Why Amazon, Apple, Facebook and Google rule

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When Scott Galloway talks, people listen. Few listen more closely than his students at New York University’s Stern School of Business, where Galloway consistently receives high marks for his brand strategy and digital marketing classes for second-year MBA students. In 2012, he was named one of the “World’s 50 Best Business School Professors” by Poets & Quants.

The serial entrepreneur has founded several firms, including Red Envelope, Prophet and L2 — a digital strategy firm that benchmarks digital performance of 1,800 global brands. His weekly YouTube series, “Winners and Losers,” has generated tens of millions of views and left many viewers smirking from the first click.

Now, he’s written his first book, “The Four: The Hidden DNA of Amazon, Apple, Facebook, and Google,” about how these four powerhouse companies have infiltrated our lives. Galloway, a speaker at NRF’s Shop.org conference in Los Angeles in September, shared his thoughts about how these four companies are impacting consumers and upending retail with STORES contributing writer Bruce Horovitz.

The retail world is undergoing a transformation. What do you expect the outcome to be?

We are going to lose a number of retailers. There’s a perfect storm in retail. You have stagnant wages among the middle class. You have an explosion in the number of retail offerings and we are over-stored.

In the United States we have 50 percent more square feet of retail per capita than in Canada. We’ll have to take capacity out of the system. At the end of the day, there are too many stores.

Who’s to blame for the changes in retail?

Neither — and both. Millennials spend more on experience, technology and coffee than on stuff. The narrative, of course, is that Amazon is putting every other retailer out of business. Well, that’s not the case. Some, like Sephora, will not only survive, but thrive. And I think Walmart and Home Depot will do well over the next 10 years, too. They are some incredibly run retailers. But you have 10 percent to 30 percent of retailers who will go away in the next 10 years. About one-third of retail names will not be around in 10 years.

Is it too late for most retailers to reinvent themselves?

For about one-third, nothing can be done. Another one-third could go either way. And about one-third will be successful no matter what they do. Williams-Sonoma, for example, will survive because it has such strong branding.

But there are a bunch in the middle who could go either way. Every thriving retailer needs to find a growth channel — and they need to figure out a growth strategy that’s either with or against Amazon. Some brands are successfully working with Amazon and growing top-line revenue. Others are fighting Amazon.

How can any retailers successfully fight Amazon?

While Amazon is investing in artificial intelligence, retailers that appear to be thriving are making a big investment in what I call organic intelligence. Consumers no longer go to stores for products. They go to stores for people. They go for the expertise — and the speed.

Are major retailers challenged by digital?

I actually think that retailing as a category is pretty strong digitally. I think the trouble they have is linking their digital efforts with their offline efforts. Making that happen is incredibly complex and expensive.

When will online sales finally surpass offline retail sales — and what will that mean for retailers?

Not in our lifetime. Digital sales are now 8 percent to 10 percent of retail. But it’s not about ecommerce. That’s the wrong metric. The more relevant way to look at this is e-influence.

Just five years ago, one in three customers were touched by online content before they walked into a store. Today, it’s nearly two in three. The majority of people who walk into a store have been influenced by online content. If you don’t have it, you will lose foot traffic.

When you think about it, stores are an outstanding way to buy merchandise. The most efficient “last mile” delivery is a store.

In your new book, you predict that Amazon will be a $1 billion company by 2020. What impact will that have on retail?

Amazon can kill other companies simply by issuing a press release. If it announces meal delivery or furniture or grocery, every other competing retailer suffers. Amazon is playing by a different set of rules because it has access to more capital, better technology and better people.

So is Amazon retailing’s friend or foe?

Well, it’s a frenemy. But for 90 percent of retailers, it’s an enemy.

That said, there are some small brands that will figure out how to leverage the Amazon platform. If you’re a small, unique brand with hot organic ingredients, Amazon can take you from a $10 million company to a $100 million company faster than anything. But most retailers who compete against Amazon feel the oxygen being sucked out of the room.

You have referred to Amazon as retail’s antichrist. What do you mean by that?

Typically, retailers trade in sympathy with each other. But when Macy’s announces a bad quarter, Amazon shares go up. Amazon has decoupled from the rest of retailing. When Amazon has a great quarter, the rest of retail goes down. This creates a narrative that the rest of retailing is doing really, really poorly.

Will anything stop Amazon?

Government. I think, at some point, district attorneys will connect the dots between Amazon’s growth and [retail]job loss. You’ll eventually see some politicians break into anti-Amazon, anti-Apple, anti-Google and anti-Facebook sentiment. This will probably happen around 2020.

Yet Amazon just swallowed Whole Foods — and got even bigger. How will this impact the grocery world?

U.S. grocery sales of $750 billion annually represent the world’s largest consumer market. But grocery is awful. If you went blindfolded into a Kroger or Safeway store, then stand in the middle aisle and take off the blindfold, you’d have no idea if you were in 1985 or 2017. Everything looks the same — from the lighting to the merchandising to the navigation.

The grocery industry is ripe for disruption. Until now, grocery’s low margins have scared off innovators, but Amazon is not scared of low margins.

What other retail categories are ripe for disruption?

The better question is: What sectors aren’t? Luxury still seems to be the domain of offline players. Ditto for home improvement space — it’s difficult to leave a four-burner range on someone’s front porch. And “experience” retailers like Starbucks will continue to do well. But other than that, everyone is vulnerable.

Is Amazon so smart — or is everyone else so dumb?

Amazon’s core competency is story-telling. [Amazon CEO] Jeff Bezos said Amazon would invest in low prices, speed and selection. That really resonated with the marketplace. If you think of retailers as poker players, Jeff Bezos has five to 10 times the number of chips that everyone else has.

What should major retailers be doing right now if they want to be around in 10 years?

Create a voice. Invest in human capital. And don’t have endless aisles. Remember, Williams-Sonoma succeeds because it only carries two toasters which are selected by people with far better taste than me.

Amazon aside, who are the world’s smartest retailers?

I’d say Sephora, Home Depot — and I’m going to go out on a limb and say Nordstrom. People like to beat up on department stores, but they are facing huge headwinds. These retailers all have a great understanding of technology, a great understanding of people and great capital allocation. They beat the odds. There are
a million ways to screw up in retail.

What’s the most important thing about retailing that you teach your students at NYU?

I’d argue that the most important thing is voice — the ability to bring together a viewpoint that resonates
with the consumer.

Are today’s MBA students prepared to be tomorrow’s retail CEOS?

Yes. I call it the revenge of the pocket protectors. You see more and more MBAs going into retail, not less. Our biggest recruiter at NYU five years ago was American Express. Today, it’s Amazon. The kids get more impressive every year. These kids have their act together in a way that’s exponentially greater than when I was their age.

What’s the most surprising thing I’d learn from reading your new book?

We’ve taken God, love, consumption and sex and turned them all into companies. Google is God. Facebook is love. Amazon is consumption. And Apple is sex. Who we are as humans is a function of the ratio of those four things.

If there’s a fifth company to add this quartet, you’ve mentioned it would be Netflix. Why?

For Millennials, Netflix is an operating system for joy. Millennials spend more time watching Netflix than the rest of broadcast or cable combined.

Will Amazon ever be out-Amazoned?

Yes. Everything ends, as will Amazon’s dominance. For the 25 years I’ve followed retailers, I’ve never seen a company with such momentum. The only thing that could stop them in the next five to 10 years is regulators. And I think they will.

Retailers want to know: How do you buy most of your stuff?

I almost never shop on Amazon. I don’t do a lot of online shopping. I know that sounds ridiculous, but I want the little guy to win and shopping on Amazon feels contrary to that.

The holiday season is right around the corner. Is Black Friday dead?

It’s been co-opted by Amazon. Amazon Prime Day will likely be bigger than Black Friday at some point.

Will you project the retail landscape in 10 years?

It will be zero-click. By then, two-thirds of retail purchases will be things you don’t decide. Decisions will be made for you by artificial intelligence that will figure out what you need and deliver it to you. Amazon will send you two boxes — one full of stuff and one that’s empty for returns. You’ll quickly realize that they know you better than you know yourself

Bruce Horovitz, a freelance writer, is a former USA Today marketing reporter and Los Angeles Times marketing columnist. He can be reached at brucehorovitz@gmail.com.

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