A Retail Playbook for How the Small Can Survive the Age of Amazon

When Randy Komisar walks around his house, he sees the future of retail quite clearly. Komisar, a partner at venture capital giant Kleiner Perkins Caufield & Byers, says about two-thirds of the objects in his house are commodity products: paper towels, socks, toothpaste, and a whole pile of other things that can be bought at Wal-Mart Stores (WMT) or on Amazon.com (AMZN). The remaining third of his stuff is more distinctive and harder to procure: high-end cowboy boots, custom-made bicycles, New Belgium beer. That slim, specialized slice of commerce is arguably the best place to cultivate a retail company these days.
Turning out a noncommodity product is the only antidote to the economies of scale powering the modern retail behemoths. That’s the thesis behind Komisar’s new book, I F**king Love That Company, co-written with Bayard Winthrop, founder of American Giant, an e-commerce company focused on making the world’s greatest sweatshirt.
The sweatshirt startup is a paragon of Komisar’s world view. American Giant makes one really great product, a proposition that can resonates with consumers while carrying other distinct advantages. Without spending much on marketing and real estate, Winthrop’s company has been flooded with more orders since its 2012 founding than can easily be met.

Bayard Winthrop set out to make the perfect sweatshirtPhotograph by Alex Washburn/WiredBayard Winthrop set out to make the perfect sweatshirt

In their book, Komisar and Winthrop argue that there’s room in the market for a whole new wave of specialized, hyperfocused retailers. “This is a business model that has been missing from the market for the past 20 or 30 years,” Komisar says. “It was impossible for a long time, but largely because of technology, it’s possible now.”
Here’s a six-point guide to how Komisar and Winthrop see the future of retail:

1. Amazon Can’t Be Stopped … The supply chains of the retail giants, at this point, are too massive and technologically advanced to beat. Unless a product is distinctive in some way, Amazon, Wal-Mart, Costco (COST), and company will use their scale to buy it for less, sell it for less, and deliver it more quickly than anyone else.

2. … but Amazon Can Be Survived. There are plenty of things that giant retailers don’t do well, particularly connecting with consumers and selling small-batch stuff. Komisar and Winthrop see a “huge white space” between retail’s Internet giants and floundering big-box stores:

“Filling that space are young brands whose primary goal is to give consumers something they can care about, beyond basic necessities like socks and shampoo. These brands build an emotional connection with consumers and provide a personalized experience in the way mom-and-pop shops did in a previous era.”

3. Technology Makes It Possible for Small Retail to Thrive. Komisar and Winthrop call out a rash of smaller companies leveraging technology to great effect, including Lolly Wolly Doodle, Nasty Gal, and Warby Parker. At these outfits, a Web store takes the place of signing a lease and hanging a shingle. Twitter (TWTR) and Facebook (FB) serve as local advertising and cash-register chit-chat. A viral video or a coordinated e-mail marketing campaign save the millions that would otherwise go into building a brand on billboards and television.

4. The “Mushy Middle” Is a Wasteland. The future will get increasingly bleak for companies that don’t have the scale of Amazon or the unique wares and agility of e-commerce startups. Such companies as RadioShack (RSH), Staples (SPLS), and Foot Locker (FL) spend vast amounts on advertising and real estate to sell things that are typically available at many other places. Here’s how the book explains it: “Look past the logos and you’ll find they are merely managers of vast real estate and marketing operations.”

5. Turning Commodities Back Into Specialized Products. The true opportunities for retail entrepreneurs—the so-called white space—lie in improving products people have long considered commodities. American Giant is doing this with the humble sweatshirt. Nest, a company backed by Komisar and bought by Google (GOOG), made a much better thermostat after decades without much innovation. “There was a time when I didn’t know I could love a sweatshirt,” he said. “That was amazing to me.”

6. All You Need Is Other People’s Love. Make a product people love. Provide customer service they love. And keep costs low, so prices will be equally lovable. That’s the message Komisar and Winthrop have for retail entrepreneurs. Sounds simple, right? I F**king Love That Company even boils it down to a goofy little graphic. McKinsey consultants take note:

The entire book goes on sale Thursday morning — on Amazon, naturally, since books are the ultimate commodity.

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20 November 2014 | 11:00 am – Source: businessweek.com


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