Yaniv Sarig, President and CEO of Mohawk Group Holdings, Inc.
By Yaniv Sarig
For any retail executive, a simple glance at sales trend reports can cause massive handwringing about the state of the retail industry.
And for sure, there is reason for some of this doom-and-gloom. On the surface, the statistics can be daunting. In the first three months of 2019, nearly 6,000 retail stores closed (exceeding the number that closed in the entire 2018 calendar year). And department store sales are down 5.5% since last year, a further decrease from an already difficult climate.
But this story is incomplete. The challenges faced by brick-and-mortar locations actually distort the overarching retail reality. To wit, retail sales have actually increased over 3% over last year, which had already exceeded $6 trillion in spending according to the U.S. Census (nearly $2 trillion more spending that the pre-recession high in 2007).
Consumers are still spending. It’s where they prefer to spend their hard-earned money that has changed. Online retailers continue to thrive, with sales increasing more than 14% in the last year. The U.S. Commerce Department estimates that retail sales online increased threefold between 2000-2018 (with department-store sales decreasing nearly 50% in the same time period).
And no online retailer has achieved greater success in meeting the needs of the modern retail shopper than Amazon.com Inc.’s Marketplace. Rather than simply relying on a traditional vendor-based platform (where Amazon buys products wholesale from brands, holds inventory, and marks up the products to sell to consumers at a retail price), Amazon has developed a hugely successful second-business model. Their seller-central platform offers an open and innovative marketplace, where Amazon allows third-party brands (like those developed by Mohawk Group) to sell direct to consumers (D2C) using their e-commerce platform. And the growth within this new marketplace has been staggering: According to Jeff Bezos’s last shareholder letter, more than 58% of the physical gross merchandise sold on Amazon today is attributed to independent third-party sellers.
(The trend isn’t restricted to the U.S. – Similar platforms exist in China with Alibaba Group Holding Limited, JD.com, Inc. Pinduoduo Inc. as well as Latin America with MercadoLibre, Inc.).
Why such success? It all lies within Amazon’s consumer-centric promise. Compared to traditional retail–which favored the interest of retailers and conglomerate brands–Amazon’s marketplace has leveled the playing field by creating infinite and transparent shelf space, all organized based on their algorithm’s learning of what customers actually want and how much they are willing to pay for it.
From a consumer perspective (in the areas they find most important), let’s compare the Amazon marketplace model to traditional retail:
Traditional Retail – offers limited shelf space favoring the world’s largest brands, regardless of customer preferences
Amazon’s Marketplace – an open platform listing tens of millions of products for consumers to choose from
Traditional Retail – prices are set in advance by the brands and retailers, without digital tools for consumers to compare product features and satisfaction levels
Amazon’s Marketplace – customers have easily-available data to compare features and prices, forcing brands to build the best products to address consumer needs at competitive prices
Traditional Retail – without readily-available consumer feedback, mediocre products from big-name brands can continue to sell for years in the physical brick-and-mortar retail store
Amazon’s Marketplace – Amazon’s review system is critical to the marketplace’s added value, allowing consumers to transcend the promise of quality associated with a brand’s name by default
Traditional Retail – stuck with physical spaces that are difficult to transform, product and environmental cycles can’t match the speed at which consumer preferences evolve
Amazon’s Marketplace – Amazon’s massive investment in supply chain and their constant chase towards faster and more efficient shipping gives them an enormous consumer advantage
Which channel would you expect consumers prefer to engage with? It’s not that there’s anything wrong with retail, it’s just the power dynamics have changed. Armed with access to data and more convenient shipping, customers are more empowered than ever to make educated choices.
And the retailers that embrace these changes to the retail status quo are more poised than ever to succeed.
Yaniv Sarig is a co-founder of Mohawk Group, Inc. and has served as a director and President and Chief Executive Officer of Mohawk Group, Inc. since June 2014. Prior to co-founding Mohawk, Mr. Sarig led the Financial Services Engineering department at Coverity, a leading software startup providing code quality and security solutions for top financial institutions and hedge funds in New York including NYSE, Nasdaq, JPMC and Barclays, from April 2012 to April 2014. Before joining Coverity, Mr. Sarig held lead technical roles at Bloomberg from October 2011 to April 2012 and EPIQ Systems, Inc. (Nasdaq: EPIQ), a legal process outsourcing company, from February 2006 to October 2011. Prior to moving to New York City, Mr. Sarig lived in Israel where he held various software engineering roles at startups from various industries including companies involved in digital printing solutions and military navigation systems. Mr. Sarig also served in the IDF Special Forces from November 1995 to November 1998, where he obtained the rank of Sergeant First Class. Mr. Sarig holds a Bachelor of Science in Computer Science from Touro College, is fluent in English, French, Hebrew and C++.
John Jannarone, Editor-in-Chief