First, some housekeeping.
Last week I provided a quick and dirty breakdown on how, if done properly, you can effectively insulate your business from the noodly appendages of Amazon and other major retailers. And, while I think it is useful on it’s own, in writing my follow up I realized there’s a lot more to unpack. If we better understand how we got here, we can better understand where we’re going.
So? How did we get here?
While the mom and pop corner market and hometown hardware stores of Main Street, USA were devoured by retail predators like Walmart and Home Depot, something was occurring, seemingly unnoticed in the carnage of the 1990’s big-box explosion.
Retail giant Cadabra Relentless Amazon.com was just taking shape. Expecting, and seemingly content with, investor-frustrating slow growth, and focusing on only a few popular items, Amazon proved resilient. It survived the burst of the “dot-com bubble”, and by 1999 Jeff Bezos was Time magazine’s Person of the Year.
From 2000 forward, Amazon’s growth was rapid, and its offerings continued to mutate from consumer-friendly services like free shipping, and later Prime, to cloud computing and a line of consumer devices and services that represent a modern version of their initial inventory. Amazon can now produce, host, charge a fee to access, and stream their own content to a growing number of Amazon devices, allowing them to potentially make money at every point in the consumption process.
In 2015, Amazon’s market capitalization overtook Walmart and, without any meaningful physical retail presence, Amazon is able to directly compete with virtually every major retailer in the United States. If the Walmarts and Home Depots of the 90s were retail predators, Amazon had taken the role of Apex-predator.
On June 15th, 2017, Amazon took its next evolutionary step and acquired high-end grocery chain Whole Foods giving them an almost immediate physical presence in nearly every major city in the United States.
Now, if fear and dread are your first instinct when you read about a massive conglomerate monopolizing the supply and distribution of an increasing number of goods and services, this reads like a dystopian nightmare. But, I don’t want you to think of this as some Cormac McCarthy-esque vision of a collapsing capitalist society, I want you to think of a nature documentary that focuses on the complexities of an ecosystem.
Trophic Cascade: A perfect metaphor.
Aldo Leopold first described the mechanism of trophic cascade in A Sand County Almanac ; Leopold observed the effects of overgrazing by deer in the years following the extirpation of wolves from Wisconsin.
The reduction in predation initially leads to an increase in population, the increase in population leads to an increase in grazing, without predators keeping herds on the move, these larger deer populations are grazing in the same area for longer periods of time, which puts pressure on the deer’s preferred flora, increases opportunity for disease transmission, allows plants normally in competition with the deer’s preferred food to flourish, and ultimately leads to degradation of resources, and in riparian areas leads to new and accelerated erosion. When degradation is severe enough, food sources become scarce and populations which saw an abundance of food begin to suffer – starvation, disease, and reduced birth rates become common, and herds suffer.
Over a long enough timeline, we see these populations experience boom and bust cycles.
You see where I’m going with this?
By 1926, wolves had been extirpated from the Greater Yellowstone Ecosystem. In the following decades, coyote populations exploded, leading to a significant decline in red fox and pronghorn, and the complete eradication of beaver. Elk, though, saw a boom; they were simply too big for coyotes and, just as Leopold observed in Wisconsin, the land along rivers and streams began to erode, a variety of flora such as aspen, willow, and cottonwood suffered from overgrazing.
Now, it would be reasonable to think that the presence of coyotes, black bear, cougars, and a small population of grizzlies would adequately fill the void left by wolves. But, while coyotes are exceptionally adaptive, they lack the size and power of wolves, cougars are solitary and generally won’t tangle with anything larger than deer. Bears, despite their reputation, are reclusive and opportunistic omnivores who tend to take the path of least resistance, opting to scavenge, and only taking on a predatory role when preferred foods are scarce.
Due to their respective limitations, the new alpha predators could not adequately replace wolves in the GYE.
In January of 1995 wolves were reintroduced to the Greater Yellowstone Ecosystem and in the proceeding years, elk populations, and their subsequent overgrazing, had been brought into balance. Similarly, coyote numbers had been reduced through Intraguild predation ?resulting in the dramatic recovery of their preferred food sources: red fox, beaver, and pronghorn.
In study after study the implications are clear: without top-down pressure, second tier predators behave in ways that are directly, and indirectly, detrimental to the ecosystem as a whole, and often to themselves.
In July of 1995, Amazon.com officially went online, and in the proceeding years, the landscape has changed dramatically. Like the wolves of the Greater Yellowstone Ecosystem, Amazon has acted as a top-down pressure that has been missing from the ?Greater Retail Ecosystem, and with the 2017 acquisition of Whole Foods is now large enough to force the once dominant predators retails into changing their behavior, and we see a similar cascade of predictable, novel and unintended consequences.
Walmart, like the coyote, was the most aggressive, and opportunistic, I suspect they will also be the most resilient of the non-Amazon retail giants, but Walmart’s efforts to compete have been fairly uninspiring. In August of 2016, Walmart announced that it would acquire Jet.com, a startup Amazon competitor that was just over a year old and struggling to grow, or even maintain, its customer base. Though, the acquisition of Moosejaw, an online outdoor retailer, and Bonobos (which, for some reason, they announced on the same day as Amazon announced their Whole Foods acquisition) is a signal that they are putting some thought into their strategy.
A few metrics that theoretically give Walmart the advantage:
Walmart has more than 4,600 US locations and over 600 Sam’s Club locations compared to Amazon which, when you include Whole Foods locations, tops out around 450 locations.
A few metrics that fit nicely into this analogy and may or may not give Amazon an advantage:
Only 33 Gray Wolves were introduced between 1995 and 1996. Those wolves were introduced to an area with the highest density coyote population in the country. By 1998, two years after reintroduction, the pre-wolf population of coyotes had been reduced by 50%. An average of around 100 wolves occupy the GYE in a give year, and yet, they maintain a corrective influence on?34,375 square miles of ecosystem.
The most impressive statistic is that online retail sales account for only 8% of the total US retail market, Amazon accounts for an even smaller percentage?and yet, they dominate.
While the the fight between Amazon and Walmart rages, Best Buy, Home Depot, Lowes, Target, Big Box office supply companies, eventually CVS and Walgreens will all be forced to critically assess their model, innovate, manage growth, change their behavior, leave markets, and some may die out completely.
At this point, I’m sure you’re asking yourself, who represents the elk?
I’ll tell you about the elk next week.
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