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BizReport : Internet : January 23, 2018

Expert: Amazon, WalMart, CPGs will impact 2018 more than we think

2017 was unquestionably a mixed bag for the retail industry. There were indisputable low notes - Chapter 11s from Toys R Us, The Limited and BCBG, for example. Estimated store closures were likely to hit 8,600 by end of 2017 - with Macy's, Gap, Sears, JC Penney's, Michael Kors and others all shuttering storefronts. So, what's next for retail in 2018? Brent Franson, CEO at Euclid shares his predictions.

by Kristina Knight

Amazon pushes into dollar store market

"It's no secret that Amazon's success with Prime primarily rests with its wealthier urban customers (check out a map of warehouses and shipping centers here). But Prime membership suffers with households that make under $41,000 yearly. Conversely, Amazon is approaching "saturation" with families who make upwards of $112,000 annually. They need a bold customer acquisition effort and they need it sooner, not later," said Brent Franson, CEO, Euclid. "That's precisely why, for Amazon, Dollar General is an interesting acquisition target because it gets them closer to this fairly untapped demographic and a wider net for distribution and shipping. Think of the possibilities if you have pickup and drop-off locations near almost all American homes (Amazon surely is). Plus, in a gray retail landscape, Dollar General is a bright slash of sunshine. Far from reducing store footprint, the discounter was adding nearly 2,000 new stores for a total store count of almost 15,000 in 2016 and 2017. They're doing so well they can sacrifice some of their dollars this year to increase compensation and training for their people. The downside, of course, is that such an acquisition would be expensive and it's entirely possible the intended customer population might not see the value in Prime membership. But Amazon consistently takes the long view so look for them to laser in on capturing more real estate in rural areas and an expanded customer base in the process.

Walmart makes a Wish.

"The Wish app has 300 million-plus users, lots of deeply discounted products, and billions in transactions. Sounds like a great fit for the Walmart consumer audience. And Wish is killing it - their take rate from every transaction is 15 percent and, two years ago, they even reportedly rejected very lucrative offers from both Amazon and Alibaba. The few billion Wish likely nets is almost a rounding error to Walmart - which reported over $500B in revenue last year - but the new channel would feed nicely into Walmart's strategy to become an ecommerce player that puts Amazon on its back foot," said Franson. "However, the real question is, could they play nicely with Jet? And would Wish be willing to sell? Regardless, keep an eye on Walmart's strategic acquisitions in the next year - whether it's Wish or a digitally native brand with a cool factor like, say, Warby Parker."

CPGs will begin opening stores and offering customer experiences at a greater clip.

"Imagine Tide-branded laundromats, Aveeno day spas, a Ruffles sports bar or Dannon-backed smoothie cafes. Think about this. You can build a powerful company as a CPG but will you be an Amazon or Walmart? Not ever. Customers go to Walmart, Target or Safeway; they have a relationship with those companies, understand their value proposition, and feel loyal to them," said Franson. "What's more, run the names Dove, Vaseline, and Ben & Jerry's past the average person and you'll get instant recognition. But ask that person who owns these brands and 9.8 times out of ten, you'll get a blank look. (It's Unilever, by the way). The point is, customers deal directly with a CPG's brands - but get them through the stores they like. The CPG itself just doesn't have the lucrative, direct one-to-one relationships that can transform it from a strong company into a true retail powerhouse. That's why Walmart is number one on the Fortune 500 list - and Unilever's 150. In 2018, watch for CPGs to cut out the middleman, and interact directly with customers. It's not only about taking a bigger piece of the pie - although that's a bonus - as much as it's an opportunity to market directly to consumers. It's the modern billboard: experiential, engaging, and hands-on."

Millennials begin taking over board rooms

"The changing of the guard will begin in earnest. 2018 will be the year that millennials who cut their teeth in digital will replace Baby Boomer CEOs. Those upper middle managers who have patiently waited their turn? Most won't be contenders. Boards will recognize the value of leaders who didn't come up through, and aren't wed to, the old paradigm of retail," said Franson. "Not coincidentally, as these digital natives take the helm and effectively transition to a true Omni channel experience, even very traditional brick and mortar retailers will make some major changes. Chief among them: putting their heads of stores under marketing or digital. That's the smart call because in a world where online and offline channels feed each other, there should be zero separation between stores and digital. Plus, these digitally-oriented leaders will be more likely to steamroll over any internal resistance from the old guard to get this done. Watch for some big dogs to try this - maybe a Macy's, for instance - and others to quickly follow."

Tags: ecommerce, ecommerce trends, Euclid Analytics, retail trends, smb tips

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