The Rubric As A Predictor

The equation above serves as a useful predictor of success as well.

Doug McMillon, CEO of Walmart, is famous for carrying around in his pocket a list of the top 10 retailers in the U.S. by decade. According to Lauren Thomas of CNBC, here is the ranking of the top U.S. retailers in 2017:

1. Walmart

2. Kroger

3. Amazon

4. Costco

5. Home Depot

6. Walgreens

7. CVS

8. Target

9. Lowe’s

10. Albertsons

Now, a quick use of the value rubric sheds light on some interesting points about these companies’ relative strengths heading into the next decade.

Take, first, Walmart.

Imagining a five point scale (where 1 is high and 5 is low), Walmart, across the value determining variables above, would have, a decade ago, scored high on price, low to mid-range on assortment (because many other retailers carry what Walmart carries), low to mid-range on brand, and high on convenience (because of the one-stop shop desirability of Walmart’s grocery offering).

But, now ask yourself, “Is Walmart better positioned today than it was 10 or 20 years ago?”

Absolutely not.

Whatever scores Walmart did have, one has to believe, given the onslaught of Amazon and using the rubric, that the resulting value scores of Walmart have decreased for the following reasons. First, one could argue that Amazon is now the low price leader or has at least dented Walmart’s pricing coefficient. Second, Walmart’s assortment and brand haven’t changed all that much (despite their digitally native brand acquisition spree). Third, Amazon has also hit Walmart hard on the convenience side of the business via Prime.

It makes sense then why Walmart is going hard after the omnichannel grocery space. It is the variable of the value equation most in Walmart’s control. But, if Amazon does create its own expression of physical stores, with continued leadership in pricing, with likely as good if not better convenience than Walmart, and a more desirable brand expression and range of products than Walmart, then Amazon no doubt likely still has a decided leg up in the long-run.

Looking through the lens of the value equation, just maintaining par could prove incredibly difficult for Walmart.

Who Is Strong?

A further quick scan of the top retailer list also shows who is well-positioned and who is not. On the strong side, Amazon, Costco, Home Depot, and Target have all fortified their positions over the last decade according to the value equation.

There is no sense spending too much time on Amazon. Clearly, Amazon has fortified its position across every dimension in the value equation, which is why it should be no surprise that reports are that nearly half of all American households are Amazon Prime members. The value in the Prime program, across the four dimensions, is downright insane.

Turning to other retailers, Costco has held its brand reputation, holds a unique proposition when it comes to pricing, and its treasure hunt-like assortment is still beyond compare. Nothing at all on the horizon indicates Costco is in danger either (at least not yet anyway, though there may be some ideas out there that could thwart Costco’s position).

Home Depot could have slipped on the price and convenience coefficients against Amazon this last decade, but it too has smartly amplified its brand coefficient. Its stores and the service interactions within them are difficult to simulate online. Home Depot has also increased its convenience coefficient, via its investments in omnichannel capabilities and its large fleet of flatbed trucks, which are hard even for Amazon to duplicate.

Target, too, has carved out a nice niche over the last few years. As Walmart and Amazon engage in an all-time celebrity retail death match, Target has been quietly working in the corner, amplifying its brand and assortment coefficients to stay ahead of them both on these fronts and has also been fortifying its omnichannel capabilities to the table stakes needs of the new retail consumer.

Who Could Lose?

Kroger, CVS, and Walgreens are each in danger of paying the piper for treading water over the past decade.

Kroger has shown that it wants to take steps in the right direction to fortify its value equation—hiring its first outside marketing agency(brand), investing in Ocado (convenience), experimenting with digital shelving (pricing)—but it is too early to tell how these steps will move the needle, and Kroger still needs to fortify its assortment in some way shape or form against the one-stop shop appeal of Target, Walmart, and whatever Amazon conceives of next, or Kroger also risks losing on that dimension over time.

Mark it down now, Kroger will be the most interesting company to watch over the next decade because could it go either one way or the other.

CVS and Walgreens at this point are in a similar state of health, but for different reasons. Their value is held in the fact that prescriptions are a highly regulated business. Innovative business models for convenience and strong challengers have not yet entered the fray. So, while they each hold a strong value position in what they do, it is the dynamics of their industry more than anything else that give them the moats that they have.

Maintaining first-mover advantage at all costs across the dimensions of value is therefore an absolute must for both CVS and Walgreens or 2030 will look quite different than it does now – which is also what makes Amazon Go and Amazon’s potential entry into healthcare so scary for both.

Then, finally, there’s Lowe’s and Albertsons. Lowe’s has stayed nowhere close with Home Depot on the elements discussed above, and, while its recent experiments with micro-warehousing are admirable, Albertsons may also have started the experimentation process too late and still faces the same risks as Kroger.

Implications

At the end of the day, is anything above rocket science? No, absolutely not.

But, understanding the value equation, in the proper context, is a powerful way to look at the future.

It is a litmus test that points in two important directions:

1. It informs which media reports and press releases are real and which are just pure fluff.

2. It raises important new questions beyond just the carving up of the top 10 retail pie.

The battle for retail supremacy will be intense, but rise above the aforementioned retailer vs. retailer discussion and one also begins to see why social commerce and digital marketplaces are so important.

Online marketplaces have the opportunity to carve out their own niches on the value spectrum high above the carnage, much the same way strip mall owners and shopping mall owners did for the past 50 to 60 years. Amazon is strong here, yes, but the foothold on the remainder of the online commercial real estate of the 21st century is just taking shape.

Will it be Facebook? Instagram? Farfetch?

Who emerges as the next marketplace royalty, i.e. as the players who win no matter who dukes it out at the retail level, is the concluding question worth asking. The pie is the pie. But who wins from the carving out of or in the aftermath of the battle for the pie, other than Amazon, is still an open question.

Who holds value as the place where commerce is conducted digitally is still up for grabs. The digital analogs of strip malls, convenience stores, shopping malls, outlet malls, etc. have yet to define their positions on the value equation spectrum, and, when they do, look out because it could be one hell of a big bang.