The State of Internet Marketing: 2017

Amazon buys Whole Foods, which is going to affect the online retail industry

Mary Meeker, the Kleiner Perkins venture partner who publishes a yearly report on the state of the Internet, released her annual Internet Trends report in June—a total of 355 PowerPoint slides. Her report covers online trends in sectors ranging from media and healthcare to China and India. A few key trends in retail and e-commerce:

  1. A withering brick-and-mortar landscape as Amazon/e-commerce grows. Amazon, in particular, is proving to be a formidable foe, inflicting deep wounds on brick-and-mortar retail chains. “Store closings may break a 20-year record” according to a 2017 estimate by Credit Suisse. The report estimates that more than 8,600 brick-and-mortar stores may close in 2017. “Barely a quarter into 2017, year-to-date retail store closings have already surpassed those of 2008,” according to Credit Suisse. Unless you’re just crawling out of Sleepy Hollow, you know that Macy’s has closed 68 of its stores nationwide, resulting in the loss of 10,000 jobs. In March, Staples announced they were closing another 70 stores. J.C. Penney, Bebe, Target and nearly a dozen other retailers have announced store closings.
  2. Online sales grew again in 2016, rising 15% percent year/year. Retail sales clerks may be losing their jobs, but your UPS driver is keeping busy; parcel deliveries in the US have been steadily increasing over the past six years and rose 9% year/year in 2016.
  3. Walmart is sprinting to catch up online. Brick-and-mortar behemoth Walmart, which has had relatively lackluster impact online despite past investments, rapidly accelerated its e-commerce efforts this past year. It acquired Jet.com in August 2016, and already this year it has bought or invested in Shoebuy, JD.com, Moosejaw and Modcloth.com. Walmart’s e-commerce revenue grew 63% year/year last quarter. Walmart is, of course, trying to unseat Amazon, and the stakes are high.
  4. The new retail is mobile-informed. Retail isn’t really dead; rather, it’s evolving. Warby Parker, Lowe’s augmented-reality experiment with Google to help consumers locate items in-store, and Amazon itself opening up self-checkout retail stores as examples of ways retail is evolving to meet the needs and expectations of mobile-enabled consumers.
  5. Retailers are taking advantage of online-offline feedback loops. Other examples of hybrid online-offline commerce experiences include MM.LaFleur, which offers both online and in-store personal shopping advice and incorporates that information back into its bento-box-style e-commerce operation, and shirt retailer UNTUCKit, which incorporates online and offline feedback into its brand experiences.
  6. Location-driven advertising is becoming more targeted and accountable. Location-targeted ads from Google Nextdoor and xAd and Uber’s in-app ads powered by Foursquare are examples of how ad delivery and the ability to track outcomes are changing the dynamic between online marketing and offline commerce. Google has tracked more than 5 billion in-store visits globally, and just last week introduced its store purchases tracking solution to link ad clicks to physical transactions.

The landscape is rapidly changing

Since Meeker’s report came out, Amazon purchased Whole Foods, and there’s a lot of speculation about how this one’s going to turn out. Jeff Bezos is a pretty smart guy—remember when Amazon used to sell books? That was a lifetime ago. But can he merge his huge online empire with the luxury, high-touch food operation? I rather suspect he will figure it out. He may find a way to completely reengineer it. An editorial in Sunday’s SF Chronicle from Alice Waters was a plea to Bezos to find a way to quit trucking produce cross country and calling it local. To start focusing on fresh and local, building relationships with local farmers to bring the most nutritious and cost-effective food to his new markets. And let’s not forget that Amazon is now building brick and mortar stores—there’s a new one opening soon in Walnut Creek, among other locations.

A different kind of department store emerges

As we watch a traditional store like Macy’s falter—and if you’ve ventured into one lately, you understand why—another kind of department store is rising. Anthropologie has opened two flagship stores in the Bay Area—one in Walnut Creek, the other in Palo Alto. With many different departments under one roof, these qualify as department stores, but they’re a new-concept store, complete with bridal, home and garden shops and a high-end restaurant. Once their customers come through their doors, they don’t want them to leave.

People still want the personal experience of shopping

They like the first-hand experience of seeing and touching what they’re going to purchase. The new Anthropologie stores are packed with eager shoppers with money to spend. The key ingredient may be that their demographic is millennials. We’re also seeing that there’s a place for the combined online/brick and mortar presence. Savvy online eyeglass provider Warby Parker has two stores here in the Bay Area. They understand that glasses are now an accessory; people want a number of pairs to match their outfits and their moods. Ordering glasses online works, but it’s still a bit of a crapshoot. Being able to actually see what those specs look like is a better experience. There’s still demand for brick and mortar, but retailers have to be clever about how they package their merchandise.

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