Amazon Drones and Holiday Sales
By Leslie Hand, research director, IDC Retail Insights
Leslie Hand comments on Jeff Bezos’ announcement (on Sunday night’s “60 Minutes") that Amazon is developing a drone-based package-delivery service, and on Black Friday weekend sales.
First, on the topic of the Amazon drone: The FAA and other regulators is not likely to let armies of drones loose over the United States anytime soon. Bezos said the FAA is ruling on this in 2015, but I would expect it to be a non-starter in the short term.
Think about the processes required, the places the drones would land, the security of packages, the security of drones, and where the real value-add is – it’s probably not within the 10 mile radius Bezos mentioned. While the notion of Amazon drones is very scintillating, this was a marketing tactic, pure and simple.
Now, on the topic of retail sales. The battle that raged this past weekend among retailers was an all out fight for share of wallet. Competitive pricing was evaluated continually in retail "war rooms", and teams adjusted offers in response to the opposing forces. This obviously leads to profit erosion for retailers, so I will be very curious to see post-period close data, and what these tactics did to profit margins. I believe these tactics simply aren't sustainable, and that in the end the consumer ends up playing the role of price analyst, waiting for the perfect deal, and that ultimately this leads to a lack of spontaneity and decision fatigue, which reduces basket size.
The numbers seem to bear this out, as we see large declines in physical store spending and huge increases in online shopping, as shoppers scanned emails and websites for best price and shipping terms. Retailers have given consumers what they want — ultimate control. Two can play this game, but who wins — not the retailer?
Opening stores on Thursday got shoppers out early, but in the end it didn't increase total weekend sales. Did it increase sales for retailers that won the war for foot traffic — maybe, but what happened to margins? How many extra items were put in baskets — my guess not enough? Was opening stores on Thursday worth the overhead — employee payroll, lights, heat, and security? Don't forget the erosion of employee satisfaction in the evaluation.
Shoppers will shop online more and more, because it is convenient, and when they have a good idea of what they are looking for (as they usually do, in the case of gifts), they have the most control and responsiveness if they stay put, and let the deals come to them. Shopping in stores is experiential and social; it fills a need to touch, smell and compare goods, or find goods not clearly defined (not on the shopping list yet). This is a fact retailers need to accept. A greater portion of holiday sales will go online than regular day to day sales — it just makes sense.
Retailers also need to reevaluate the notion of growing overall consumer spending in the current economic climate. Yes, they need to attract greater share of wallet, but how far can they stretch wallet size, or the consumer's ability to spend more. I would argue further that consumers have a fixed budget for holiday shopping — yes, it often gets stretched, but there is a limit to over budget spending.
Consumers have a list, sometimes not clearly defined. The consumer challenge is catching the best deal. Retailers created the battlefield, and I am sure some will lose more ground this year, and some will be winners. The winners will likely keep it simple for consumers, so that there isn't any reason to wait for further discounts, or give up margin on loss leaders, knowing that consumers will add more items to their baskets. If all spontaneity is lost — retailers are doomed. Then you might as well sell consumers a mobile price analyst that times the buy for certain "market price" conditions — what fun is that?
Read Hand’s full post.