Can ShopRunner Rescue Retailers From Amazon?

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The steady assent of Amazon has proceeded with few hiccups over the years. As retail consultant Jim Tompkins points out, if you count sales Amazon facilitates through its third-party marketplace, it actually moves more goods per year than the all-mighty Walmart—and is growing at a much faster pace. In the face of a competitor that large, which sells nearly everything, has huge costs advantages due to scale and lack of physical locations, and isn’t terribly concerned about profit, traditional bricks-and-mortar retailers have long been scratching their heads figuring out how protect their businesses.

Leading the charge in their defense: Scott Thompson, CEO of ShopRunner and the former Paypal executive who was also briefly CEO of Yahoo before being ousted due to inaccuracies on his official resume. Thompson, who was hired by ShopRunner in July of last year, is now making an effort to turnaround his career as well as transform ShopRunner into a more actively consumer-facing company coming to retail’s rescue. It received a boost last week, when Chinese ecommerce giant Alibaba along with American Express announced a $200 million investment in the company. That is likely to give ShopRunner a better chance of taking on Amazon.

ShopRunner charges its members $79 per year or $8.95 per month for customers to receive free two-day shipping and free returns from a network of more than 80 stores, including American Eagle, the NFL shop, Radioshack and Brooks Brothers. In return for helping to expand it’s online business, these retailers forgo their usual shipping charge and also give ShopRunner a commission that ranges from 3% to 5%.

The main reason, Thompson argues, that retailers are willing to partner with his company is because he is able to deliver some of the web’s most valuable shoppers. Just as Amazon has learned with its wildly successful Prime program, customers who are willing to spend $79 per year on free, expedited shipping are the type prone to shop online the most. These consumers are also likely to shop online even more if  provided with free shipping. Consumers who visit a partner retailer through Shopprunner, “come to the site more frequently, purchase things more frequently, and buy more stuff per visit,” than the average customer, Thompson says.

This is of course, is exactly what Amazon realized when then launched Prime. Especially as its added perks like free streaming movies and its Kindle Lending Library, Prime has become more of a loyalty program. It convinces shoppers to move more of their consumption online and toward Amazon-owned services specifically. Is there really room for more than Amazon Prime? “We can peacefully coexist, and do it with a lot of overlap between businesses,” Thompson says—adding that more than 50% of his customers also have a Prime membership too.

Why so much overlap? The key is in what Amazon is good at providing it’s customers and what it isn’t.  While Amazon is able to offer a dizzying array of goods at rock-bottom prices, it’s not always the best place to go for exclusive brand names and luxury goods. Says Thompson:

“If this is a shopping experience that you want to get some entertainment and fun from, and that involves brands, and increasingly that involves luxury brands, well it’s highly unlikely you’re going to be able to find those things on Amazon.”

While its true that many luxury retailers have fought the gravitational pull of Amazon as they try to avoid the commoditized feel of the Amazon shopping experience, Amazon has made inroads into this area. It, too, has increasingly been offering luxury goods, and even launched its own luxury beauty store earlier this month. But Thompson thinks his company has the advantage in this regard because its much more focused on sending business to its partners than creating its own marketplace like Amazon has.

Given this reality, it’s really hard to pin down exactly what kind of company Shoprunner is. Thompson says that it depends on what point of view its taking. If you’re a retailer, he says that you should view ShopRunner as another tool to help drive sales to your store. For consumers, it’s a service that makes online shopping easy, convenient, and cheaper if you’d be spending more than $79 on shipping each year.

But at its core, Shoprunner is  a technology company that, much like a Google or an Airbnb, serves as a meeting place for customers and vendors to meet each other. And these sorts of companies have grown enormously powerful in the over the past decade, because these companies are really building a technological infrastructure for facilitating other parties commerce. Such a business model benefits tremendously from network effects: the more people join the network the more appealing the network becomes for others to join. And that’s what ShopRunner is trying to build: a matrix of highly valuable online shoppers and the retailers who need an easy way to reach them.

This, one suspects, is the real reason a powerhouse like Alibaba is so interested in ShopRunner. Shoprunner says it has 1 million members and that number has grown more than 100% over the past year. If it can continue to grow at such a pace, or somewhere close to it, the firm will quickly amass a treasure trove of information about the web’s most valuable shoppers. Thompson remains mum on what the company’s plans are for leveraging such a network, but says its value is obvious and will be a great launching pad for new and interesting products to keep members satisfied. Says Thompson, “Nobody inside ShopRunner, including me, thinks we can rely on only the products and services we have today.”