Ralph Barnett looks at the similarities between the rise of Amazon and that of the superstores in the 1980s.
Is Amazon just another superstore doomed to failure in the B2B superchannel? Probably not. But, the similarities are too eerie to ignore. Let’s explore…
Scenario: A refreshingly novel entity soars across the business firmament, startling all with its astounding accomplishments fuelled by innovative marketing, an expansive approach and state-of-the-art appearance. In short order, the latest luminary of elite enterprises achieves record sales, healthy profits and astronomical market cap. Financial analysts, industry insiders, business publications and success groupies hang on every move of the giant retailer.
Amazon, right? Wrongggg!
In the late 1980s, Office Depot earned this sort of acclaim. One of the original office supply superstores, Office Depot opened in 1986 and in 1989 became the first billion-dollar baby in an undistinguished industry populated by 16,000 ‘mom and pops’. Superstores – a reiteration of the industry icon, the retail store – were larger, brighter, better organised, national in scope, promoted through mass media, offered ‘contract’ prices to retail customers, and they vanquished traditional competitors.
Eight years later, Office Depot was suing for peace through a merger with chief competitor Staples. What happened to the industry’s superstore superstar? The Peter Principle – entities rise to the level of their incompetence.
Although a sterling superstore operator, Office Depot was overwhelmed when large businesses, beneficiaries of office supply dealers’ contract prices and enhanced services, flocked to their self-service centres.
Depot’s knee-jerk reaction to the customer-centric needs of these accounts proved amateurish: they used retail stores as an operational base, deploying retail employees to take orders, filling orders from retail shelves, delivering by truck out of the rear of the building and proffering promotions exceeding their retail ‘contract’ prices.
Suffering disruption to its core business, Depot, admitting its inability to serve commercial clients, developed sales and distribution capabilities independent of retail ops. By adding this dimension, Office Depot inadvertently embarked on the next era, that of the ‘superchannel’, birthed the term ‘B2B’ and positioned itself to oblige this demanding market.
Unfortunately, Depot’s retail brilliance did not translate into B2B success. Out of the gate, it experienced difficulty producing profitable sales growth. Imagine, you concoct a business model based on providing contract pricing to the individual retail customer, pricing previously reserved for business accounts.
From there, paradoxically, where do you price the B2B sector for profitability while absorbing the costs of added services? A classic case of the Peter Principle producing profitless prosperity!
Scenario: A refreshingly novel entity soars across the business firmament, startling all with its astounding accomplishments [and all] hang on every move of the giant retailer.
You can’t fool me twice – Office Depot, right? Wrongggg!
Today, Amazon amasses accolades exceeding Office Depot’s dramatic entree into mass market retail, and rightfully so.
Amazon’s supremacy in the retail campaign forced Walmart, the most formidable foe, to withdraw in order to revitalise its bricks-and-mortar bastion and reassess its e-commerce operation. On the flank, presaging the next field of conflict – the B2B superchannel – Amazon’s assault on Staples’ vulnerable retail base deprived Staples of vital resources, compelling an inconvenient acquisition of a competitor.
While Amazon was superbly stationed to dominate the retail battleground, it is poorly positioned to outmanoeuvre Staples in the B2B sphere. Where the retail conflict favoured Amazon’s open field tactics of speed and agility, the B2B theatre is akin to urban warfare of house-to-house combat, dislodging the opposition one by one. After defeating Walmart, ill-prepared as it was for Amazon’s retail blitzkrieg, the pending confrontation with an entrenched, well-equipped, seasoned and strengthened Staples will require strategic B2B weaponry not (yet) in Amazon’s arsenal.
To date, Amazon’s response to the asymmetrical needs of B2B accounts appears as artless as that of Office Depot’s in bygone days: use of retail facilities as an operational base to support a new division, Amazon Business, providing two-day delivery with no shipping charge for orders over $50, acceptance of business purchase orders and tiered prices (potentially, an insidious slide to unprofitable sales growth).
Amazon’s previous penetration of the B2B market consisted mostly of home offices and small businesses with up to 25 employees. Hardly superchannel, defined as businesses over 100 employees.
Appearing to expand the reach to small businesses up to 100 employees, Amazon Business will gain traction based on price and reputation. But, account conversion, penetration and retention in the legitimate B2B superchannel, is, at best, overly optimistic given Amazon Business’ unexciting offering.
Amazon investors, analysts and groupies might consider: “What does Amazon intend to do different than its predecessor, the superstores, which failed in the B2B superchannel?” And, “Does it need to be 2°, 12°, 22° or 180° different in order to produce profitable sales growth?”
Rephrasing a quote that, unfortunately, may apply: “The only lesson learned from history is that superstores do not learn from history.”
By Ralph Barnett for OPI