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Management Retailers must innovate and adapt to thrive in the age of Amazon

Wal-mart has been the colossus of retail for many decades. But in some ways, it's small potatoes these days.

In 2015, retail expert Doug Stephens pinned Walmart.com's inventory at 11 million products, a mere 4 per cent of the 260 million products he found available on Amazon.com even before it purchased Whole Foods. And Amazon, of course, offers ease of purchase and delivery that is shaking up the retail world.

It wasn't so long ago that many retailers were putting up their first websites. For a decade, they have scoffed at Amazon's inability to make a significant profit. But Mr. Stephens, author of Reengineering Retail, says in an interview we have "crossed the Rubicon" and in the last few years "retailers have awakened to the fact that Amazon and other online players are an existential threat to retailing," leaving the industry in chaos.

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Silicon Valley powerhouse Marc Andreessen said a few years ago that "software eats retail." And while there is truth in that phrase, Mr. Stephens does not believe we are seeing the death of retail. But we will need to see retail's reinvention, and soon. At the core will have to be the understanding that we don't need physical stores for distribution of goods, as Amazon has shown. But we will need them for experiences.

To his mind, Amazon is actually not a retailer. It's a data technology and innovation company that succeeds by ignoring the conventional wisdom of retailing and following its own ways. He notes that last year Macy's CEO Terry Lundgren said that while Amazon might pose some threat in apparel sales it would suffer because it was not prepared to handle complexities such as returns of items. But to Amazon, that's just another challenge to be handled by data and technology, as it is showing. When Amazon opened a physical store, it looked at retail through its own eyes and, in an age of mobile devices, eliminated cash registers, checkouts and lineups.

"But Amazon does not want to play in the physical experiences arena. They want to take the friction out of the equation. So if retailers can make the experiences in their stores rich, they can gain an edge," says Mr. Stephens. But most, of course, aren't all that effective for now, even at a basic level of romancing the customer, let alone the redesigned future he is calling for, where stores are redesigned around experiencing the product under consideration.

He asks: In the past 30 days, how many consumer experiences have you had that were mind blowing? He suspects none, nearly 20 years after we were told by consultants Joseph Pine II and James Gilmore we were entering the "experience economy." Toys "R" Us had a flagship store in New York's Times Square where children could play with the products. "But that doesn't help a consumer in Winnetka, Illinois, going into a store in a mall. Every store needs a flagship experience," he insists. "It's not easy to do. It takes patience, design and creativity."

Pirch is an excellent example. In its U.S. stores, which specialize in kitchen, bath and outdoor equipment, you can have a totally immersive experience. That's literal, if you bring a bathing suit, since you can try out the shower heads in their store. You can also make coffee on the coffee maker you are eyeing, test all the other appliances and cook alongside a professional chef in a kitchen to understand those products. "They have made every inch of that store experiential," Mr. Stephens says. And it's paying off: Sales for every square foot exceed the Apple Store, long considered the gold standard. Along with experiences, employees need to be super-knowledgeable in the product line, able to tell shoppers more than they can learn from Google.

These days, he says, the store is media. In the past, retailers and manufacturers broadcast messages to consumers and hoped they would shop. These days it's instantaneous, as shoppers, at their desktop or with mobiles, react to messages and information, purchasing. "There is no difference between the message and the ability to buy on the spot. So the store is media. Amazon does that millions of times a day," he says.

In an Amazon world, retailers must adapt. We don't go on Amazon.com for fun. We don't sit around with friends and a glass of wine discussing purchases. It's purely a functional activity, although virtual reality could change that. For now, experiences are the way to counter the new data-innovation-retail colossus. Companies must explore ideas and innovate themselves to thrive.

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