Point/Counterpoint: Can Anyone Beat Amazon At Its Own Game?

Discussion
Aug 29, 2012

Is Amazon.com an unstoppable powerhouse? As growth slows or plateaus at major chains, Amazon’s upward trajectory continues. The world’s largest e-tailer made the STORES Hot 100 Retailers list again this year coming in at #7 based on increased U.S. sales between ’10 and ’11. In fact Amazon has been included every year since STORES began the list in 2006. With worldwide sales approaching $48 billion, Amazon saw annual growth of 42.5 percent in the period reviewed. U.S. sales, in fact, accounts for only 55 percent of its sales volume.

Point: Ken Lonyai
RetailWire BrainTrust panelist Ken Lonyai, however, challenges the notion that no other company, even if they emulated Amazon’s model, could muster the smarts and the resources to give Amazon a real run for its money.

Many pundits believe Amazon can take ownership of any vertical it desires, via its superior customer skills, accumulated data, algorithms, experience and supply chain. They accept Amazon as an unrivaled source of consumer insights and consider their team to be unmatched and incapable of replication. However, there are brick ‘n mortar retailers that have many of Amazon’s qualities and, if they choose to, can acquire the rest. To date, they are largely held back by lack of psychological/financial commitment to seize their category in the digital space, as they have in the physical. That can change.

Home Depot is a perfect possibility. Forgetting hard-core materials, the two compete in many categories. HD already has a vast distributed warehouse network (stores), a local delivery system, on-line real-time inventory status, a no-hassle return mechanism, a trusted brand and tons of customer data. If (yes, a huge if!) they chose to step up and enhance/refine/expand each aspect of the user experience and get bold and innovative, there’s no reason to ever cede their space to the e-tail-only rival.

Counterpoint: Ryan Mathews
Taking the opposing position (at least for the sake of this exercise) is Ryan Mathews.

With all due respect to Ken but — as do many Amazon watchers — he has answered the wrong question. The issue isn’t, "Can any retailer effectively compete with Amazon?" but rather, "Can anyone beat Amazon at its own game?"

What is "the game?" Let’s look at the textbook category. The company became a major player in the textbook space, not just by disintermediating college bookstores, but also by redefining the activity of selling — and, more critically, buying and reselling — college texts. By diverting much of that activity to its Marketplace, Amazon has substantially boosted its category transactional volume, begun to build loyalty with a new consumer base and, in the process, focused on the most profitable piece of the transaction. They’ve redefined the economics of the category.

And that — redefinition of economics and supply chain — is Amazon’s real game. The company doesn’t need to drive others out of a category, it just needs to capture the most profitable segment of the deal. Amazon’s prime mover advantage, scale and brand don’t allow it to take over any vertical, just the ones that align with its strategy.

Could another company compete with Amazon? Not now. Amazon’s real potential competitive threats are self-created: complacency, bureaucracy, greed, overreach and pressure from investors.

Do you believe that a company such as Home Depot could beat Amazon at its own game, or do you align on the opposing side and say they are unstoppable at their own game? Which competitors — retailers or non — pose the biggest threat to Amazon?

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30 Comments on "Point/Counterpoint: Can Anyone Beat Amazon At Its Own Game?"

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David Dorf
BrainTrust

As long as Bezos is at the helm, Amazon will win wherever it chooses to battle. That’s not to say it can win every category, but it’s smart enough to chose the categories where it can create an advantage, or as Buffett likes say, “a moat.” And it doesn’t have to eliminate its foes, just steal their growth.

Paula Rosenblum
BrainTrust
Amazon was both smart and lucky. It grew up during the first internet bubble, when profits weren’t really expected. That enabled the company to take the time to build its infrastructure and technology to support growth. Eventually the bubble burst, but Amazon had done its job well. Now it’s a bit like a huge machine. Delivery times stun me sometimes, they’re so quick. Customer Service is amazingly easy and the assortment makes it always my first stop for almost anything I want to buy (especially if it’s on “Prime.” But no company is “unstoppable.” I remember when a similar question was asked about Walmart in the early to mid-2000’s. The answer was “yes” — no company has an infinite addressable market. Walmart seems to have pretty much achieved its optimal size. Amazon will get there too. Some people will always want a terrestrial shopping experience (most people actually), and I’ve seen small chinks in Amazon’s armor. As for “who are the likely competitors?” Tough call. Amazon is like the Sears Catalog of the 21st Century, except you can get everything overnight. If Home Depot is willing to make the investment in technology and distribution infrastructure, it might grab back a… Read more »
Lee Peterson
BrainTrust

Amazon is THE retail force to be reckoned with now and for the foreseeable future. What Walmart was to the ’90s and ’00s, Amazon will be to the ’20s and ’30s.

Plus, if they ever figure out the grocery delivery element, they will truly be unstoppable. Sure, localized, home grown, and indie will also be important aspects of retail going forward, but for anything you get in a mall (or grocer?) today, Amazon has the potential to own tomorrow.

Max Goldberg
BrainTrust

It is possible for retailers, large and small, to compete with Amazon. Retailers need to offer:

…Value pricing; not the lowest price, but a price point or bundle of goods that consumers perceive as a good value.
…Customer service. Listen to consumers and respond to their questions and needs. Have flexible, easy return policies.
…Consumer dialogue. Invite customers to provide feedback and then take that feedback to heart. Open multiple discussions with consumers and listen to what they have to say.
…In-stock. Nothing frustrates consumers more that driving to a store and finding the item(s) they want out of stock.

These are retail basics. Amazon has mastered them. There is no reason why other retailer cannot do so as well.

Ian Percy
BrainTrust

Ken and Ryan are in violent agreement. At least so it seems to me. Of course on RetailWire there’s nothing but love!

What team going into the Super Bowl would strategize: “Here’s what we’ll do — we’ll play the other team’s game.” For goodness sakes if it’s not your game, don’t play it! The secret is to own YOUR game and that usually means you need to invent it. And that, most retail is pathetic at. Way too much “best practice” and “me too” thinking going on.

To pick up on something from Ken; the most interesting question about the future is this: Is it a mind game or a money game? For my money it’s a mind game. Thoughts create reality. Until we start thinking differently in new, exciting and challenging ways, we won’t see much progress and certainly no innovation.

Finally we need to remember the inescapable life cycle of all things. Amazon replace an outdated something. And something will replace an outdated Amazon. May not be in our lifetime but still….

Camille P. Schuster, PhD.
BrainTrust

I remember when everyone thought Amazon would go bust in the way of other dot com companies of the time. They did not. Why? Their core business made sense, was fiscally sound, and they were consumer-centered from the beginning. As long as management continues to be consumer-centric, fiscally sound, and willing to change with marketplace trends, they will continue to be successful. That is not a secret formula; it is not an insurmountable formula. However, managing the paradox of balancing satisfying consumer needs and the ability to cut costs all the while willing to be flexible enough to change when the marketplace changes is difficult to implement. A company would have to excel at these tasks to compete with Amazon.

Phil Rubin
BrainTrust
4 years 11 months ago

While Home Depot does a very good job digitally, there is something so fundamentally different in Amazon’s DNA that it’s hard to see them getting taken down within a retail category they are currently doing business in and leading (and that’s a lot), including home improvement goods.

Ken Lonyai is right on when he says, “To date, [competitors] are largely held back by lack of psychological/financial commitment to seize their category in the digital space, as they have in the physical.” I’d add that many in the non-digital space are held back by the same constraints. Retailers are too often looking for short-term fixes, largely through price cutting, rather than taking a longer-term view focused on operational excellence and customer centricity.

Jeff Bezos and Amazon are not going to give ground. Their upcoming announcement is only going to make things more interesting — and more difficult — for competitors.

Mark Price
BrainTrust

The greatest advantage that Amazon has is their ability to accumulate and harness the power of customer information. Not only does Amazon have an outstanding supply chain and strong technical infrastructure, but the company is also a master of “test and learn” — using customer information to build personalization that locks customers into their brand over time.

Now, the technology that Amazon is using throughout their system is decreasing in price and increasing in availability, so competitors can develop similar systems at a much lower cost, much faster than Amazon did in the first place. The increased availability of sophisticate technology, combined with the brick and mortar advantages, mean that retailers can compete effectively, if they have the focus, mindset and commitment. That is the real question.

Matt Schmitt
BrainTrust

Retailers trying to beat Amazon at its own game is a strange proposition. Retailers should play their own game, leveraging digital, but using their physical presence for all it’s worth.

Seeing some retailers actually finding a way to partner with Amazon is likely, and I’d expect we’ll see some examples of that cropping up. 7-Eleven’s Amazon Lockers is one such case. More significant and creative collaboration models are likely to emerge.

Ed Rosenbaum
BrainTrust

No one company is that powerful that competition does not exist. In this case, Amazon is going to remain the leader for a long time. But everyone has a competitor, even companies who have been industry leaders. Walmart, once thought of as the only 800 lb. gorilla, now has a 500 lb. gorilla in Target. Hertz has Avis, etc. Best Buy once had several competitors. Now the field is shrinking; and they still can’t claim that much of a market share. And, by the way, hasn’t Lowe’s made Home Depot pay attention to them?

Doug Garnett
BrainTrust

Seems like an odd strategy merely to try to compete in the same game. It’s generally proven much more profitable to figure out how to side-step someone like Amazon. Amazon’s weakness is its lack of a showroom. The key question is, which retailers will do best leveraging their total power in all channels?

Interestingly, while Amazon financial results grow, it’s generally by accumulating additional bits of business — not massive growth within category. In most categories, (excepting things like books), Amazon’s results are not dominant — just their combined financial results.

So if Amazon’s “game” is primarily cherry picking online demand across a wide range of categories, why would retailers want to try to play that game?

Liz Crawford
BrainTrust

Amazon is a juggernaut. They are so far ahead, the only possible competitor is another juggernaut, Google. These are big sources of Big Data and that is the name of the game moving forward. Learning to read that data and then use it to advantage may be the next wave of competitive edge, but in the meantime there are only a few bohemoths in the field. No way a “Home Depot” could outsmart Amazon in this area.

W. Frank Dell II
BrainTrust

Every company is stoppable. We were told you could not compete with supermarkets. We were told membership clubs would replace every retailer, etc. We have seen many icons disappear from the marketplace, like Kodak and Blockbuster. There will and should be new concepts. Keep in mind, it is not cheap to have Amazon run you business. They have an advantage today, but over the next 5 years there is likely to be a better mouse trap.

jeff fernandez
Guest
jeff fernandez
4 years 11 months ago

Home Depot could increase its online market share of its current categories, but cannot “beat Amazon at its own game” unless it plans on expanding its categories to mirror Amazon.com’s broad selection and dedicate capital and time to penetrate the online space. Walmart could pose a threat to Amazon if it’s willing to invest in personnel and expertise to secure a new customer base for an expanded online presence well beyond its current in-store selection. Other potential threats to Amazon are Google, Facebook, New Egg, and Best Buy, who could, with serious investment capital and expertise impact Amazon’s business model. Amazon is its own enemy and due to its growth explosion, many of its category managers are inexperienced, overwhelmed, and unable to handle the workload, providing opportunities for competitors to take business away.

Herb Sorensen
BrainTrust

It isn’t supply chain management where Amazon excels, although they learned that quickly. Rather, they know how to actually SELL, you know, like how to bring the shopper to a final decision, the meeting of the minds — seller and buyer — that is the crucial “closing of the sale.” Other retailers know very nearly nothing of this process, so Amazon will keep eating other peoples’ lunches while those other people’s minds and business practices (supply chain management) remain stuck in the history of the past 100 years.

Gene Detroyer
BrainTrust

Walmart is the biggest challenge to Amazon. But, not because they are doing a great job online at the moment. It is because they are dedicated to being #1 globally online. We would be hard pressed to find another retailer that views online with such a high priority. How long, if possible? Maybe ten years or more.

Amazon would be wise to study history, because once upon a time there was a powerhouse called Woolworth. Sears. General Motors. AT&T. Kodak. A&P.

Carol Spieckerman
BrainTrust

Can someone beat Amazon at its own game? Someone already did — a company called Quidsi — an annoying, algorithm-armed, digital category-killer that delighted in buzzing around Amazon’s head — that is until Amazon up and bought them. And what about Zappos, a company that dared to create a standard-setting online model and corporate culture around shoes (shoes!)? Yet another way that Amazon, with its vast resources, can take meddlers out of the game. If you can’t beat ’em, buy ’em.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
4 years 11 months ago
Simply stated, Amazon is more a supply chain company than an actual retailer. They have optimized the flow of inventory from the warehouse/distributor to customers better than most. Amazon is a formidable competitor to retailers that primarily focus on transactional items. Books were a great place to start. Home Depot can effectively compete with Amazon for the simple fact that many of the items/services they offer are not as transactional. For example, custom kitchen cabinets and layouts, paints (Private Label being a major player) all require more serious consideration and even consultation. Retailers that want to effectively compete against Amazon need to focus on providing services, including customer service, and products that don’t easily fit into the Amazon Supply Chain model. A recent mystery shop done by StellaService for back to school showed some interesting results related to online and brick and mortar shopping. The study compared the online versus in-store shopping experience at Target, Walmart, Costco, Staples, Office Max, and Office Depot. For price, in-store shopping won by a lot with in-store customers paying an average of $21 less than online shoppers for the same items, with dot-com shoppers paying an average $10.81 in online shipping costs. Although Amazon… Read more »
Ed Dennis
Guest
Ed Dennis
4 years 11 months ago

Amazon has built a great business model, but they are not immune to competition. A recent experience leads me to believe that Walmart may be getting ready to offer a significant challenge to Amazon. We recently needed to purchase a rather large item (50 lbs, 60″ X 36″ X 14″) and looked locally and on the internet. Walmart was priced about 20% less than Amazon on the exact same SKU, but we had to pay sales tax and shipping ($2.97). Even with these additional costs the Walmart delivered price was less that Amazon. Now the Walmart order was shipped in two boxes and one of them was damaged. I took it to my local Walmart and it was replaced immediately — no questions asked! Now I have used Amazon for years and have never been disappointed, however, I will compare Walmart when purchasing anything from now own. With regard to Home Depot, I recently bought a new door lock and Amazon was $40 less than Home Depot! Home Depot may get there in time, but the comparison isn’t there yet.

Craig Sundstrom
Guest

Ryan emphasized definition — which is nice — but I think it should have been broadened to include definitions for “competition” and “winning”: does Amazon have 100% market share in all of its categories? In ANY categories? Of course not…so obviously other companies can (and do) compete. As for beating them at their own game, if you’re allowed to define your own game, then you’ll always “win”…even the Astros are “winning” some game (if not baseball). Sustained profitability, though, is the only game that ultimately counts, and Amazon has to fight that battle every day…just like everyone else.

Christopher Krywulak
Guest
Christopher Krywulak
4 years 11 months ago

Lee from WD Partners makes a sound prediction: “What Walmart was to the ’90s and ’00s, Amazon will be to the ’20s and ’30s.” The key here is that Amazon offers a convenience to e-consumers the way Walmart did to walk-in customers: everything you want in one place, affordably.

Now does this mean all other retailers are doomed? Of course not.

I would agree with Matt from Reflect: “Retailers should play their own game, leveraging digital, but using their physical presence for all it’s worth.”

Today’s retailer must evolve to offer customers what they want, when and where they want it. For physical retailers, this means integrating online, mobile and in-store channels to offer a seamless and easy purchase, affordably.

James Tenser
BrainTrust

In May 1998, a Wall Street Journal reporter asked me the question, “Will Amazon.com become the Walmart of the Internet?” With the benefit of hindsight, I’d say the answer is no.

Amazon then and now is its own thing, by defining its own rules of play and pursuing the slices of shopping behavior it believes it can dominate. Walmart and category killers are ironically playing catch-up with respect to online retailing.

Amazon is exceptionally good at selling media and some high-consideration purchases, such as electronics. It’s naturally less good at selling commodities (such as lumber, paint, produce, frozen food) or consumer services.

To me (and echoing several excellent observations by colleagues here) it’s clear that Amazon has, and will continue to have, effective competitors on many fronts. Many will be better at accumulating certain types of transactions. Few, if any, will challenge it for overall online scale in the foreseeable future.

Martin Mehalchin
BrainTrust

I’m agreeing with Ryan on this one. Granted, there are a few verticals (home improvement, outdoor recreation) where for different reasons Amazon is relatively less of a threat. Ryan is right that Amazon’s real business is disrupting industries and categories, including non-retail sectors like cloud computing. There is no “next eCommerce powerhouse” that can compete with Amazon’s size and scope and I agree that the biggest threats are likely to come from within; with overreach related to the Kindle business and digitization of content being the most likely of those.

Carlos Arambula
BrainTrust

I have to agree with Ryan. The threat to Amazon is the high expectations by all the stakeholders on all aspects of the company.

Ralph Jacobson
BrainTrust

Timing in the marketplace, convenience, easy shopping, dependable value. Is there something else you need to win consumers? It’s tough to think of any all-around potential threats to this industry leader.

Bill Hanifin
BrainTrust

One possible way the Amazon train could be derailed is related to its corporate culture.

If culture became an impediment to its progress, it might be due to the factors outlined in an infographic created by MBAOnline posted on Loyalty Truth here.

Promoting the same values internally for employees as they are outwardly for customers is an important point to consider.

Kai Clarke
BrainTrust

No. Home Depot and other “traditional” retailers have to change their model first, and then focus their resources in much the same way that Amazon does. Packaging and freight, along with the entire logistics channel are all part of the strengths which Amazon embraces as part of their model. No other retailer has these strengths, let alone the marketing savvy when it comes to an online model that clearly works. At best, these other large retailers could only hope to compete on a few items with Amazon…and hope is the key word here.

Kenneth Leung
BrainTrust

Amazon has successfully created a cultural, process and technology/fulfillment infrastructure that defines their “game” for specific product categories. For other retailers to compete with amazon.com, the key to success is NOT to play Amazon at their own game. Leverage the physical store network as the core strength to deliver customer service that is uniquely face to face cost effectively, and use e-commerce and other channels to augment the omnichannel experience. Companies like Walmart and Amazon have unique strengths that you can’t compete directly and one up.

Bobby Martyna
Guest
Bobby Martyna
4 years 11 months ago

Two things will slow Amazon down. One is good, the other, awful.

The good one is that capitalism works inexorably against mega companies like Amazon. An entire generation of innovators is going after Amazon’s business — initially around the edges, then one or more big winners will go after the core. That will take a decade.

The bad one is the government. At some point, weak competitors will band together and file anti-trust suits. They’ll stand a better chance in the EU, but currently Amazon doesn’t dominate there as it does domestically.

We’ve all seen both movies.

Donna Brockway
Guest
Donna Brockway
4 years 11 months ago

I believe that retailers that can create real value and differential can compete with Amazon. Examples for me are H&M, Trader Joe’s, Apple — retailers that have very smartly and strategically created a different offering for consumers that is not easily duplicated, and gives shoppers an experience they can’t get somewhere else. Retailers have to have a reason for being, not just be a place where you buy stuff. That’s the difference — and that can be done.

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