Amazon’s $13.7 billion move to acquire Whole Foods has been the talk of the retail world since it was announced two months ago. It’s no surprise, since this deal is poised to affect the entire industry in a big way. Shopping habits and accessibility in retail will change. We’ll see more hybrid stores from major chains looking to increase revenue streams from multiple product and service offerings. Retailers will start “buying bigger” to improve pre-existing infrastructures.
With that in mind, here’s a look at three ways the Amazon-Whole Foods acquisition will change the retail industry over the long-term.
There will be more shopper benefits.
The Amazon-Whole Foods acquisition was made with the consumer in mind. Amazon will aim to keep customers satisfied with high-quality products and unique in-store experiences. Whole Foods has already started slashing prices on many of its most popular products, and the company promises that this is just the beginning. To keep up, competitors will have to find ways to meet these same lofty standards, possibly by offering deeper discounts and better loyalty programs. The shopper experience will become an even higher priority, and customer satisfaction a main objective for retailers moving forward.
The acquisition has also put pressure on retailers to cut store footprints and adapt to consumer trends skewing online. Back in April, before the Amazon/Whole Foods deal, Wal-Mart began offering discounts on thousands of items if customers made purchases online and picked up in-store. Amazon has already upped the ante on this concept with Whole Foods. Now, many Whole Foods staples are already available for purchase on Amazon. If their online-centric model proves successful, competitors will likely follow suit.
Similar acquisitions will occur.
Dating as far back as 2010, when Amazon invested $175 million in LivingSocial, a major part of its business model has been making deals to enhance existing businesses, and enter new verticals. That particular investment failed, but the company’s purchase of Whole Foods is an example of this same mindset: buy up an immense scalable infrastructure and improve services. Now, more companies will have to make similar deals if they want to compete. Merging with other stores to own larger portions of a desired space is the best — if not, fastest — way to approach Amazon’s size and scale.
Already, the retail industry has begun seeing an increase in large-scale acquisitions in areas outside the grocery space. Since June, a handful high-profile deals have taken place, with larger companies purchasing smaller e-commerce businesses to claim increased online market share. Walmart bought Bonobos for $310 million, while QVC purchased HSN for $2.1 billion, making it the clear leader in home-shopping. Also, Michael Kors bought luxury retailer Jimmy Choo for $1.2 billion, giving Kors a leg up in the luxury world.
And this is likely only the beginning. Retailers can expect other, like-minded companies to take note and potentially make similar deals down the line.
The next step for Amazon: apparel?
When the Whole Foods acquisition is finalized, Amazon likely won’t wait long before planning out its next purchase and based on some of the company’s past and current moves, apparel seems to be the area of interest. Earlier this year, Amazon was in talks to buy American Apparel after it declared bankruptcy. Although this never materialized, the fact that it was considered proves Amazon’s interest in the space. It’s speculated that Amazon’s desire to move into apparel will intensify. According to Maxim Group Managing Director Tom Forte, companies like clothing startup Everlane, Warby Parker, and Lululemon could become potential targets.
Should Amazon make an offer to buy any of these well-known companies, the apparel industry will see the same shakeup that the grocery space has seen in the last few months. Competition will scramble to keep up, while Amazon will have another revenue stream to integrate with existing technologies for increased growth.
Further evidence of Amazon’s interest in apparel can be attributed to the new Echo Look camera — equipped with the company’s Alexa voice assistant — that gives users advice on their outfits. It also effectively opens the door for the marriage of Amazon’s e-commerce capabilities with AI to transform the shopping experience yet again.
With the Amazon-Whole Foods deal now official, the retail industry will have to pay close attention to the deals being made, customer benefits and what’s next for the Amazon. It’ll be interesting to see all the new ways this acquisition effects the industry in the coming years.