These initiatives are addressing important friction points in buying from an online retailer. They also serve to partially counteract an edge major competitors like Walmart and Target have with those consumers who lack a good way to receive packages at their home or workplace, or who find returning a product through the mail a major hassle or a costly alternative.
While such services will help serve some needs, they are unlikely to help Amazon compete when it comes to growing significant sources of incremental revenue currently held by predominantly brick-and-mortar retailers. Physical store market share remains quite high in many substantial retail sectors like home improvement, furniture, and groceries, largely owing to how critical the in-store experience is for most of these purchases. Undoubtedly both evolving consumer preferences and technological advances will continue to help digital chip away at even the greatest strongholds of brick-and-mortar shopping. But many of these gains will come slowly, and Amazon, particularly given its sheer size, will need to unlock major new sources of growth to sustain its present trajectory. It’s hard to imagine how it will do that over the long term without a much greater physical retail presence.
The Amazon Stranglehold?
Although Amazon clearly has some challenges in achieving greater profitability while sustaining hyper-growth, the naysayers must keep certain aspects of the future impact of the Amazon effect in mind:
• First stop Amazon: The fact that a large percentage of consumers engaged in online product discovery reflexively make their first stop Amazon gives it a huge strategic advantage.
• Massive customer insight: While Amazon is fundamentally a logistics or supply-chain company, it is a customer data company and a consumer insight machine as well. It’s hard to fathom the vast richness of the behavioral and transactional data the company possesses. Much of it is employed to power pervasive product recommendations and dynamic site personalization. Amazon’s future potential to glean and leverage greater insight is staggering when one considers its overall household penetration and the breadth of products and services it sells. This data can also be the foundation for launching new offerings in health care, consumer credit, insurance, and other related services.
• Private brand development: Private brands have been part of the retail playbook for years. A retailer’s exclusive offerings create a point of differentiation and help neutralize direct price-comparison shopping. At the same time, they offer consumers a strong value option and generally give the retailer better product margins. What sets Amazon apart here is twofold. First, no other retailer (except maybe Alibaba) has the quantity and quality of data to best determine the market positioning of new private-label products. Second, armed with that data, Amazon can strategically market its own products to exploit vulnerabilities among competing manufacturer brands they already carry. Amazon already has well over 100 of its own brands and exclusive product lines and continues to roll out more. Some are commodity oriented, like AmazonBasics and Amazon Essentials. Others have no obvious tie to Amazon, such as its many fashion brands, like Lily & Parker, Lark & Ro, and Tresori.
• Mostly free delivery: Once a consumer signs up for Amazon Prime and pays the annual fee, delivery is free, regardless of the amount of stuff one buys or the price of the item. This gives Amazon an important advantage over retailers that charge fees, have minimum orders for free delivery, or do not have the ability to absorb the added expense. It also helps prevent a shopping trip that might have otherwise driven traffic to a competitor.
• Last-mile delivery infrastructure: Amazon has built out incredible logistics capabilities. At first, its supply chain centered on the picking, packing, and shipping of items delivered via the existing postal service and package delivery companies—not unlike the mail-order catalog companies that have been around for ages. Over time it has gotten deeper and deeper into owning or directly managing other logistical aspects central to effective and efficient home delivery. The company already operates more than fifty of its own planes and a vast fleet of local delivery vans and has many thousands of independently contracted delivery drivers using their own vehicles. This ever-expanding infrastructure allows Amazon to expand the array of products it can sell, improve order fulfillment times, and build a competitive moat around its delivery operations.
Any combination of these means that Amazon may put the squeeze on a given competitor or massively shake up a category it decides to double down on. Even the rumor that Amazon might be considering entering a category or focusing on one more intensely can send ripples through an industry, as we have seen multiple times, particularly in the supermarket arena.
No Sympathy for the Devil
For many retailers, Amazon has become the target when they want to decry the many factors they see as the company’s unfair advantages. Amazon’s ability to invest behind growth at the expense of margin is the envy of most. Few love the fact that despite being the second-biggest retailer on the planet, the company pays little or no US federal income tax. Working conditions at Amazon fulfillment centers have come under increasing scrutiny. Many see the extensive packaging involved with e-commerce as unfriendly to the environment, and as the leading culprit, Amazon gets a fair share of the heat.
Moreover, many manufacturers selling directly through Amazon, along with those businesses leveraging the Amazon Marketplace, have a love-hate relationship with the company. Some have greatly expanded their reach by selling through Amazon. Others realize that they will be walking away from significant business if they fail to distribute through the company. But ultimately they know that Amazon holds most of the cards and regularly flexes its muscles to remind them. While there are advantages to dancing with to the devil you know, at the end of the day they are still the devil.
Chasing the Great White Whale
Amazon is an undeniable force. A behemoth. A colossus. The flywheel effect it has put in place, and its ability to fund growth without a heck of a lot of concern for profits, is a huge advantage, which virtually guarantees it will continue to gobble up market share for the foreseeable future.
Amazon is powerful, but it is not invincible. Yet it is not very likely that anyone reading this book will contribute to the company’s downfall. Nor are there many parts of Amazon’s core business where its vulnerabilities can be profitably exploited. But there are many aspects of retail where Amazon is not—and will not be—especially successful.
Amazon has incredible momentum, but it is not going to take over the vast majority of retail—at least not in anyone’s sensible planning horizon. In plenty of areas Amazon has a long way to go before it will ever gain meaningful market share.
Our job, therefore, is threefold. The first is to stop chasing Amazon like Ahab obsessively pursuing Moby Dick. You won’t catch it and even if you do, before long you will likely get crushed or eaten alive. The second is to separate the myths from the reality. The third is to focus your strategy on the areas where Amazon is not, and will not be, an unbeatable competitor anytime soon.
This is not to say that Amazon should not be a potential distribution partner. This doesn’t mean that many things that Amazon does well should not be studied and potentially made part of your organization’s capabilities. But it does mean accepting the fact that we are not going to beat Amazon at its own game.
CHAPTER 6
The Future Will Not Be Evenly Distributed
“The future is already here—it’s just not very evenly distributed.”
—WILLIAM GIBSON
The tendency to make sweeping statements about trends is commonplace. Unfortunately, this may not be helpful when you are looking for an edge. In an industry as large and complex as retail, the truth can rarely be found in generalities, nor are the required courses of action well captured in series of bromides.
It’s