You can’t blame Amazon

Can Amazon be blamed for the demise of dozens of retailers across the world?

The retail apocalypse

There is a retail apocalypse taking place at the moment. In 2019 alone US retailers announced 9,302 store closings, which is a 59% jump from 2018.

The most prominent retailers effected by the retail apocalypse are:

• Sears: Filed for bankruptcy in 2018 and planned to close 142 of its 700 stores.
• Borders Books closed all stores and filed for bankruptcy in 2011.
• Toys “R” Us filed for bankruptcy and closed all its US stores in June 2018.
• GUESS? closed 60 stores in 2017 and was expected to close more than 100 stores in 2018, leaving roughly half of its high of 400 stores.[
• J. C. Penney announced in February 2017 that it would close 138 stores in 2017.
• J. Crew closed 61 stores in 2017 and closed additional stores in the first quarter of 2018.
• Payless ShoeSource plans to close all its 2,000 stores in the US and Canada and is going out of business.
• Topshop is closing all its US stores as its parent company, Arcadia Group, seeks to restructure after filing for bankruptcy.
• Barneys New York plans to close 15 stores after filing for Chapter 11 bankruptcy.
• Forever 21 filed for bankruptcy in October 2019 and said it would close up to 178 in the US and 350 stores globally.
• A.C. Moore announced in November 2019 that all 145 locations will be closed.
• Macy’s is closing 28 stores following a sales decline of 3.9% at stores open for at least a year, which Macy’s CEO Jeff Gennette said was “steeper than we expected.

Source Wikipedia

Why the retail apocalypse?

The Wikipedia article — “Retail apocalypse” — discusses the reasons for the retail apocalypse. The article talks about industry changes to a more casual work dress code, and so reducing the amount of suits sold, but the main reason is the rise of e-commerce. This is an area that Amazon and Walmart dominate.

In 2018 Amazon reported revenue earnings of $206 Billion, excluding Amazon Web Services (AWS). Amazon’s growth for 2018 has been 33% in North America, 21% Internationally and AWS has grown by an amazing 47%.

In 2019 Walmart is proving to be a strong competitor for Amazon and in Q3 2019 the analysts were actually disappointed in their growth — which was still an amazing 24%.

So is the incredible growth of Amazon and Walmart the cause of the retail apocalypse?

From horse drawn carriage to automobile

I have been reading Tony Saldanha’s book “Why Digital Transformations Fail” in which Tony talks about the retail apocalypse being a symptom of the Fourth Industrial Revolution.

Now I can see your eyes rolling because I must admit we are all tired of hearing about the Fourth Industrial Revolution but Tony gives a very interesting example of how this has happened in the past.

Tony writes that in 1914 there were estimated to be 4,600 companies in the USA that made horse drawn carriages. In eleven years this number plunged to only 150.

What caused this dramatic drop?

Well it was the introduction of the automobile.

Here are two photos that are used to illustrate the dramatic change that took place between 1900 and 1913.

So why didn’t the leading manufactures of horse drawn carriages just start making cars? They are both means of transport aren’t they?

Transform not innovate

In his book Tony writes that one of the leading carriage makers of the time was the John Stephenson Company. Wikipedia states that in 1919 they were liquidated.

The interesting thing is that the John Stephenson Company was considered a very innovative company. They had expanded their offerings of carriages to cover multiple different uses — from buses to gun carriages. They also developed the first street car that ran on rails.

So why didn’t the John Stephenson Company just start to build cars?

It is the same story that has repeated itself over and over.

The usual references are always used — Kodak, Blockbuster, Nokia, BlackBerry, Motorola etc — BUT they are normally used as companies that didn’t innovate. I would say this isn’t true. All these companies were very good at innovating their products.

I would say the reason these companies have died is because they didn’t transform!

Innovation is easy to justify. A company is improving their existing products for a gain in an already existing revenue stream.

Transformation, on the other hand, normally means that an entirely new product or service, with a different business model, needs to be created and introduced. This product or service will produce very little revenue in the beginning but will still draw resources, energy and focus from the parent company. Not only that but the new product will probably start to cannibalize the existing established products and services.

The harsh reality though is that if a company doesn’t transform how it operates within the Fourth Industrial Revolution — it will die!

How does a company transform?

So the million Dollar question is — “How does a company transform?”. How does a company introduce new products and services, with a different business model, that doesn’t immediately get attacked and killed by the existing products and services?

This phenomenon is called the “Corporate Immune System”. There are many reasons why the Corporate Immune System is so damaging to transformation but perhaps the number one reason is that employees, who get performance based bonuses, will protect the existing revenue streams of a company and kill off anything that will effect it.

The answer is to create edge initiatives, that are completely independent of the parent company, while at the same time working and improving the core products and services of the company. This is done at the same time.

By doing this a company can give the best possible chances for the new edge initiatives to grow and perhaps replace the legacy core company.

Here is another diagram that shows what could happen if one of the edge initiatives could grow exponentially within a new business model.

This isn’t as crazy as it sounds. The example we often use is to imagine if the Marriott hotel chain had created airbnb. My last diagram shows what could have happened if Marriott had in fact created airbnb.

What can enable transformation?

I would like to suggest to you that there is a proven process that can assist you to transform.

Salim Ismail, the co-founder of Singularity University, studied how the most successful and fastest growing companies achieved their amazing results. In 2015 his findings were published in a book called “Exponential Organizations”.

In 2018 Salim again, with a number of co-authors and contributors, wrote a follow up book called Exponential Transformation. This book goes through the process of creating the edge initiatives described earlier, as well as transforming the core, at the same time.

This is now a proven process and has been used very successfully by leading companies around the world.

The process described in the book Exponential Transformation is a 10-week sprint. I encourage you to read the book, or contact me, to find out more but here is an outline of this process.

More information on the 10-week ExO Sprint can be found at https://www.openexo.com/exo-sprint-ext.

We can’t blame Amazon

It is easy to look at Amazon and say that it is their fault that the retail apocalypse has taken place. If you aren’t in the retail industry then there will be an equivalent company that is causing disruption and upheaval in your industry.

This isn’t true! What Amazon, and others, has done brilliantly is that they have recognized how companies need to function and grow exponentially within the Fourth Industrial Revolution.

The companies that have died in the last few years — Sears, Macy’s etc — didn’t realize this and paid a huge price.

Don’t let your company suffer the same fate! The Fourth Industrial Revolution presents almost unbelievable opportunities for your company to grow exponentially — but to do this your company will need to TRANSFORM not just INNOVATE!

Idea Storm can assist you

If you have read this article and find that you need assistance to enable this necessary transformation, or just want to chat about the concepts, then Idea Storm can assist. Reach out to me at lance@ideastorm.co.za, visit www.ideastorm.co.za or even book a meeting online using Calendly — https://calendly.com/ideastorm.

We really want to help you with your transformation!