Financial Post

Amazon remains the disruptor-in-chief when it comes to retail, this analyst says

Barry Critchley: Barbara Gray says the retail landscape will continue to get more competitive, as changing consumer preferences and changing demographics take hold


Barry Critchley

December 15, 2017
5:27 PM EST

If senior executives of companies, running either a chain of retail stores or a portfolio of shopping centres, had a few doubts about their prospects then a one-hour conversation with Vancouver-based Barbara Gray, an analyst with, will not allay any of them.

Gray’s message will use some non-traditional language, will be well researched and will be firm: the retail landscape will continue to get more competitive, as changing consumer preferences and changing demographics take hold. In some cases, it may not be a smart thing to continue in your current business because the forces of change are so dramatic. The retail “apocalypse” will get worse, she believes, noting about 20 per cent of U.S. retailers are now rated CCC — way below investment grade.

And chances are that Gray, who was meeting institutional investors in eastern Canada this week, will mention Amazon, the disruptor of all things retail. That company’s ability to disrupt — a theme Gray has embraced for many years with the rise of fellow disruptors, Uber and Airbnb — took on another dimension six months back when it purchased Whole Foods.

“Our thesis is that through the acquisition, Amazon blows open the dam that has been protecting the supplier channel and the structural channel,” said Gray, who was presenting at Agilith Capital. In her group of 289 companies (mostly from the U.S.), the average decline has been 2.6 per cent — which compares with a 18.3 per cent gain for the S&P 500 index.

Most of that decline has occurred in the customer channel, a group of department stores, specialty stores, retail REITS and apparel companies, whose shares are lower by 13.2 per cent.


And Gray, who has just released a book of her reports on the retail world titled Secrets of the Amazon, added companies on the shores of the mighty Amazon “are laden with value traps.”

So what to do? Gray argues “the experience moat” will become the secret for survival. Such a moat differs from the normal economic moat (be the low cost producer, have high switching costs and have intangible assets) that, previously allowed companies to maintain their competitive edge.

“They have to ascend up the customer capital pyramid and the structural capital pyramid,” she said. To be successful, in the former pyramid companies have to move beyond functionality to embrace an emotional — and ultimately — a psychological connection with their customers.

Both Whole Foods (because of its focus on sustainability) and Amazon (because of its mission to become the world’s “most customer-centric company”) have established such a connection.

As a result, Gray argues, other companies can no longer compete on a functional value proposition.

Some companies, including WalMart, Starbucks (which closed its on-line business and which wants to orient its business away from malls), Nike (which is now focusing on the top tier of retailers) and Coach (which after two recent acquisitions and a name change to Tapestry) have embraced the experience theme as have luxury brand companies, such as Tiffany & Co., Ralph Lauren and Chanel.

As for possible investments, Gray said, “apparel accessory and luxury brands,” offer the best opportunities because of “forward integration (the companies own stores) and high margins. You need to reinvest in the experience.”

Inevitably the discussion drifts back to Amazon and its plans to disrupt the  home, office and pharmacy worlds. Gray was upset her book had not been delivered on time.

“This is why Amazon must disrupt FedEx and UPS. Because they have to actually care about the customer,” she added.

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