This week, San Francisco-based cosmetics retailer Sephora made the bold move of announcing to the world that is was re-launching its website and delivering a new mobile application in an effort to define what the integration of digital and physical selling looks like. While this isn’t the first time that a retailer has used a technology-driven initiative to demonstrate its value in the competitive marketplace, this move was different because it headlined in big bold letters a growing concern in the entire retail world: the “Amazon Effect “.

Sephora’s Announcement

In an April 9^th PRNewswire, Sephora senior vice president Julie Borntein said, “Digital is a must for the future of retailing. With the social, digital, mobile and website updates, we’re giving our clients the most customizable experience in the beauty industry, and connecting clients with our experts in the ways that are most relevant to them. We’re excited to makeover the future of shopping. ” The website features highly attributed products that will enable a more personalized experience for Sephora customers. But the retailer isn’t just creating an “everything you need to know ” content-oriented website. It has also created a community aspect to its offering by enabling easy posting to Pinterest, and has implemented an “endless aisle ” capability to make it possible for consumers to find products anywhere within Sephora’s enterprise. The digital offering also features a store check-in capability and access to instant expert advice.

Beating ‘The Amazon Effect’

What caught my eye about the announcement was that Sephora’s Borntein mentioned the elephant in the room: Amazon. In an April 9 San Francisco Chronicle article, she said, “that question is on any smart retailer’s mind. “

Since Sephora brought it up… RSR will soon publish an “executive prospective ” entitled Beating the Amazon Effect. The paper highlights some of our recent research that points to what retailers are doing, and what they need to do, to remain relevant in an omni-channel shopping environment. Retailers’ fear is that Amazon Effect has marginalized the value of many retailers’ stores, devaluing them to being merely a “showroom ” for products that can be purchased more conveniently via the e-marketplace.

Let’s examine that. The widespread adoption of consumer technologies such as the PC, tablet, and “smart ” mobile phones has created the opportunity for new competition to disintermediate “middlemen ” that have traditionally been part of a value chain. There is no question that e-marketplace Amazon.com has created a new way to connect consumers with solutions, sidestepping retailers that have outdated demand fulfillment models that are bound by physical operating geographies.

It’s certainly true that goods and services that can be easily digitized are prime targets for disintermediation, most notably books, music, and photos. The demise of brands such as Kodak and Borders are the direct result of those companies’ failure to embrace the digitization of their core products and the new distribution channels that digitization created. But not every product can be digitized, and so a second criterion for what makes a product a good target for disintermediation is the extent to which information about the product can be separated from the product itself. One example is consumer electronics: the category is driven by content about product features, community opinions about the product, and finally commerce (price and availability). All three of these facets of the shopping experience can be easily presented via digital channels when it comes to electronics. This probably more than any other factor is what is keeping the executives a Best Buy awake at night.

While not every product or service can be digitized, it’s also true that in many cases information about a product cannot easily be separated from the product itself (how it feels, tastes, or smells, how it works, how it “makes me look? “). Bricks’n’mortar retailers have traditionally added value to the selling process by helping consumers find answers to those questions and more. And that leads to stores’ greatest potential raison d’etre for consumers: shopping is fundamentally a social activity. Given the opportunity, people buy from other people, and “people ” are something that the digital experience hasn’t been able to replicate.

The question is, are retailers doing anything about that? Evidence suggests that the answer is, “not enough “. For example, an April 9^th Retailwire column highlighted the point as it relates to JC Penney: “Back in February in a discussion article on RetailWire, Nikki Baird, managing partner at RSR Research, wrote that new J.C. Penney CEO Ron Johnson had forgotten a ‘P’ (people) when planning the reinvention of the department store chain. In short, Ms. Baird argued that the chain’s store associates were basically divided into two disciplines, ‘cashiers and price taggers,’ and neither had the personnel skills required to offer the level of assisted selling needed to make the new Penney work. “

Competing based on “price ” as the primary value driver is a “race to the bottom “. Retailers’ ability to create an enjoyable and relevant social shopping experience, coupled with the instant gratification that comes from instant fulfillment, remains their greatest potential differentiator. Enabling cross channel capabilities, exposing inventory across the entire enterprise, empowering in-store sales associates to meet customer needs, and proactively managing the relationship with consumers, will enable retailers to build brand loyalty with their customers that is more valuable than merely delivering a low price.

The compelling opportunity for retailers is in blending the best of what the digital realm has to offer with the best that the physical realm delivers. Sephora obviously isn’t waiting for some other retailer to establish the “use case ” that defines the converged digital & physical selling environment.