It used to be Wal-mart and other big box stores, smaller retailers feared. But now, retailers, manufacturers, wholesalers, and even manufacturers are fearing the new behemoth – Amazon. More than just putting major retailers nearly out, or out of business, Amazon is impacting the entire supply chain and revolutionizing the way Americans do business.
You may have heard about the “Amazon effect” — the online retailer’s ability to grab market share from department, apparel and other brick-and-mortar stores. Now, Jeff Bezo, Amazon’s founder and CEO, and friends have much farther reaching tentacles.
During the last two decades, Amazon has transformed from exclusively selling books online to offering products and services that are used by more than half of US households. There isn’t much Amazon doesn’t sell anymore. If they aren’t selling it already, wait a few months or years, and they probably will.
From purchasing Whole Foods to introducing the ever popular “echo”, the last few years have been huge for Amazon.com. Now, there’s talk about the retail giant partnering with Warren Buffet and his Berkshire Hathaway to enter the pharmaceutical market and with JPMorgan Chase about building an online-banking product.
Amazon is winning at the game for a lot of reasons and they invested millions to keep them there. The question is, can other companies compete, let alone catch up.
Amazon is effecting retail
Rapid growth in online sales. Staggering drops in earnings for brick-and-mortar department store chains. Specialty retailers going out of business. Regardless of the retail segment, Amazon is your competitor. From computers to garden gloves to bicycles, Amazon sells it. And chances are, they’re doing it better than you. Online sales represented about 13% of American retail sales in 2017, according to Forrester, a research firm, which projects that number will grow to 17% by 2022. This has translated to a decline in shopping at brick-and-mortar stores.
Amazon captured more than half of all online sales growth last year and now has a market value greater than 10 of the most well-known retailers combined.
The Amazon Effect has real consequences. The Sports Authority and Toys-R-Us are just a couple of retailers that are gone. JC Penney, KMart, Sears, Barnes and Noble, and even WalMart are closing hundreds of stores. Upscale department stores like Nordstrom and Saks are turning to off-price formats to make up for lost revenue.
Click here to read: Amazon Go Stores: A Retail Revolution
what amazon does well
Amazon continues to raise the bar across three dimensions, which is clearly resonating with consumers:
They offer a growing assortment of products. Amazon has methodically added new categories over time, such as groceries and auto parts, which makes one-stop shopping more of a reality. They have launched in-house fashion apparel brands and are expanding their portfolio of private label items like vitamins to offer alternatives to traditional brands. Talking about product availability, with rumored more than 500 million SKUs, no other business in the world can match that.
They continue to pioneer in customer service and experience. One-click purchasing, highly individualized product suggestions and Prime benefits make shopping compelling. Combine these features with the Alexa smart home device and you get a very differentiated retail experience.
As if all of this isn’t enough, Amazon woos customers with its pricing approach. Amazon often begins with low prices and is selectively responsive to external pricing actions. For those customers who care little about anything other than a price tag, Amazon is taking orders hand over fist.
The impact of new technologies on how we shop and buy things is well documented. is often referred to as the “Amazon Effect.”
It wasn’t that long ago when packages would take several days or even a week to arrive. People were willing to wait because of cost and convenience. As things matured, expectations increased and two-day shipping became commonplace. Now they’re talking about delivery in a matter of hours through Uber-like delivery networks and the delivery drones.
Amazon is making an incredible proposition here by offering every product you want, as soon as you want it, for cheaper than everyone else.
All of this change is happening at a pace that makes it hard for the big, entrenched companies to keep up, which is why we keep hearing about the demise of small and big retailers.
Beyond Retail
Amazon has morphed into a full-blown Business-to-Business and Business-to-consumer machine.
There is Kindle Direct Publishing for authors to self-publish directly to the Kindle Store.
There is the Amazon Appstore for Android users.
Fulfillment by Amazon is designed for the business that does not want to be bothered with managing a large inventory. Amazon is going after original content, and they keep building up that content.”
Amazon Web Services lets you run enterprise applications in the cloud. Industry researchers estimate Amazon Web Services is involved in 20% of ecommerce sessions in the U.S.,
Impact on the Local Economy
The dominance of e-commerce has affected Main Streets too: Around 90% of independent retailers said that Amazon was having a negative impact on their business, according to a 2017 survey of more than 850 such businesses.
Similar to the complaint about Walmart and other big box stores, instead of going to local entrepreneurs, the money spent by local residents online is going to companies based far away, the local economy may suffer, because less money is being kept in the community. Even worse than big box stores, who at least hire local residents, none of the money spent online lands in the community.
Money spent at an independent business generates four times the direct local economic employees, will often spend the money they earn from their business nearby, at restaurants, bars, and other retail stores. Also, the decline of local retail also has major implications for cities and towns’ ability to raise revenues through sales taxes. Based on their sheer size, most states have already reached an agreement with Amazon that requires them to collect sales tax on items ordered from Kansas, but there are still plenty of other online retailers that don’t collect/charge sales tax.
Small Businesses Online
As Amazon likes to point out, more than 140,000 small and medium-sized businesses each sold more than $100,000 in goods on Amazon last year.
“We are empowering so many retailers—many of them small businesses and main street businesses—to reach customers, not just in the U.S., but around the world,” an Amazon spokesman, Erik Farleigh, wrote for an online article.
As new research from Forrester indicates, companies still have some trepidation when doing business in Amazon’s third-party marketplace. Oftentimes, products and categories that perform well “quickly become products that Amazon itself owns and sells at prices that undercut Marketplace sellers.”
Winning Against Amazon
Like we said, it’s a new game now, and Amazon has the ball, but some companies are effectively winning, or at least managing to survive, against the new commerce leader. What’s working?
Certainly companies who continue to do the same old thing, the same old way, aren’t surviving. Other retailers, Walmart and Target have both ramped up their online presence extensively are positioning themselves to compete in the online shopping world.
In addition, many of the retailers have moved to reduce their overhead and closed a great number of their brick-and-mortar locations. Malls around American are getting pretty desolate with the exit of store after store.
Even online, and catalog companies, have had to reduce their prices, and thus their margins, as a way to compete against Amazon. Some companies are refusing to buy into the Amazon bargain basement mentality, instead focusing in on their customer service and recognition of their value added, via support services, training, and problem solving.
The disruptive force that is killing off 100-year-old retail brands is having a transformational effect on how we do business and going forward, those transformational effects will require companies of all types, in all industry sectors, to continuously rethink their business models and to innovate.