How To Beat Amazon

I have been reading all the articles about Amazon buying Whole Foods and how that ends the grocery business for everyone else, including Walmart.  And beyond that, it also means the end of retail since Amazon could buy other retail companies too.  From the articles it sounds like “game over” for not only groceries but all of retail.  This seems like kind of defeatist thinking.

So I was thinking about how one could compete with Amazon.   Here is how to do it….

First – let’s examine why Amazon is so hard to compete with in the first place.

It is brilliantly run for sure – but so are many other companies.

It has a dominant place in many markets, with a super-strong distribution network, etc, but it has one amazing thing going for it and that is that, for reasons no one can satisfactorily explain to me, Wall Street determined long ago that Amazon doesn’t have to make money!

I am certainly very impressed with Jeff Bezos, but I think this was just an (incredibly) lucky break.  I don’t think this break was due to Bezos’s amazing skill or Amazon’s incredible business model.  He just got (incredibly) lucky.

Look at the other major tech stocks that are consistently held up next to Amazon; namely, Google, Microsoft, Intel, Facebook, and Apple.  They are all the same except for one HUGE difference – the others are all printing insane amounts of money.  But Amazon barely breaks even after you take out stock-based compensation and the billion or so it is getting from its cloud business (which does actually make money).

For example:

  • Apple will likely make about $50B this year and is worth $750B

  • Amazon is on pace to make about $2B this year and is worth $450B

Seem a little funny to you?

So how do you compete with a company that doesn’t have to make money when your company has to make money?  It is like competing with the government isn’t it?

There is a simple plan that I espouse, which is to just wait a bit longer…..

My thinking is that buying Whole Foods is going to be a disaster for Amazon.  This is because, for the first time, it is going to be obvious that the Emperor’s core business model is not wearing any clothes.

Instead of just fulfilling orders and taking a cut – and loving every minute of not having to make money to have a high stock price – Amazon is now embroiling itself in one of the most brutally competitive businesses in the world and taking on the strongest competitor in the world; namely, Walmart and a fair number of other established players as well.  These players are not a bunch of patsies – they know the groceries business super well, which has razor-thin margins and has to be run pretty close to perfectly to make a profit.

In addition, Amazon is taking on a struggling business in Whole Foods.

This acquisition is not a layup for Amazon but a very poor risk/reward in my assessment.

My proposition is that Amazon will do well with Whole Foods only as long as Wall Street continues to give it a free pass not to make money.

And what happens if Whole Foods proves to be a major burden on a company that has never actually run a retail company – not to mention a groceries company.  At minimum a major distraction for management.  At maximum, maybe a further drag on the relatively small earnings……

In my assessment, what happens next is Wall Street – which is all of us who buy and sell stocks one way or another – and which can be so fickle as we all know – will start to wonder “why is it that a company that cannot make any money is worth close to half a trillion dollars?”

After twenty years of not making money – in its core business – for Amazon, investors might conclude that maybe they should put their money into business models that actually make money – and not put their dollars into a company which is dramatically over-valued by customary valuation metrics.

What happens then?

Suddenly, Amazon and Bezos – and Whole Foods – are judged just like everyone else.  The stock goes down to a normal number.  I have no idea what that number is, but certainly a lot less than it is today.  Maybe a company that is growing at 20% a year and earning two billion dollars might be worth, say, $40 billion?  Yikes – that is about 10% of what it is trading at now.  But I am just musing here.  My point is it would be an awful lot less.

At this point Amazon would have to actually make money in its core business, which means that – just like everyone else – Amazon will have to charge more money and do the same things retailers are doing.  At this point the Amazon-based distortion of the retail world, which I will call the “Amazon Retail Distortion”, will finally be over.

So I suggest that your game plan, if you are a retailer competing with Amazon, should be the following:

  • Don’t freak out – this is a temporary phenomenon – albeit a long one – it will end at some point – and Whole Foods might be the beginning of that end

  • Set up your business so that you can survive until the Amazon Retail Distortion ends – and yes get your costs as low as possible and your business run as efficiently as possible.

And consider following the other suggestions in my previous Real Estate Philosopher articles; namely: (i) don’t try to be “better” than others and instead try to be “different” from others, (ii) sell only exclusive branded goods in your store, (iii) consider yourself as much in the distribution business as the retail business, and (iv) don’t go nuts setting up expensive structures to enhance the consumer’s “experience” in the store, which I bet will get old awfully fast and be intensively expensive and difficult to maintain.

Am I right here?  I guess we shall see.  However, I do wish the retailers the best of success.  I run a real estate law firm and certainly know how emotionally draining it is to have business go up and down dramatically.

Also – this is my hobby as well as my job.  If you are running a retail company and struggling and want to brainstorm with me, just call me!

Power Niche Marketing: Every Client And Every Customer Is Different

One lesson that seems obvious but really is not at all is that every client is very different in its desires for legal representation. There is therefore simply not a one-size-fits-all solution to marketing. Marketing is a wonderful area to work in for that reason: you can craft and create all sorts of ideas and see what works. And always remember that no matter how much you think and prepare, you are not playing with widgets; you are dealing with human beings. You have to be open-minded and flexible, or you will end up failing too much.

If you are like most people – including me – you probably hope to find that something – that special thing – that you could do that would work like a magic marketing bullet.  It would be a consistent solution in your marketing pitch that you could use all the time that would result in a pile of clients pouring in the door.

But – alas – that is just not how it works.

Law, especially, is a “personal” service business. There is, therefore, a “person” that is being serviced by your legal work. And because of that, each client and each customer is different and wants different things from you.

Let me try out an example. Let’s pretend you are seeking to bring in a client for real estate transactional work. You launch into your pitch and maybe say you are a really great negotiator and you can achieve great results at the bargaining table. After your eloquent and convincing pitch, however, you learn that this client really likes to do the negotiation himself, and just wants lawyers to just document the results of his negotiations. Oops!

Or maybe you tell the client at the pitch that you are super careful on documentation and nothing ever gets missed. But then the client mentions that he just can’t stand “overly detail-oriented lawyers.” They drive him crazy. He doesn’t believe in the documents anyway, and he just likes to get deals done. Oops, again….

Notably, what I am saying here in this article does not necessarily apply to things like data analytics and marketing campaigns that literally go out to hundreds of thousands, or even millions, of customers. I recognize that sometimes these concepts can be hugely successful, but that is not within the scope of my expertise.

To conclude, there is not going to be a single magic marketing bullet that will work for all clients all the time. Accordingly, I urge you to become a student of marketing in order to be successful.

Power Niche Marketing: Failure Should Not Be Able To Stop You – More Statistical Thinking

If you accept that marketing is all about statistics, then you can start thinking of it like a sport in a way. A batter who bats 333 is incredibly good — actually a great hitter. Yet, two out of three times, he strikes out!!!

Is he sitting there bumming out about his failures? Maybe yes, but it is a dumb emotion when he is doing better than almost every batter in history.

You will have the same thing going on. Most of your marketing attempts — especially at first — will end in failure. Indeed, the odds are that 99%, or even 100%, of your attempts will fail for quite a while.

This is inherently, and intensively, depressing. You get your hopes up, time and again, and your hopes get dashed. What a bummer.

Indeed, when I was starting out to try to do marketing, and it was failure after failure, day after day, and week after week, and even month after month, there were days I just wanted to give up and crawl into the fetal position and lie under my desk. Thankfully, my Marketing Director was tough as nails and she wouldn’t let me lay down to die.

Being honest with myself, and you with yourself, there is no way that my intellectual crap about statistics is going to cheer you up when you do everything right and just don’t get the client. It is depressing — there is no doubt about that. Indeed, if you failed in clinching a major deal, and you come home all miserable and your wife/husband says to you: “Well, honey, you know it is all a game of statistics like that annoying guy said in his column, so you know that this kind of thing is going to happen”, you will probably have a huge fight with your wife/husband that night.

So what do you do to protect against failure getting you down? I guess I don’t have a great magic bullet here, but maybe consider:

Think of Churchill, and “never ever ever give up…..

Or Tim Allen in Galaxy Quest and “never give up – never surrender.

Or think of Roosevelt and be “the man in the arena” who just got clubbed in the head, and is bleeding, but getting up anyway! And also be proud that you are not “one of those cold and timid souls who know neither victory nor defeat.” Here is a the full quote, which is one of my favorites.

Or do what I do, and drink some single malt scotch and watch an Arnold Schwarzenegger movie that I have seen a dozen times before.

Then, once you have gotten past the sharpness of negative emotion, carefully analyze why you failed, without bullshitting yourself, and perhaps adjust your style and/or your message. Just like that great batter presumably does after he strikes out.

When this happens to me, and even today it still happens a fair amount, I beat myself up for my errors (with a pretty rough drubbing), and then I just keep moving along and I am immediately excited about the next prospect.

If you understand my message, then you will not think of this as a somewhat dreary article — and instead, you will start to embrace your failures — because without them you will not succeed. I will end with (another) favorite quote — this one from John Wooden — who says that “the team that makes the most mistakes usually wins, because doers make mistakes.” That is the team that is pushing the envelope and taking the necessary chances, some of which will fail but some of which will succeed.

A Twist of the Dial to Rescue Troubled Retailers

In the last issue I wrote about retail and made the point that retailers should stop being about “retail” and be about “brands” that are “exclusively” sold in their stores.

To refresh, my point was that “retail” is merely a place – a location – where someone with branded (or unbranded) goods sells their wares to the public.

Retail is therefore a classic “middleman”.  And what does the internet do to “middlemen?”  It destroys them – or at least eviscerates their profit margins.

Retailers are trying everything possible to save themselves, which is admirable; however, I suspect most efforts will fail.  For example, the flavor of the month is for retailers to try to make the “experience” wonderful for their visiting customers.  Sorry – I just don’t see this.  Even if it is just so much fun to visit the new Widget Store, how many times are you going to go there for the “experience?”  Maybe twice and then it is just shopping and then you will care only about getting the brand you want at the lowest price.

However, I have another thought that may be a powerful one.  It may sound like just a twist of the dial in thinking, but sometimes rethinking the nature of the business you are in can be the catalyst for all sorts of unplanned upside.

Consider a major asset of what classic retailers have going for them?  They have locations!  And these locations are typically near people, i.e. customers.

Yes, the value of a “location” is in flux due to the technological disruption of the real estate world; however, location is still a critical factor and likely will be for some time to come.

So, pretend you are a classic “retailer.”  What should you do?

I would suggest you re-think your business and change your understanding of the “purpose of your business” from “retailing” to, instead, being “a distributor of branded goods!”

And I would add to that concept – if possible – a distributor of branded goods that are “exclusively” found in your store.

Now this may sound like just semantics, but I think it is a lot more than that.  If you look at some of the most successful businesses, they succeed because of their distribution network.

Indeed, this is part of Amazon’s magic.  Based on my thorough research – one click on Google – it appears that Amazon has about 100 “fulfillment centers” nationwide.  Sears/Kmart has I think about 1500 stores.  And many troubled retailers have networks with even more locations.

If (some) retailers rethink the purpose of their stores as essentially “fulfillment centers”, they may have a dramatic advantage – even over the likes of Amazon.  At this point I don’t see retailers thinking this way.  Meanwhile, Amazon keeps on increasing its fulfillment centers because Amazon is really in a lot of ways at heart just a distributor.  If no one wakes up to this it will soon be “game over” with Amazon winning.  But it really doesn’t have to be this way.

This re-thought business model – where a retailer’s many existing locations are essentially distribution outlets/fulfillment locations for branded goods – works neatly with:

  • The internet – i.e. the magic of having locations near people plus availability on the web.

  • The brands themselves – how many brands would make an exclusive deal with a retailer that has, say, 2000 stores near its customers nationwide?

  • Saving a fortune by not spending a ton of money on enhancing the shopping “experience”.  Instead of the experience, which costs a fortune and is incredibly hard to do in multiple locations – consider the much lower employee training time and cost for a fufillment location – all you do is put the stuff on a shelf in a “fulfillment” center and let the customer take it.

  • Saving a fortune with fewer employers.

  • Saving time and trouble with less focus on customer service and all the other accoutrements of classic “retail”.

  • Indeed thinking this way, might just be a major relief to retailers struggling with all these problems how to make their stores “better” to compete with a third party in a world that may not care about that in the first place….

As you peel away the onion, I am sure there are a lot of other ideas that flow from this that I haven’t thought of.

To sum up:  If you are a classic retailer, consider changing the essence and purpose of your business to be “Distributor of [Exclusive] Branded Goods”.

Hearkening back to my Power Niche theme – if properly effectuated, this mode of thinking would take a retailer from a weak position to a Power Niche position.