Predictions

Brick and Mortar Isn't Going Away, 3 VCs Recently Declared -- Among Other Intriguing Tidbits

Another of the VCs' five insights: Don't fight Amazon. But do bring emotion, soul and delight to your online shopping features. That's something Amazon has zero interest in.
Brick and Mortar Isn't Going Away, 3 VCs Recently Declared -- Among Other Intriguing Tidbits
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Guest Writer
Partner, Chief Digital Officer of Deutsch in North America
9 min read
Opinions expressed by Entrepreneur contributors are their own.

Last month, my company put on a one-day, C-level business and innovation conference called the Next 12. Featured were leading innovators, entrepreneurs and big thinkers.

Our intent was to help attendees look beyond their everyday business experiences, and learn what might disrupt their usual patterns over the next 12 months, and give them actionable ideas.

Related: 67 Fascinating Facts About Ecommerce vs. Brick and Mortar (Infographic)

This is where the venture capitalists we'd invited came in: Since it’s their job to bet on and invest in the future, we felt it was important to solicit these experts’ perspectives about what's happening now -- and what's next -- in business.

As part of that initiative, I moderated a panel discussion on the future of retail and mobility, featuring Mike Jones, CEO/founder of Science Inc.; Jeff Kearl, CEO/founder of Stance; and Jon Sakoda, general partner at NEA.

Science, Inc. is a Los Angeles-based startup studio that develops, invests in and acquires businesses. Stance is a sock and underwear company -- CEO Kearl is also a VC. NEA is one of the world’s largest and most active venture capital firms. 

All three VCs responded to our question; and below I've described five of the most important lessons that emerged from that discussion, which could benefit your business over the next 12 months:

A direct-to-consumer strategy wins.

Companies that primarily sell through their own digital platforms are better set up to service customers and be more aware of those consumers' changing needs and behaviors.

First, the data quality is superior. In addition, people can shop on their own terms, and there are usually fewer steps to navigate between consideration and purchase. The retail relationship is simpler, moreover; and, because the transaction is inherently digital, it’s easier to measure, track and adjust.

Also, the software is relatively easy to change. Beyond Amazon, upstart brands like Casper, Dollar Shave Club and others are all proving that the model is smart and sustainable, and can scale incredibly well if you solve a big enough problem, have a brand and offer a great experience.

Related: Small Businesses Should Be Thankful for Amazon.com

A relatively new but great example is Dirty Lemon, a beverage company using short message service (SMS) as its primary sales channel. We’ll continue to see more examples of brands disrupting categories through smart digital experiences, the VCs said.

The good news for companies that rely heavily on the physical retail channel, the speakers said, is that stores aren’t dead. Evidence? Amazon itself is getting into the store business. Yes, the middle market is getting squeezed, but holiday sales were up 4.9 percent this past year, and price and convenience, specialty and luxury are all growing.

That said, it's important to recognize that direct-to-consumer companies have changed customer behavior and expectations forever. Customers don't want an average level of treatment, and they’re the ones in control. So, brands that have both stores and ecommerce platforms need to redefine and reposition their online shopping experiences and introduce and test new, bespoke direct-to-consumer services and product lines.

Don’t make your stores and ecommerce platforms compete, advised the VCs. Give each one its own purpose and differentiating experience. 

Stop fighting Amazon.

This online giant is now a top-ten cool brand for millennials, and it’s where your customers shop. If you yourself aren’t selling there, you’re neglecting those customers. Why? You’re not putting their needs first and making things easier.

This is the logic that led Nike and smaller companies like Stance to start selling on the platform. If you sell there, too, you should make sure you optimize the heck out of search and have great content. After all, some 56 percent of product searches begin on Amazon. So, it's not just a marketplace.

Yes, it’s a controlled environment, but it’s also a powerful and ubiquitous search engine. The quality of your search engine marketing matters immensely in terms of creating preference. Your product merchandising and copy can make a huge difference in your bottom line. As Alexa becomes a bigger deal, you'll also need to think about your voice strategy. We’re not just talking about images and text anymore.

Finally, you may ask, “What do I do on my own ecommerce channel, if I’m selling on Amazon?”

The answer is pretty simple, strategically speaking: Do things that only you can do for your customers. Create unique products and experiences, and give them brand content they can’t get anywhere else. Yeti Coolers does an excellent job on this last point. Instead of focusing just on transactions, Yeti has rich brand content on its site. So copy the cooler company. Bring emotion, soul and delight to your online shopping features.

That's something that Amazon has zero interest in.  

Make it mobile and unforgettable.

As mentioned, stores aren’t going away. Even Amazon's Jeff Bezos agrees that shoppers like to touch and feel things, as witnessed by Amazon's investment in Whole Foods and bookstores.

But, "retail" still needs a rethink, and brands shouldn’t necessarily be focused on brick-and-mortar solutions. Those solutions are expensive and inflexible.

So get creative. Casper, for instance, announced it was opening 15 pop-ups across North America. Pringles, M&Ms and Peloton have also had success with the pop-up model. Pop-ups allow retail companies to keep costs down, be adaptable and be "of the moment." But retail isn't just about pop-ups. You need to do a lot more to attract customers. You need a differentiated and unforgettable experience, one that creates urgency. 

And, as Jeff Kearl noted, “it’s not easy.” Nike Soho, for example, installed a basketball court and treadmills. But if you go there, you’ll notice that it’s mostly employees who use them. If you build it, "they" will not always come.

Brands such as Supreme use design, experience, exclusive and limited product, and hype to create lines of people out the door. It’s also extremely selective about where it locates and is urban by design. But that hasn’t stopped this streetwear marketer from becoming a $1 billion brand.

Clearly, there’s no silver bullet. But what is clear is that retailers need to think more like Walt Disney than Sam Walton. Because retail today is all about experience. That means it's wise to include creatives, storytellers and experience designers in your retail-planning process.

Innovation doesn’t happen overnight.

Blockchain, AR/VR, and AI: There’s a lot of buzz right now about these new areas of technology innovation and investment. And, yes, every brand needs an AI and voice strategy.

That brand should also be experimenting with AR as well as blockchain, but know we’re not going to see major leaps in the next 12 months, the VCs said. Real and meaningful innovation takes time. These technologies will fundamentally change the world, but they won’t disrupt your business this year.

As Kearl noted, “I’m just as excited about AI and crypto today as I was 12 months ago. And I believe I will be just as excited about it 12 months from now. All these innovations are clearly disruptive. They will change the way we operate, but it will take many, many years to commercialize.”

So, carve out 10 percent of your budget and invest in experimentation, but don’t expect immediate returns. Change is a certainty, but these technologies are not as fast-moving as you might believe. Companies like NEA are investing mainly in on-demand mobility services when it comes to transportation, largely because the company finds it easier to see a quick return with software.

An example of this emphasis on patience is self-driving cars, which will take longer than expected to truly come online, due to regulation, safety questions and their many unknowns. This doesn't mean that you should de-prioritize innovation investment. Quite the contrary: You should start giving it priority now.

Become a software and media company.

As Jon Sakoda put it, “The reason why so many digital companies are outperforming legacy brands is because they don’t just do one thing. They’re willing to run 17 different experiments to reach the consumer. Platforms and algorithms are changing all the time. Marketing plans should change on a quarterly (not annual) basis. The old way of marketing doesn’t work any more. You can kill it on Facebook one quarter, then they change the algorithm, and you then make Instagram the priority.

"Your campaign looks great in the moment," Sakoda continued, "but tomorrow is another day. Companies that don’t move quickly will lose the mobile war.”

Those who tell you they know exactly what the future looks like are full of it. No one knows. But one thing that’s certain is that if you don’t have what XPRIZE founder and executive chairman Peter Diamandis, a panelist at the event, calls “a crazy idea department,” you’re likely on your way out of business.

Related: Why 'Fail Fast' Is a Disaster When It Comes to Artificial Intelligence

Adopting an explorer mentality and creating an environment in which experimentation is welcome is the path to success in 2018. None of it is easy, as Kearl says. It requires patience, risk-taking and bravery. And returns won’t happen overnight. But it’s the only way to come out alive.

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