Retail Rundown: All Eyes on Big Tech – With Sucharita Kodali and Mina Fader

Sucharita Kodali:
Hello and welcome to The Retail Rundown. I’m Sucharita Kodali, and I’m here with Mina Fader. Mina is the managing director of the Baker Retailing Center at the University of Pennsylvania. We’re so excited to have here her here with us today. Thank you for joining me today, Mina.

Mina Fader:
Thank you so much. I’m looking forward to an interesting conversation.

Sucharita Kodali:
Great, great. And for those of you who don’t know me, I am an analyst at Forrester and I cover retail and all things eCommerce. So speaking of which we have a lot to talk about with respect to news about Amazon this week. There’s been a lot of big news coming out about that company. Let’s actually start with the biggest headline, which was a fairly scathing report released by Reuters. As many of you probably know Reuters had a story not too long ago claiming that Amazon has for years given preferential treatment to a small group of sellers in India, and use them to circumvent the country’s foreign investment rules.

Sucharita Kodali:
So according to the documents released by Reuters 35 of more than Amazon’s 400,000 sellers in India accounted for about two-thirds of its online sales in 2019. So let me just repeat those numbers for emphasis. 35 sellers generated two-thirds of the gross merchandise value on Amazon. Amazon had 400,000 sellers at the time. So clearly there was some pretty disproportionate concentration of power there.

Sucharita Kodali:
The report also revealed that Amazon helped Cloudtail, a seller in which it has an indirect equity stake to cut special deals with big tech manufacturers, such as Apple. And last week, a leading India trading trader group, representing tens of millions of bricks and mortar retailers called on the Indian government to ban the local operations of Amazon. So, Amazon, for what it’s worth, retweeted the Reuters report and criticized it as unsubstantiated, incomplete, and factually incorrect. So a ton to unpack here. Mina, what do you think of these allegations?

Mina Fader:
Well, first of all, I haven’t, I don’t know if you have, read all of the details in the 2012 to 2019 findings reports. And I’m reading pretty much everything that is out there in the press and what Reuters has put out. But on the face of it, it looks like there’s a lot going on. It’s hard to imagine that 35 sellers would have that kind of impact on Amazon sales. On the other hand, when you take a look at what has happened in India and the kind of restrictions that the government has put on a lot of these things that Amazon has done, and even in the timelines that I’ve seen from Reuters, it looks like these things happened before some of these restrictions were put in place. And so there’s a question in my mind of what is illegal versus maybe what may be unethical and in terms of how people may run their businesses, but I think that’s really the line that I am questioning on this.

Mina Fader:
There’s no doubt even here in the United States while the model is different than it is in India, Amazon has worked very hard to be the dominant player in the eCommerce world. And as a result of that, I think many of these smaller retailers and smaller brands have been very concerned about Amazon’s role, and how they play in business. And this may be a similar kind of story. Although this expose, if we can call it an expose, seems to indicate that there may be something more.

Sucharita Kodali:
I would definitely call it an expose. And what I thought was interesting if I recall from the Reuters story, that this actually was a leaked internal document. That’s where I thought the credibility came from was that this was something that they had showcased internally. It wasn’t like, oh, this was information that some cartel group had unearthed in due diligence. I mean, this was part of their internal strategy that they were trying to continue to defend which is continuing to push transactions to some of these large sellers. Which I thought was really interesting, but I hear your point, Mina, which is that is this illegal if there isn’t something explicit…

Sucharita Kodali:
Well, the part that could have been potentially the illegal part is if they actually had ownership in a company where they were supposed to have a hands-off relationship. What is different between India and the United States and a lot of other countries is that you cannot be both a first and a third party seller in India. In the United States, however, you can be. And did look like potentially there was some maybe violation, but we’ll have to hear what the courts have to say about that.

Sucharita Kodali:
I do hear what you’re saying, though, which is that, is the concentration so terrible I mean, how can you prevent that? But this is where I think the heart of all of the antitrust legislation around the world is coming from. And one of the most interesting things I observed from that Reuters article is the tweets about it. And the number of retweets that actually came from people who were either in the FTC, or had relations with the FTC in the United States, or had some hand in the House Subcommittee for Antitrust that had the big report that they released on the four big tech companies last fall.

Sucharita Kodali:
And that’s what was interesting to me is that it’s actually really hard to get this kind of data on how concentrated the powers of some of these sellers are. And if there’s an internal document that actually showcases it and showcases potentially flexing power for the kind of in exchange for getting access to certain merchandise. It does beg the question of, do we not have enough antitrust regulation or is the anti-trust regulation that we have not being applied in the circumstances that it needs to be applied?

Mina Fader:
It really is a very big question to me because when you take a look at what Amazon put in, and when we take a look at the leak sources, they say things like test the boundaries of what is allowed by law. And it really is a very, very big question about whether we need to revisit what our antitrust laws are and what the purpose, not only here in the US, but everywhere.

Sucharita Kodali:
Yeah, one of the things that I think is so interesting about this is of course kind of Amazon’s interest in India altogether. India is an emerging eCommerce market. Amazon actually struggled in China, which was probably the other big market that if they had their druthers, they would have loved to have won. No American technology company has managed to make big inroads there, maybe Apple, but the others like Facebook, Google, and Amazon have not.

Sucharita Kodali:
In spite of the fact that Amazon in China actually had more warehouses at one point than it didn’t all of Europe. Now that is, I think part of the reason that there is such an interest in India is this belief that India could be as big, could potentially be as big as China from an eCommerce standpoint, China’s now the largest eCommerce market in the world.

Sucharita Kodali:
And this is partly why I think they have their eyes on this market. And it’s very, very interesting that there’s a little bit of, kind of not necessarily playing entirely by the rules to get there. Which one could argue is the way that things get done in India. It’s known for kind of not necessarily being the region of the world, that’s the easiest to do business in, in general. So, I think that that would probably also, that would probably be the other piece of the devil’s advocate argument, which is look like if you probably looked under the hood at some of the other marketplaces there, they may very well be doing some things that are not that savory either.

Mina Fader:
Well, and there’s no doubt that Flipkart is another one, and they’re not mentioned nearly as much as Amazon in all of this. But it sounds to me from what I’ve read, that it’s both Flipkart and Amazon that are being investigated by India. Flipkart is an Indian company. I know that Walmart now has had a stake in this, but Flipkart is an Indian company. And I actually am surprised to see how much Amazon has in shares or in revenue dollars over there. Because I had always thought of India as being a market that would be difficult for an Amazon to get into, or an outside of India company to get involved in. And I guess this is how they’re doing it.

Sucharita Kodali:
Right, right. It’s a very, very protectionist country. It is a country that demands a significant amount of in-country ownership and does not like kind of foreign foreign companies coming in, and having any dominance in that market. And that’s been the way since you partition as far as I know.

Mina Fader:
And I see this as clearly, this is an issue that’s originated in India right now. And that’s the topic here. But I do think in general, the idea of these smaller retailers and smaller businesses actually having the power, the purchasing power in order for them to be able to be successful when a big behemoth, regardless of how they come in there and how they do this, comes into your marketplace, I think is a theme that you hear over and over again, regardless of the country. And I think that is for me a very big issue overall, how do these small businesses actually survive?

Sucharita Kodali:
Absolutely. Absolutely. And what’s so interesting about what you just said is seemingly playing itself out in other marketplaces too. And I’ll give a couple of examples. You may have followed the Facebook news drama over the last few days in Australia where the Australian government basically decided to cut off or decided that news links would have to be compensated. So Facebook just decided to cut out all news links.

Sucharita Kodali:
And the by-product of that were claims that a lot of the small news purveyors would really, really suffer when in fact what actually happened was there were a number of people that came out and said that, “Well, some of our news traffic went down, but we actually saw subscriptions go up.” And something similar happened with Airbnb. There was an article in the New York times about how Airbnb just didn’t give refunds back to a lot of hosts that had pandemic cancellations.

Sucharita Kodali:
So some of them are now just going out and independently capturing bookings, which I think is really an interesting trend that we may start to see in the next decade. Which is that the past decade was about being reliant on these aggregators. Often they were kind of wolves in sheep’s clothing. They were presenting themselves as these friendly partners that were there for the little guy, but really kind of once you are dependent on these networks, it’s very, very difficult to, to kind of go back and do things on your own.

Sucharita Kodali:
But what I think is happening is that these small purveyors are realizing that they cannot afford to be dependent on the large aggregators and they do need to leverage other partners and diversify their revenue sources. And I think that that’s what we’ll start to see in the future. And that’s probably, absent antitrust kind of enforcement that either breaks some of these policies or kind of forces change, I mean, that’s all that we have left is sellers rebelling, basically.

Mina Fader:
Yeah, but for these smaller people, smaller organizations, it’s very hard for them to get their brand out there and for them to be known. How would I know to go to so-and-so’s home that would be available for rent, unless I had a place like Airbnb for me to go and see all of these different properties. I mean, once you get established, I think it’s a different story. It’s a little bit of a chicken and egg situation. Because you don’t want to go out on your own because you’re not going to get people. But at the same time, if you go through this aggregator, then there are these other issues. And so it’s a tough situation for them.

Sucharita Kodali:
Yeah, true. That is definitely true. And that’s where Google should be stepping up to provide an alternative, but remains to be seen how well they will actually do that. That brings me actually to another story over the last few days that is Amazon adjacent. And this is about a competitor of Amazon Go called Standard Cognition. It raised a whopping $150 million series C round. And in fact, like literally the day of the announcement, the CEO and founder had like a clubhouse session for like an hour talking about the business and camera vision.

Sucharita Kodali:
But for those of you who may be unfamiliar with the company standard cognition provides the only autonomous checkout solution that can be quickly and easily installed in retailers’ existing stores, at least as far as they claim. Standard is currently working with several retail groups to outfit, hundreds of checkout-free stores with the goal of more than 50,000 in the next five years. Again, according to their website. Now three years ago, much of the narrative around checkout-free stores was that retailers should not rush into something consumers weren’t ready for yet. But we’re now seeing retailers, including Giant Eagle, Aldi as examples, experimenting with checkout-free formats. Mina, are consumers finally ready for checkout-free stores?

Mina Fader:
So three years ago there was something that never happened, that hadn’t happened yet. And that was this pandemic. And I think what’s happened during this time period, is that a lot has changed, especially with regards to consumers’ willingness to accept technology., The idea of contactless payment systems. The idea of not really interfacing as much with a sales associate because of all these things that have happened has really gotten the consumer… Maybe reluctantly but they’re more open to these ideas and they’re more open to glitches in the system than they were before. So I think on the one hand, maybe people are ready to go ahead and try these things out. I think what I like about the Standard Cognition system, which seems to be a bit different from the Amazon Go one.

Mina Fader:
When I first went to an Amazon Go again, it was pre-pandemic it almost felt like I was stealing something because you actually don’t go to any kind of a register. You just take your stuff and you leave. Whereas it sounds like with Standard Cognition, there’s still a mobile wallet payment systems like checkout area that you need to go through. So that may be a little bit less of a transition than the other things that have happened. But I do think the consumers are ready to go ahead and do it. I don’t think that it means that it’s going to be a significant reduction in the number of employees that there are in these stores because you still need them for customer service things. People still want to see people. It just may be the checkout process would be different.

Sucharita Kodali:
Right, right. And thank you for explaining that difference. I was just going to ask you, well what do we know about the way that Standard Cognition actually works from a customer experience standpoint. And I agree, it doesn’t seem like any of this necessarily reduces the amount of labor that you may need in a store because none of these guys actually have robots that do replenishment. I mean, you still need somebody to come and put stuff on the shelf or clean up the shelves and make sure that they’re looking neat. The other question that I had is about costs. When we looked at the cost of implementation and these are for the most part in small format stores or in sections of the store, there’s a deployment that I think Grabango has in a Giant Eagle.

Sucharita Kodali:
And it’s only in like a certain part of the store and these are just pilots. But even these tend to be at the lowest cost, like a few hundred thousand dollars and at the highest well, over a million, which when you think about rolling that out to like 50,000 stores, which is what standard cognition is talking about, we’re talking major money. And I don’t know who’s going to pay that. Mina, have you heard an appetite for this kind of investment, especially in low margin, consumer goods categories.

Mina Fader:
Yeah, not at all. I mean, I guess the thought here is if you’re going to go ahead and do so many of them, maybe there’s some scale that’s associated with this that will help reduce the cost. But how much will those reduce the cost? That’s the big question that’s out there. You still have to go ahead and install and technology is very expensive. So no doubt, that’s a question. But from a consumer standpoint, I think people will be more ready for it. I don’t know if the retailer is willing to pay the expense for it, but that’s a different question.

Sucharita Kodali:
Right, right. Just to play Devil’s advocate, I mean, there’s a lot that as consumers we’re ready for. We’re ready for a better healthcare experience. We’re ready for a better education experience. There’s so much that the consumer is ahead of kind of the solutions we currently have. But unless somebody is willing to step up and, and invest in it I think that that’s the question.

Sucharita Kodali:
Some scenarios that I’ve run across, because we’ve been really researching at Forrester the idea of autonomous retail and other solutions. There are camera vision shopping cart solutions. There are camera vision, tabletop checkout devices. There’s a company called Caper, they have both a shopping cart that kind of calculates your total in the cart and has a screen that can showcase the total. They also have like a C-store deployment where literally you can just put like your items on this shelf and it recognizes what it is.

Sucharita Kodali:
And you don’t need a cashier to actually do anything. And it’s even a little bit less friction than even a self-checkout kiosk where you’d have to scan everything in. So it’ll be interesting to see. And maybe some of those interim solutions or the hardware solutions that are not quite as expensive as several hundred thousand dollars, but kind of maybe something that’s like $10,000, maybe more palatable for a merchant.

Mina Fader:
Especially if you think about right now, this whole drive towards food delivery and grocery delivery. I mean, how many people are actually going into the store where they’re actually paying for the items. And so then you really have to question whether the investment is worth it because I’m not sure how many consumers are going to continue to see this as a convenience factor. Because they’re not going into the grocery stores to buy.

Mina Fader:
I mean, that’s one area where I’m really surprised. I personally like to go and feel my produce and do all that stuff. So I have not really embraced that, but most of the people that I know of, and I get that I might not be in the majority of the population. They’re doing the grocery delivery piece. So they don’t meet any of this kind of a contactless checkout system because they’re doing it all from the computers and the stuff is just showing up.

Sucharita Kodali:
Right, right, right. So I’m going to ask you two more questions and then we’ll wrap up. Mina, what are you hearing about consumers going back to stores after the pandemic? Where we’re hearing that the vaccines continue to get disseminated. The people who seem to have the vaccines are, wouldn’t say quite resuming kind of things as they were before, but there’s certainly a sense of relief. Do you think that people are going to head back to stores as soon as the fall?

Mina Fader:
I do think that people are going to be going back. Right now I think everybody is just wanting to have human interaction. So going back to the stores is one piece of it. But I also think that what they’re going to expect from the stores are going to be different. I really think that the idea of going to the store to get expertise from a sales associate and not just go to the store to actually just to buy.

Mina Fader:
But it really is to gain information, it is to try on. Although I think the try-on piece is going to take longer because I think people are still nervous about that with, or without the vaccine. It might be a little too early for that. But I do think that people are going to want to have that kind of social interaction that they’re really just missing right now. And I think that’s in all forms of life.

Sucharita Kodali:
Right. Right. And to your point about trying things on, so I’ll just share with you an observation. So TJ Maxx shut all of their dressing rooms kind of as soon as the pandemic happened and when they opened stores again… Well, they closed stores in the spring, in the United States. And then kind of did not allow the fitting rooms to be opened after that. And what has been so amazing is that even in spite of the fact that they don’t have the fitting rooms open and they barely have an eCommerce site or an eCommerce site that’s kind of not really kind of a substantial effort on their behalf. They, in their last quarter only reported a 10% decline in sales, which I thought was extraordinary because most of those declines seem to come out of Europe and Canada, less the United States.

Sucharita Kodali:
And so they were surprisingly resilient for what it is. Which I think is kind of a little bit of maybe a kind of a look into the future of the fact that maybe some of our strongest stores do come back and they come back just fine. My second question for you, Mina was about camera vision overall, and Standard Cognition obviously is a camera vision solution. I think that you and kind of think it’s interesting. But whether or not retail is the use case, that’s the most financially viable, whether or not it has the ROI in retail, I think still remains to be seen. Have you heard of any other use cases, either in retail, back office, anything else, even outside of retail that could be game changers?

Mina Fader:
So people keep talking about camera vision as being stuff in terms of inventory control and those kinds of things. And perhaps that may work, it may work well in a warehouse environment and things like that. I just think in a consumer-facing world, it’s not a place where, you said it. From an expense standpoint, it’s very high. I don’t see the value of it that way. And I do wonder we’ve got to try all these technologies out right now and see what’s going to stick and what’s not going to stick. And I’m not sure if that’s going to stick at least in a consumer kind of environment for now.

Sucharita Kodali:
Yeah. Agreed, agreed. Well, this has been a fantastic conversation, Mina, thank you so much for joining us at the Rundown and thank you to everyone who tuned in this week. Is there any way to follow you or get your information, Mina, that you publish, that you research that you want to communicate?

Mina Fader:
Sure. Everybody should go to the Baker Retailing site. We are www.bakerretail@wharton.upenn.edu is our email address. And you can also go to our website as well. But I look forward to hearing from people and look forward to this conversation continuing on. Thank you so much Sucharita.

Sucharita Kodali:
Absolutely. And for those of you who may want to learn more about Forrester, we have a blog. You can also follow me on Twitter, LinkedIn or on Clubhouse. Thank you so much.