Exec Playbook: How Retailers Earned Billions by Copying One Thing

I’m coming fresh off the Shoptalk '24 Conference in Vegas. Over the past week, I’ve learned about cutting-edge innovations, the latest in AI/ML, and a slew of 'wicked smart' technology advantages.

In addition, I also learned that many of Retail’s largest and most successful companies have earned billions simply by observing and copying just one thing from their competitors.

Too simple to be true?

Billions?

Is that a typo, did he mean Millions?

Nope. Billions, with a capital B.

Let’s dive in.

On a Friday morning in 2001, Amazon Founder, Jeff Bezos was having breakfast with Costco Founder, Jim Sinegal.

Upon returning from breakfast, Bezos called an emergency meeting with his Executive Team.

As a result of that breakfast, Amazon overhauled its entire pricing model strategy and unveiled a new subscription service called Amazon Prime.

Present day: In 2022, Amazon Prime generated $35.2 Billion in revenue for Amazon. Talk about a game-changer.

What did Bezos learn at that fateful breakfast? He learned the ultimate value of Costco’s subscription membership offering —it is customer loyalty.

Retailing in the marketplace is one of the oldest professions for humans.

Oddly enough many once-top retailers end up in bankruptcy.

They cite many varying reasons, but, there is a simple and underlying causation-- their customers no longer choose to shop there.

Does anyone remember K-Mart? Sears? ToysRus? All once-dominant retailers that are no longer in business.

Interestingly enough, one of the founders who realized and capitalized on this phenomenon early on was based in the small town of Bentonville, Arkansas.

A man named Sam and a little company called, Walmart.

“Most everything I’ve done I’ve copied from someone else, but I did it with more fanaticism.” - Sam Walton

Walton wasn’t an inventor, more so, he was a competitor who wanted to win.

He wanted his customers to have the best variety, so he would consistently find other retailers, copy what they were doing, and bring the 'new thing' into his stores.

“I would go into stores, introduce myself as Sam Walton tell them that I own a few stores in Arkansas and I wanted to speak with the owner. More often than not, the owner would come out and I would ask them questions until I understood everything about their business.” - Sam Walton

Walton understood that by creating big stores in small towns he could deliver exceptional variety and selection to his customers.

By keeping their internal costs low, he could deliver exceptional pricing.

The end result was delivering unprecedented value and variety to his customers, while simultaneously eliminating the smaller competitors in each town.

Walton didn’t invent discount retailing; he simply saw the trend coming and executed it better than anyone else. There’s a powerful lesson here.

Ironically, Walton said that his driving fear was that it was only a matter of time before K-Mart caught on and started competing with a similar strategy. However, by the time they caught on, it was too late.

Walmart Market Cap: $492B. K-Mart: No longer exists.

Next, enter Sam’s Club. Sam's is a Walmart-owned membership warehouse that is “highly influenced” by CostCo.

Highly influenced being the most generous term.

Jim Sinegal, Founder of CostCo was highly influenced by a man named, Sol Price who founded the first membership discount warehouse, FedMart

Key Themes for Membership Warehousing:

·       Jim Sinegal, a former FedMart Executive and Sol Price protégé founded Costco in 1983.

·       He recognized the success of the membership model and applied it to the general public.

·       By charging a subscription membership fee, it enabled CostCo to sell merchandise near wholesale pricing.

·       By giving customers less choice in SKUs or what he called the intelligent loss of sales. Sinegal was able to keep prices low by dealing with fewer product sizes and fewer suppliers.

·       This also enabled the creation of the internal private label, Kirkland, which was in response to suppliers who wouldn’t fulfill specific requests.

·       And of course, significantly higher customer retention and loyalty.

    CostCo current market cap $325 Billion.

Picking up what they are laying down here?

Not to be out done, let’s tie this all together with some strategic principles from America’s largest Retailer and list a few insights from Mr Bezos himself.

Amazon:

Jeff Bezos founded Amazon in 1994 with a plan to create an online retail store, he started by selling books. Why books?

• There are more book SKUs (translation: more books) than any other products than any other category by far.
• A person doesn’t need to touch, taste, or smell the book to make a purchase.
• It was the perfect product to test this new medium called "the internet" to see if consumers would actually transact on it.

It's worth mentioning that Sam Walton's autobiography is required reading for Amazon Executives.

And although much of Retail is driven by fads and trends, Bezos mandates that his leadership teams focus on things that will not change in 10 years from now.

A helpful mental model to think longer-term and not get distracted by fads is captured by the quote below.

“We know our customers want low prices. They want fast delivery and they want vast selection. I can’t imagine a scenario where someone says to me, I love Amazon, but I wish it was more expensive or I wish you delivered more slowly. We focus on these areas.” - Jeff Bezos

Amazon's current market cap is $1.82 Trillion.

A few takeaways:

·       Study the successful people in your industry. Meet leaders in your field. Read biographies and make friends with the imminent dead. They've had a lot of great ideas and they don't need them anymore.

Observe --> Learn --> Replicate --> Iterate.

·       Each of these leaders focused on a niche to serve their customers and then expanded as the niche proved successful.

o   FedMart succeeded in piloting a discount military membership club.

o   Walton focused on being a better operator. He put the odds in his favor by opening big stores in small towns.

o   CostCo discovered the public would be interested in discount membership clubs, that they would pay to shop there and customers would buy the large quantities offered and create a hugely loyal customer base.

o   Bezos learned that once his customers trusted “the internet” to buy books, he could sell them anything, literally. Once Amazon Prime was implemented, customer loyalty skyrocketed, making Amazon the dominant retailer of our generation, for now…

In addition, these leaders didn’t stop once “it” started working. They each continued to iterate and implement best practices from other competitors.

These leaders were obsessed with creating value for their customers by saving them money while delivering the highest value, at scale.

As the leader of an enterprise in a consistently changing landscape, your job as the leader is to ensure you are positioning your company to be atop of the next upcoming secular wave.

Are you seeing the secular shifts (i.e. discount retailing, membership model and eCommerce) as opposed to fads? Are you focusing on business initiatives that will serve your customers now, but also in the future?

These leaders each had the ability to see the large secular waves on the horizon, they each observed that other competitors were doing it differently or better than they were, and each one relentlessly implemented these “borrowed” concepts to create their own unique brand and identity.

Who would have thought that Billions could be made by paying attention?

“Good artists copy; great artists steal.” – Pablo Picasso

Thanks for reading,

Dustin