CSA Q&A: Omnichannel success, competing with Amazon require customer connection
Growth equity investment firm Great Hill Partners has financed a number of successful digital and omnichannel retailers.
Chain Store Age recently had a conversation with Michael Kumin, managing partner at Great Hill Partners. Kumin has helped source and advise some of the firm’s most successful investments in leading e-commerce and omnichannel businesses, including sourcing Wayfair’s first outside investment in 2011. Kumin has since joined Wayfair’s board of directors as the lead independent director, helping the company with online and offline customer acquisition, e-commerce execution, and go-to-market strategy.
He also has led investments in and sits on the boards of digital and omnichannel retailers including The RealReal, The Shade Store, and Bombas. Kumin shared some insight on the current state of omnichannel retail, including how retailers can effectively compete with Amazon, based on his investment and advisory experience.
How would you define mass customization, and why is it important to retailers?
Consumers want more choice. They want to identify with a brand and get what they want, when they want it. The way the Internet works, you can offer a broader selection of products with technology on the back end than you can with just brick-and-mortar stores. You can allow people more personalized access to products with just-in-time fulfillment.
Historically, mass customization is much more expensive, but newer digitally native brands that have built their supply chains and distribution networks from scratch have shown the ability to take costs out of the traditional value chain and pass savings on to customers.
How would you define a successful omnichannel retail operation?
The best omnichannel businesses have a single view of the customer. Few companies really do it well, where the integration of the online and offline experience truly benefits the customer. What has been the true purpose of stores historically? It’s not only to market and sell products but also to physically stock them – to serve as a mini-warehouse.
Pre-Internet, this model worked fine, but it was never really optimal to forward position inventory in local retail stores. It’s hard to do accurately vs. demand and results in a cadence of markdowns. Now, retailers can operate the omnichannel/ brick-and-mortar-as-showroom model, because consumers have become more comfortable without cash and carry, where they are willing to wait a day or two to get the product they want.
An omnichannel model is a more efficient use of real estate. The brick-and-mortar store is still important, but the omnichannel showroom model allows retailers to downsize their retail footprint.
How can retailers successfully compete with Amazon in the current environment?
This is a question anyone selling any product has to think about. You need to examine what is Amazon currently doing, where are they likely going, and what are their largest advantages and disadvantages. Their advantages include a huge balance sheet, highly valued stock, and core assets such as their brand, search engine, and efficient distribution. Disadvantages include limited points of purchase near the customer.
In terms of how to compete, it depends on whether you are selling third-party goods or your own products. If you’re selling third-party products, it’s hard to go head-to-head with Amazon. Your advantage is proximity to the consumer and not much else. Amazon keeps tightening their delivery window, so that advantage is getting smaller.
One example of a retailer successfully competing with Amazon in selling third-party goods is Wayfair. However, Wayfair sells merchandise that is typically unbranded, visually searched, and inspirationally marketed. Amazon has not been as good at Wayfair in these areas and is playing catch-up. In addition, Wayfair specializes in bulky, heavy products that are difficult to ship, using a purpose-built supply chain to solve this problem.
If you sell your own brand, you can control access to your product and can choose to sell on Amazon or not. You can connect online directly with your customers through media, messaging and marketing – it’s the ultimate differentiator.
Will the Amazon Go self-service model become the new normal for brick-and-mortar stores?
I don’t think so. Certain innovations will become normal in retail, using in-store technology to enable the consumer. For example, augmented reality (AR) enables people to visualize products on their body or online in a manner they couldn’t do previously. AR will accelerate in the store.
But consider that self-checkout has existed before. Sometimes it works, but often as not, there are problems. Humans still have value – in many instances, a good retailer should still be able to compete with Amazon Go on customer service and win.
What do you look for when you evaluate a retailer for potential investment?
We typically look for companies with revenues of $50 million and over. We also look for businesses with an e-commerce focus; if they have a physical presence they most likely started as a digital native.
We also like to see retailers operating in a vertical market that is big enough to matter, but not so big it attracts too much attention – in our case, that has resulted in investment in categories such as window treatments, custom apparel and socks, among many others.
Another consideration are verticals where there is no established leader, fragmented markets with multiple brands and retailers and no national winner. We want to invest in enterprises with deep customer loyalty, where it would matter if they went out of business. It’s also key to find segments where there is sufficient product margin to market online.
Chain Store Age recently had a conversation with Michael Kumin, managing partner at Great Hill Partners. Kumin has helped source and advise some of the firm’s most successful investments in leading e-commerce and omnichannel businesses, including sourcing Wayfair’s first outside investment in 2011. Kumin has since joined Wayfair’s board of directors as the lead independent director, helping the company with online and offline customer acquisition, e-commerce execution, and go-to-market strategy.
He also has led investments in and sits on the boards of digital and omnichannel retailers including The RealReal, The Shade Store, and Bombas. Kumin shared some insight on the current state of omnichannel retail, including how retailers can effectively compete with Amazon, based on his investment and advisory experience.
How would you define mass customization, and why is it important to retailers?
Consumers want more choice. They want to identify with a brand and get what they want, when they want it. The way the Internet works, you can offer a broader selection of products with technology on the back end than you can with just brick-and-mortar stores. You can allow people more personalized access to products with just-in-time fulfillment.
Historically, mass customization is much more expensive, but newer digitally native brands that have built their supply chains and distribution networks from scratch have shown the ability to take costs out of the traditional value chain and pass savings on to customers.
How would you define a successful omnichannel retail operation?
The best omnichannel businesses have a single view of the customer. Few companies really do it well, where the integration of the online and offline experience truly benefits the customer. What has been the true purpose of stores historically? It’s not only to market and sell products but also to physically stock them – to serve as a mini-warehouse.
Pre-Internet, this model worked fine, but it was never really optimal to forward position inventory in local retail stores. It’s hard to do accurately vs. demand and results in a cadence of markdowns. Now, retailers can operate the omnichannel/ brick-and-mortar-as-showroom model, because consumers have become more comfortable without cash and carry, where they are willing to wait a day or two to get the product they want.
An omnichannel model is a more efficient use of real estate. The brick-and-mortar store is still important, but the omnichannel showroom model allows retailers to downsize their retail footprint.
How can retailers successfully compete with Amazon in the current environment?
This is a question anyone selling any product has to think about. You need to examine what is Amazon currently doing, where are they likely going, and what are their largest advantages and disadvantages. Their advantages include a huge balance sheet, highly valued stock, and core assets such as their brand, search engine, and efficient distribution. Disadvantages include limited points of purchase near the customer.
In terms of how to compete, it depends on whether you are selling third-party goods or your own products. If you’re selling third-party products, it’s hard to go head-to-head with Amazon. Your advantage is proximity to the consumer and not much else. Amazon keeps tightening their delivery window, so that advantage is getting smaller.
One example of a retailer successfully competing with Amazon in selling third-party goods is Wayfair. However, Wayfair sells merchandise that is typically unbranded, visually searched, and inspirationally marketed. Amazon has not been as good at Wayfair in these areas and is playing catch-up. In addition, Wayfair specializes in bulky, heavy products that are difficult to ship, using a purpose-built supply chain to solve this problem.
If you sell your own brand, you can control access to your product and can choose to sell on Amazon or not. You can connect online directly with your customers through media, messaging and marketing – it’s the ultimate differentiator.
Will the Amazon Go self-service model become the new normal for brick-and-mortar stores?
I don’t think so. Certain innovations will become normal in retail, using in-store technology to enable the consumer. For example, augmented reality (AR) enables people to visualize products on their body or online in a manner they couldn’t do previously. AR will accelerate in the store.
But consider that self-checkout has existed before. Sometimes it works, but often as not, there are problems. Humans still have value – in many instances, a good retailer should still be able to compete with Amazon Go on customer service and win.
What do you look for when you evaluate a retailer for potential investment?
We typically look for companies with revenues of $50 million and over. We also look for businesses with an e-commerce focus; if they have a physical presence they most likely started as a digital native.
We also like to see retailers operating in a vertical market that is big enough to matter, but not so big it attracts too much attention – in our case, that has resulted in investment in categories such as window treatments, custom apparel and socks, among many others.
Another consideration are verticals where there is no established leader, fragmented markets with multiple brands and retailers and no national winner. We want to invest in enterprises with deep customer loyalty, where it would matter if they went out of business. It’s also key to find segments where there is sufficient product margin to market online.