The first step in online retail success: Accept there are some things that Amazon does that your company could never possibly compete with. Scope of product offering and price are big ones to concede to Jeff Bezos' retail killer.
For fashion start-up Rent the Runway and motorcycle gear retailer Revzilla, the business moats that help to keep Amazon out are constructed using a level of customer service, and creating a consumer community, that would not be possible for Jeff Bezos' low-cost model.
"At the time we started in 2008, we started thinking about how communities worked in retail," said Anthony Bucci, founder and former CEO of Revzilla, speaking at the CNBC Disruptor 50 Road Show in Philadelphia on Oct. 24. He didn't look to Amazon, but to a site called Bodybuilding.com. "We looked at customer service and curated content and community — that was the moat," Bucci said. "Everything else was sold elsewhere. Speed, price and selection were commoditized. Amazon had already won that."
"There was no great [motorcycle] retailer other than moms and pops and flighty online shops, so we started a business to solve our own pain point," Bucci, a motorcycle enthusiast since his teens, said. "We realized all the questions we were asking were questions not being adequately addressed in the market. ... How do we help [the consumers] through the purchase life cycle? Understanding becoming a resource was the origin."
Maureen Sullivan, Rent the Runway's chief operating officer, said consumers are buying more clothes than ever before but of lower quality, lower price and lower use. "In 1990 the average woman bought 40 articles of clothing, and today it is 68 items, but the spend level hasn't gone up," Sullivan said. "Eighty percent of a closet is worn less than three times a year. Amazon is getting you to buy a lot of stuff. We don't want you to buy stuff. ... It does not make sense to own all this stuff."
Rent the Runway, like Revzilla, also learned from early experience with customers what the business could — and should — become if it wanted to create and serve a community that would be loyal.
It started as a model to help women dress for special occasions, "but what customers were telling us was we want to do this all the time," said Sullivan, who spoke on a panel with Bucci at the Disruptor 50 Road Show in Philadelphia. Women wanted clothes to go to work, and for many different-use cases, such as pregnancy, where renting made more sense than piling up "stuff" in a closet. "For us it was how to create subscription for the unlimited closet."
Larger, societal forces helped: The rise of social media and everyone becoming their own celebrity in online images increased worries about repeated outfits, and more urban living led younger professionals to want less clutter in residences. Solving the consumer behavior shift was critical to the company Rent the Runway has become. "For us the subscription model has been game-changing ... from serving customers a few times a year to 120 days a year for the average customer. It transformed everything we do."
Rent the Runway now has physical stores — five covering the cities of New York, Chicago, D.C., Los Angeles and San Francisco — which customers see as an extension of their closet and key to their daily living and time management. "We have to be open as early as 7:30 in the morning for work and have to stay open because they want to come to the store after their SoulCycle class and dinner," Sullivan said. "Traffic to our store is up tremendously. We are trying to use technology in-store to make it as seamless as possible — self-service checkout, anything we can do ... Time is the most valuable asset."
Bucci said even 10 years ago that "Amazon was the great white shark," and the only way to compete against it is knowing what the online giant isn't good at. "Amazon will do the 'I need a brake pad.' I am not angling for that purchase. We want that sale, but it is not important. Amazon won't go the last 10 percent. ... You need to do the final 10 percent that is diminishing returns for Amazon," he said.
That means creating a multi-touch — sometimes multi-month — journey for the customer. "We shifted to become an authority play ... became more like Consumer Reports in our space. That was a marketing tool and super-value-add for the customer," the Revzilla founder said.
There is a universal lesson in this for entrepreneurs. "If you are in B2C [business to consumer], it is great to provide consumers with vitamins, things they love and that make them feel good, but it is way more valuable to be a painkiller," Bucci said.
He is currently invested in GoPuff, an on-demand convenience delivery service. While it is not selling high-end consumer products that may require months of marketing for a consumer to purchase, Bucci said it has been specifically built to do what Amazon can't. Amazon will do a huge business in Prime grocery and deliver in one to two hours, but GoPuff delivers the convenience-store items that consumers most want (plus alcohol) in 30 minutes.
One Amazon advantage even these successful online competitors cannot avoid is the rent on digital advertising, an area in which Amazon continues to gain on Google and Facebook. "The rent on digital advertising is only going to increase every year and get less efficient. ... The pound of flesh that goes to Google and Facebook and you're getting less insight and the cost is only going up, you are deleveraging there," Bucci said.
One way to manage that expense is embedded in these customer-centric, problem-solving business models: making the business so much a part of the customer's life that they come back. In Rent the Runway's case, the move into physical stores is part of that model. "Anyone is naive if they are not thinking about how to future-proof their business," Sullivan, who started her career at Google working on AdWords, said.