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Warren Buffett offers sage advice in the age of Amazon

Dec 07, 2017
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So, a 500-pound gorilla has just lobbed into town intent on destroying your business.

Or, as former Wesfarmers boss Richard Goyder once famously remarked, “eat all our breakfasts, lunches and dinners”.

Amazon, the world’s biggest online shop, is finally here, and although it’s been an inauspicious start, with a limited range and surprisingly higher than expected prices, make no mistake — it means business.

Local retailers who have breathed a sigh of relief this week may be thinking differently in a year or two when Amazon is fully up and running in Australia.

Which begs the question: If you’re in Amazon’s headlights, what can you do?

For Warren Buffett, arguably the world’s shrewdest investor, the solution is simple.

Retail is not just about price, it’s about customers. And don’t just satisfy your customers, delight them.

As Mr Buffett told a business symposium in New York:

“Tomorrow morning, when you look in the bathroom mirror, just put in lipstick, or whatever, on the mirror, just put, ‘delight my customer’.”

And the man affectionately known as the Oracle of Omaha should know.

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Mr Buffett took over Berkshire Hathaway in 1964 and has turned it into a company which is now worth more than $600 billion.

Each Berkshire Hathaway share trades at $387,000 (and that’s not a misprint!!).

He’s clearly delighting his customers.

Berkshire knows how to run a shop

What separates Berkshire Hathaway from most investment companies, though, apart from its outstanding performance, is that it doesn’t just buy shares, it buys whole businesses, including many retailers.

It knows how to run a shop. Berkshire Hathaway’s portfolio currently includes food, sports goods, shoes, furniture, and fashion.

“Any business that has delighted its customers has a sales force out there that they don’t have to pay,” said Mr Buffett.

“You don’t see them, but they are talking to people all the time.”

Surprisingly in the current Australian context, for Mr Buffett, exhibit A is Amazon.

“The classic example is Jeff Bezos (Amazon founder),” said Mr Buffet.

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“Here’s a fellow that 20 years ago had a very small business, but he set out every day to delight his customers by fast delivery and lower prices.”

Two decades ago there was no guarantee that Amazon would become the behemoth it is today.

In a world in which using the internet for business was relatively new, and the bricks-and-mortar retailers were the giants, intent on crushing all their rivals, Amazon started out as a bookseller, hoping that great service and low prices would carry the day.

Shoppers walk past Myer in Melbourne. Photo: Bricks and mortar retailers were once the giants, intent on crushing all their rivals.

Myer a wonderful place to shop

In 2017, as Australian retailers have contemplated the arrival of Amazon down under, maybe the emphasis has been too much on price, and not enough on the other side of the equation, customers.

Bricks and mortar retailers can offer experiences that online sellers can’t.

For all Myer’s well-documented struggles, in this writer’s view its Burke Street store in Melbourne offers some wonderful shopping experiences.

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French sports-goods giant, Decathlon, which, like Amazon, also opened in Australia this week, has worked hard to make its store at Tempe in Sydney a fun place to shop.

Mr Buffet’s take on bricks and mortar retail:

“Have your customers walk out the door thinking, ‘I have never had a better experience with a human being,’ and they will be back.”

All Australians have had that experience and we can attest that fantastic customer service does make us want to return.

Just as we’ve all walked into shops and been treated as though the staff have something much more important to do than serve customers.

Amazon is a threat to many Australian retailers. But maybe it will sort out the wood from the chaff.

Those who can rise to the challenge, delight their customers, and deserve to survive and thrive.

And those who can’t.

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