In a world where people change dating partners seemingly as often as they change underwear, one trillion-dollar company has convinced tens of millions of consumers to commit to a monogamous relationship—and that’s among the key factors responsible for Amazon’s stunning success in retail.
The rest of the retailers out there might grumble about the deck Amazon’s stacked against them—is it really fair to subsidize your retail business with a money-printing cloud unit?—but at NRF Monday, Gartner L2’s Scott Galloway said the e-commerce giant’s pivot to Prime memberships was truly a stroke of genius.
“Amazon wanted out of this terrible business called retail and got into a recurring revenue relationship with two-thirds of American households,” he said. “If you look at companies that are adding extraordinary amounts of shareholder value, I would argue that the majority of them have this recurring revenue bundle central to their propositions.”
Meanwhile, the majority of American retailers are stuck in volatile, “dating” relationships, according to Galloway. “You’ve got to figure out a way to convince your consumer not to go to the bigger better deal down the other end of the bar and come back into your store.”
Galloway predicts that the recurring revenue bundle, or “rundle” as he awkwardly calls it, will be among 2019’s biggest trends—and retail’s best hope for survival and success in what he describes as a low-growth environment.
Recent brand moves confirm this budding interest in locking customers into loyalty-driving membership programs. Bloomberg reported in December that Lululemon plans to expand a $96 membership plan it’s been trialing in Canada, though “strong initial demand” could force up the annual fee, CEO Calvin McDonald said.
In the high-purchase-consideration category, Restoration Hardware now sees 95 percent of its transaction volume flow through a newly launched membership program, which is credited for lifting revenues 70 percent. Not coincidentally, the home furnishings firm’s stock is up 100 percent since the program went live, Galloway noted.