How to beat Amazon?

The "retail apocalypse" in the United States marks a strong trend on what could happen in the coming years in Latin America.

When many retail business leaders in the United States saw that their online sales represented less than 1%, they viewed the digital medium as a tool to establish brand presence. However, what truly influenced business decisions were physical stores, as indicated by the "cold" sales figures. However, many of these executives failed to see another key figure that changed the entire equation: the exponential growth of digital sales.

By the time they noticed this exponential phenomenon in e-commerce, it was already too late. They realized that the game had changed and now the field was called technology, logistics 2.0, and digital sales, where new players like Amazon dominate. "Their competitors ignored it, giving them the opportunity to lead the industry," comments Warren Buffett about the Seattle-based company. While digital sales represented 8.9% of total retail sales in the United States during the first quarter of 2017, according to the US Department of Commerce, this was enough to put significant pressure on companies like Toys R Us, Radioshack, Macy's, Sears, among others, which collectively expect to close 6,400 stores in 2017 within the territory of our neighbor to the North. This "retail apocalypse" in the United States marks a strong trend on what could happen in the coming years in Latin America, where several companies that have succeeded in physical retail will have to adapt to the digital realm, pondering, "how can we beat or at least compete with companies like Amazon?"

But beating Amazon in the digital world is like trying to beat Messi in a soccer match; we are talking about a company that, since its founding in 1994, understood the importance that e-commerce would have and has significant know-how in digital sales. In Mexico, Amazon reported $253 million in sales in 2016, more than double the previous year, according to the market research firm Euromonitor International. Betting on its exponential growth in the Mexican market, they are opening a warehouse of 93,000 square meters north of Mexico City to expedite their shipments. Additionally, by announcing their arrival in the Brazilian market, they caused the shares of Mercado Libre to drop by 10%, indicating an aggressive vision to conquer the Latin market. We could say that Amazon is as agile and technological as Google and as aggressive in pricing as Walmart. Furthermore, it could be the first company in history to reach a valuation of one trillion dollars. In other words, pretending to beat them will not be an easy task, but at least it is a question that several Mexican retail companies will have to face sooner or later. Therefore, I present here an analysis of three approaches to answer this question: How to beat or compete with Amazon?

1. Innovation in delivery: Speaking with Miguel Torres, founder of Shippify, a disruptive and innovative shipping and logistics company for e-commerce and retail companies that enables same-day delivery, he says: "In Latin America, the average delivery time for online purchases is nine days, that's crazy! Customers think that tomorrow is too late. In Mexico, Amazon typically takes two to four days to deliver what you bought. Therefore, achieving same-day delivery is one of the few major competitive advantages to compete with Amazon in the short term and is already viable in some of the main cities of Mexico and Latin America where Shippify operates, even with an offline strategy. We are already achieving same-day delivery for clients such as BBVA Bancomer, Palacio de Hierro, Petco, La Comer, and some major players in e-commerce like Linio, Kichink, and Groupon, among others, who can take advantage of the upcoming Buen Fin in November to attract new customers digitally and to foster customer loyalty," comments Miguel. "But the key is not only in fast deliveries but also in merchandise returns made easy, where you provide your customers with various options and they can easily return what they didn't like or fit. For this, the use of algorithms to find the best routes and cross information between shipments and returns becomes crucial, in addition to having a community of more than 45 thousand deliverers. Many retail companies, having multiple stores, have a close relationship with their customers, and if they use these points of sale as small distribution centers for their e-commerce, they could be quite competitive in deliveries against Amazon," comments Víctor Islas, Country Manager of Shippify for Mexico.

2. Autonomy and alliance with the entrepreneurial ecosystem: For several years, Walmart attempted to ride the e-commerce wave but realized that the digital game was different, and internal executives were hindering the project's success because they wanted to manage the digital channel like any other store. Salim Ismail, author of the book "Exponential Organizations," comments, "Organizations have an immune system for innovation where the internal team wants to bet on what they know and hampers innovation." After several failed attempts, Walmart learned its lesson. By acquiring the e-commerce company Jet.com, they appointed its founder Marc Lore as president and CEO of Walmart E-commerce, giving him total support and autonomy to operate. Additionally, Walmart has continued to acquire several e-commerce companies such as Bonobos, Shoebuy, Moosejaw, and Modcloth (and will likely continue to acquire more e-commerce companies and innovative logistics companies), allowing it to expand its product offerings and attract talent with digital expertise and agility to transform Walmart's DNA from a 20th-century company to a 21st-century company.

3. Omnichannel strategy: At the beginning of the year, Elektra hired Juan Carlos García as the global director of e-commerce & omnichannel, who previously served as the general manager of Amazon Mexico. With this hiring, Elektra is betting on a digital strategy that involves providing credits, various payment methods, and the option to pick up products at group stores, in addition to investing in a new distribution center and modernizing physical stores. Even Amazon has aggressively entered the physical world with the acquisition of Whole Foods, indicating that their concept of physical stores will be highly technological and integrated between the physical and digital realms. On the other hand, Ikea, the Swedish furniture and accessories company, has announced its interest in entering the Latin American market. The Nordic giant delivers products purchased in-store on the same day with an omnichannel strategy blending digital and physical.

In an era where Internet penetration is growing daily, allowing for understanding and predicting customer preferences, and with deliveries by drones and autonomous vehicles on the horizon, Amazon represents a technological tsunami, along with other major players like Alibaba, forcing retail to evolve or die.