the pandemic, our choice was shop at home or go outside. Now, there is little or no choice but to shop at home. And there is Amazon. So Amazon has further evolved into the DEFAULT shopping solution. 

I have discussed this at length with my classes at NYU, and the consensus is that, once the all clear sounds, we will go outside and hug each other. But, our shopping habits will forever change. The memory of the pandemic will be slow to wear off, if it ever does. So our kneejerk, at least for a couple of years, will be to avoid crowds of unknown people. 

I also wrote an article, "Target vs. Walmart- Who is Your Money On?"  in December of 2017 in which I chose Target as the better alternative for growth as they had focused on store improvement instead of obsessing on online shopping and beating Amazon, as Walmart has done. Based on growth up until a few weeks ago, I was right in my prediction. 

Now, I can say that I am not sure. Target will probably want to scramble to improve its online business as a percent of sales, and Target shoppers will respond to that. But it doesn't happen overnight.

Meanwhile, Amazon will continue to grow and improve aggressively, as they have shown the ability to do every time. Jeff Bezos has not stood still since 1994, and there is much more at stake now.

The cherry on the cake is that Amazon is working feverishly to improve Alexa's skills, and she will definitely grow to be our default shopper. Think about it: You don't need to sit at your computer, tablet or mobile and punch keys; you can talk to a pleasant female voice which is a substitute for personal interaction, but yet not have to leave home. 

But what can Alexa do? If you have a smart home, almost everything. But for the rest, Alexa is developing skills daily and Amazon knows that the Holy Grail is turning Alexa into your personal shopper.

And what about Google Assistant? Let's not underestimate Google, which is the world's Toll Road for information. Google is so much the default site for Search that the name of the brand has become generic for Search- Google it.

That said, and as the title of this article would indicate, Amazon is the DEFAULT solution for PRODUCT Search. Not Google. 

And that is only going to grow in the aftermath of this horrible experience we have all been through.

Stay safe and let's do our best to enjoy Spring from our perch. 

Godzilla rises above Tokyo Bay.  People scream and run helter skelter, in total panic. How did this happen? Surely we are dead now….

Thousands of articles written, speeches made, forums held recently about Amazon and the Category Killers (see http://www.isourcerer.com/2017/08/the-category-killers.html) like Inditex, Uniqlo, H&M, Lidl. Many if not most refer to “disruption,” “unprecedented challenges” and cast those companies as if they hatched some sinister plan to destroy retail. OR they just ominously appeared, like Godzilla.

My questions to those sky-is-falling moaners:

1.     What exactly did they “disrupt” except for your business?

2.     When did they start disrupting, or

3.     When did you first realize what they were doing and what effect it was having on your business?

4.     Do you understand any of what is happening to you?

Actually, they didn’t disrupt anything; they just EVOLVED. And you didn’t.

The state of retail today follows Darwin’s theory of “Survival of the Fittest.” Per Darwin, those who figured out a new tool or technology better than others survived. Those that slept, ignored or were ignorant, didn’t.

The rise of these companies who will doubtless dominate retail in the future followed a clearly predictable pattern of evolution. And they themselves have evolved into their present state over as much as 40-50 years time. Let’s take a brief tour through the evolution that brought us to where we are today:

1.     Brick and Mortar- The Shopping Experience

The shopping mall, which is an iconic and important part of our shopping experience, is not a new phenomenon. It can be traced back to the Roman Forum, the Greek Agora, and the medieval market towns. (Smithsonian Magazine). When Congress allowed companies to accelerate depreciation in 1954, this made the upfront investment in building malls much more feasible and possible. Coupled with rural population growth, this was simply the evolution of shopping habits beginning in the 1950’s. Enabled by social and legislative changes.

Why did people flock to shopping malls? For the shopping experience. This is no different than the motivating factor going back to medieval times. In the 19^th and early 20^th century, local neighborhood shopping areas afforded people the opportunity to buy what they needed as well as have a pleasant social experience.

Then, department stores evolved from the neighborhood, promising a big selection, dependable quality and better prices. Sears opened its first department store in 1925 in Chicago, JC Penney some years before that.

The first shopping mall in the US was built in 1956, the Southland Mall in Edina, Minnesota. The last one was built in 2006. (Wikipedia). IN the meantime, more shopping malls were built than was needed given the population, mostly due to the whopping real estate profits that could be made.

Now, with enabling technology, it is no longer necessary to run to the shopping mall to buy what you need; if you want to shop for the entertainment or experience, you also have choices. You can sit at home, just as people did more than 100 years ago with the Sears Catalogue. Simply put, brick and mortar shopping with the department store as anchor has EVOLVED to, “ I can get what I NEED online. For the balance of my shopping experience, I have time for a laser-focused, clear, concise and pleasant presentation of what I should want now or this season.” Solution: Amazon and the Category Killers.

2.     Ecommerce-M commerce?

People shopping remotely is not new.

Sears, enabled by Rural Free Delivery, mailed its first catalog in 1896, almost 30 years before it opened its first store. Sears even sold houses through their Modern Homes catalog starting in 1908 (For $930-$3500)!(Sears Archives) JC Penney produced its first catalog in 1925. (Wikipedia)

Quick-when did Ecommerce first appear? How many of you said 1983?

AT&T produced and distributed Viewtron, beginning with a test in Florida, from 1983-1986. Viewtron was a remote terminal on which you could order merchandise, book flights etc. based on NAPLPS graphics language and sent over phone lines.  The idea failed as people were not accustomed to using technology and did not want to spend the $600 cost.

From there, what we can clearly see the EVOLUTION of what we know today as ecommerce:

1984- First B2C online shopping platform in UK- Gateshead SIS/Tesco

1984- Compuserve Electronic Mall debuts in US

1990- Berners-Lee introduces the first web browser, World Wide Web.

1994- Netscape Mozilla, first secure transaction.

2016- Amazon aided more than 10,000 sellers to generate more than $1million in sales on the Amazon Marketplace.

3.     Amazon and Inditex

Wait- How did we get to 2016? When did Amazon start? Answer: In 1994, as Cadavra, later changed to Amazon with the oh so familiar A to Z logo. So Amazon has been EVOLVING along with the enabling technology for almost 24 years. 

So where was everyone else? Why does Amazon account for almost half of online sales today? Jeff Bezos even said, “There is nothing about our model that can’t be copied over time.” But they didn’t. In 24 years.

Inditex, corporate home of Zara, Massimo Dutti, Bershka, Oysho, Zara Home etc. started in 1963. More than 50 years ago. The first Zara store in US opened in 1989. Almost 30 years ago. By 2010 Zara had 5000 stores worldwide. Today Inditex operates in more than 90 markets worldwide. Only very recently is there frantic talk about “fast fashion” as a force in the retail business. Inditex did not get to where they are in a magic burst. They EVOLVED over time. The shopping experience and the value proposition are what customers want. No discounts necessary to attract customers; the values are there everyday. But when they DO have a sale, well, have you seen pictures of piranha working together to devour a prey?

Other category killers such as Uniqlo, H&M prove that this model, too, can be copied over time. These companies also evolved; those department stores that are closing daily-didn’t.

It can be clearly seen that the phenomena that are Amazon and Inditex did not suddenly appear over Tokyo Bay-they EVOLVED over time with the enabling technology.  Everyone else had the same opportunity to evolve-but they didn’t.

As we follow Darwin’s principles, those who adapt best to the changes and challenges over time, survive. Those who do not, don’t.

My conclusion is: Amazon and Inditex are NOT the problem. They are the SOLUTION-the EVOLUTION SOLUTION.

                                                                                                                       

(Next up: How The Evolved create business opportunities and welfare- and how that changes everything about the business process, including sourcing)