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December 6, 2018

What You Really Need: Smarter Offline Retail

MHT Partners  | Consumer Investment Bank

For those consumers overwhelmed by choices when shopping at a traditional big box retailer, good news – smaller footprint, well-curated retail formats are on their way. Specifically, Amazon is continuing to experiment with various offline retail formats (“clicks to bricks”), recently opening a second Amazon 4-Star brick-and-mortar retail location in Denver, Colorado, to augment its first 4-Star location in New York City. 4-Star locations offer the consumer a variety of items, including consumer electronics, kitchen tools, home goods, toys, books, and games, which are either best sellers or new and trending on the Amazon e-commerce platform, in an approximately 4,000 square foot retail footprint. This format is meant to give the consumer a more streamlined set of purchase options and utilizes online data to curate products that will likely sell well at the local level. The 4-Star format joins Amazon’s other forays into the brick-and-mortar retail world, including the cashier-less Amazon Go grocery/convenience store, Amazon bookstores, Amazon pop up kiosks, and Whole Foods. Amazon is clearly trying to figure out what works in terms of structure for offline retail, to compete with the likes of Walmart, Target, etc., and it will be interesting to see which concept(s) are most successful in the long run.

Other retailers are trying to emulate these new and innovative formats to keep pace with Amazon. This month, Sam’s Club (owned by Walmart) announced the opening of an experimental retail format, called “Sam’s Club Now”, in Dallas, which will be cashier-less and mobile-app oriented, much like the Amazon Go format. The consumer will use the “Sam’s Club Now” app to shop, and some of the features that are being debuted in this new shopping experience include a map function that will lead consumers to what they need in the store, as well as “smart” shopping lists, which will use machine learning and purchase data to help build a consumer’s shopping list. The new Sam’s Club Now will also only be 32,000 square feet, which is roughly a quarter of the size of a traditional Sam’s Club retail store. By potentially evolving its format and reducing overhead and labor costs, it is an opportunity for Sam’s/Walmart to enhance profitability and remain competitive in the changing brick-and-mortar retail landscape. A smaller footprint store also affords more options for Sam’s/Walmart in terms of where they can open future locations and are especially well suited for urban environments.

As a consumer investment bank, we are keen to see how the retail wars continue to play out as retailers try to find the optimal way to profitably cater to their customers both online and offline.

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