Source: Amazon
Amazon has won. Now what?
Through a special arrangement, what follows is an excerpt of an article from WayfinD, a quarterly e-magazine filled with insights, trends and predictions from the retail and foodservice experts at WD Partners.
Amazon.com’s growth story — unprecedented, immense, rocket-like (choose your superlative) — does not come with a happy ending for most retailers. In summary, Amazon has won. The bigger problem is, it’s just getting started.
It was early in 2013, over six years ago, when WD Partners’ study, “Amazon Can’t Do That,” arrived. At the time, Amazon’s e-commerce sales were $61 billion in fiscal year 2012 and we warned, “Amazon is not taking over the world. Yet, that is.”
Interviews with 1,700 consumers explored what they wanted out of the store experience, so we might find a way to isolate Amazon’s competitive weaknesses. Consumers talked up the allure of “instant ownership” and the tactile, “touch and feel” rewards of being in a physical space.
This year, Amazon’s e-commerce revenues are projected to reach $483.96 billion. Beyond e-commerce, Amazon has upended everything from cable TV to the advertising industry. Consider three stats: 96.6 million people now watch Prime Video; 47 million talk to an Amazon Echo; 56 million are entertained via Amazon Fire TV.
So, we recently surveyed consumers again, searching for a competitive weakness. The results were stunning, mainly because we were hard-pressed to find one. By almost every measure, Amazon engenders positive consumer sentiment. When we asked, unaided, to name the best retailer, Amazon topped the results handily, beating Walmart out by double-digit points. Asked to name the worst retailer, Walmart was mentioned most often while Amazon garnered mentions from only a few dozen respondents (out of 4,000).
The competitive ground Amazon has covered in less than a decade is massive. That’s why we’re working on a new study, “Amazon Can Do That. Now What?” There is no longer any question as to whether Amazon will dominate e-commerce, grocery, publishing, entertainment and, quite frankly, whatever additional category it someday decides it wants to dominate. Amazon has beat out almost everyone: Target, Kroger, Costco, Lowe’s, Aldi and even Apple. As stated previously, Amazon has won. That makes the only question worth asking anymore: What are you going to do about it?
Discussion Questions
DISCUSSION QUESTIONS: Does Amazon have any competitive weaknesses? Do you see any way Amazon’s online dominance will falter or will it take another leap forward in the years ahead?
Poll
BrainTrust
Shep Hyken
Chief Amazement Officer, Shepard Presentations, LLC
Richard J. George, Ph.D.
Professor of Food Marketing, Haub School of Business, Saint Joseph's University
Amazon has become a monopoly in many ways. The U.S. government broke up Standard Oil and AT&T for less. Amazon’s time is coming.
Better for the rest of bricks retail to learn how to actively sell to shoppers, rather than their own passive century long self-service model. Don’t knock success, copy and beat it, if you can! 😉 (Amazon is still FAR from perfect at bricks, themselves.)
I disagree, Herb. Amazon isn’t winning due to service — it’s winning because it continues to lose money on every sale it steals from retail. Retailers can’t afford to pay people to shop with them so telling them to “just compete” isn’t sufficient. They need to find funding sources who will underwrite years of losses while they compete (hence the need for the Justice Department).
This post errs in its wanton use of big numbers. Here’s a post I wrote years ago about the online tendency to use big numbers to avoid answering hard questions.
After all, “Big Numbers are Not the Same as Meaningful Numbers.”
I heartily agree with your thinking here, Doug. Your documentation of the “media view” of the store is right on. I believe that until bricks (and clicks) come to grips with this reality, they will be inadequate in optimizing bricks retailing.
Amazon is a winner in retail, but it isn’t the only one. It is also not responsible for the demise of many retailers, such as the department stores – which have sown the seeds of their own destruction. I also think it has weaknesses: for example, the browsing experience on Amazon.com is far from optimal and in some categories is very poor. Its impact on Whole Foods has been positive, but limited and some of its own physical stores leave a lot to be desired. In short, although I am a fan of Amazon, I don’t think it is indomitable. There is room for Amazon and many other retailers to thrive.
I prefer saying that Amazon “created.” Amazon created a whole new retail paradigm. Now what are we going to do about it? They innovate and they dominate. They invest beyond anybody else’s ability to invest. They are dragging us kicking and screaming into new frontiers. This is the horse and buggy whip giving way to the automobile. Charles Darwin has some thoughts about adaptability that are worth reviewing.
I don’t believe that Jeff Bezos and the leadership team at Amazon were looking to “win” in the traditional competitive sense. Yes, a business wants to succeed. Where they want to mark up a “win” is with the customer. There are very few companies that have the relentless approach to taking care of customers as Amazon has. They have put so much back into the experience, trimming profits to do so. Did a smaller margin pay off? You know it did. And they take that strategy and philosophy to every venture they get into. Yes there will be competition, but the only way a competitor has a chance is to not only have a good product and a good process, but a similar philosophy about taking care of their customers.
Shep, You nailed it! “There are very few companies that have the relentless approach to taking care of customers as Amazon has. “
And access to free capital via AWS and earlier via Wall Street that gave it unfair advantages over anyone else.
Without some form of government intervention, I see the Amazon sphere becoming larger and more dominant. They have leveraged every possible advantage to get to where they are – years and years of no profitability and yet still tremendous value growth and they somehow are able to pay almost zero corporate taxes. This has all lead to tremendous investment and innovation – they’ve at least utilized their riches in many of the right ways – which has led to the behemoth they are. Other retailers have proven they can co-exist and thrive but Amazon, if left unchecked, will take larger and larger pieces of the pie.
Amazon is far from perfect. There are still several weak links in their supply chain. Just this week I had been promised that a book would be delivered by Friday and it never arrived. I was given a refund and told that the U.S. Postal Service couldn’t deliver it. I reordered and was told it would arrive Sunday. It never arrived, I was given a refund and told that U.S. Postal Service couldn’t deliver it. I ordered it a third time and it arrived yesterday. The logistics snafu may have been caused by the Postal Service, that doesn’t matter to the consumer. It’s Amazon’s fault. Next time I may try — gasp — Barnes & Noble.
I see two threats — one internal, the other external — but these may not be the same as competitive weaknesses:
First, as others mentioned, any antitrust action by the government runs the risk of making it so that Amazon is forced to divest from a business such as AWS. This is a profit center that helps offset the slim margins of the e-commerce business.
Second, what I describe as the “Sears Syndrome” — going back to the heyday of one-stop shopping for financial services, insurance, etc., not just merchandise. Does Amazon have its fingers in too many pies? So far the answer is, “Not yet” — but it’s something to keep an eye on.
Bob and Neil are on point. Retailers must start creating more dynamic in-store stories, emotions, events and be their best in the social media world. Remember when Walmart announced they were coming to town? Retailers laid back and said “we’ll just see what Sam has in mind.” The answer is proactivity in the store, every day, changing product placements and displays, looking new and refreshed weekly (which creates customer comments like “wow, this is new, when did you get this in?”), actually two months ago … but the important point is to never wait to see what the competition is going to do. Proactivity is your world. Retailers, take some comfort in knowing you are not alone: Amazon is blowing into the real estate industry now. Let’s just see what happens.
As Neil Saunders says, “many retailers… have sown the seeds of their own destruction.” To ignore that and blame Amazon anyway is ignoring the retail ecosystem. But more important than that, Amazon is a brilliant marketer which understands connection with customers like no other retailer does. Amazon is not a retailer, it is a service provider whose name comes first to peoples minds. Between Amazon retail, Kindle and Prime Video, hardly a day goes by when fewer than 100 million people touch Amazon. (Did I forget Echo?)
People don’t want multiple connections when they can have one. Amazon understands that and it will be hard for anyone to challenge them in the near future.
Outside of AWS, Amazon sells convenience. In fact, Amazon pioneered tech-driven “convenience commerce” for consumers. Under the umbrella of rapid digital convenience, Amazon has built an empire on the backs of tremendous human and environmental resources. The sheer scale and impact upon warehouse workers, drivers, roads, and packaging to name a few, could end up as Amazon’s Achilles heel. Once drones hit the sky, public sentiment may rapidly change as consumers wake up to the dramatic “environmental inconveniences” and toll Amazon poses to everyday human life.
Clearly Amazon disrupted and then recreated retailing and several other consumer landscapes. The reasons for its success are very transparent: engaging customer experience, convenient shopping and fulfillment, a strong value proposition, excellent logistics, and a willingness to experiment and move forward on new fronts. In the words of Malcolm Forbes, “The greatest obstacle to business is success.” Consider so many other disruptors that are gone or nearly gone: Kodak, Toys “R” Us, Sears.
One of my books, Success Leaves Clues, focused on 10 rules of strategy garnered from successful companies. Amazon follows each of these rules. However, going forward, competitors could take a page from Sam Walton’s book, Made in America. One of his 10 rules was “Swim Upstream.” While everyone is drifting downstream, look upstream, set a goal and back it with burning desire. It appears that Amazon read both books.
Amazon’s only real “competitive” weakness is its adoption of some legacy sales suppressing tactics in its bricks stores. But moving its outstanding “1-Click” sales strategy into bricks stores – Amazon Go – a new and improved, “NO-Click” sales strategy, will absolutely decimate their competition, as the bugs and scalability issues are worked out.
The “blindness” engendered by a century of super-successful bricks retailing still keeps bricks retailers from recognizing the consequences of their TOTAL commitment to turning everything SELF-service into, “shoppers, sell yourselves.” Amazon’s algorithmic process of online selling has not yet reached the aisles of even their own bricks stores – other than “NO-Click,” GO-sales. Hint: Smart phones aren’t going to bridge the gap: “Selling Like Amazon… in Bricks & Mortar Stores! – October 25, 2013“
Amazon’s size and consumer perspective is its biggest weakness. It’s not unusual to hear from disgruntled employees — whether press reports or blogs, and it is an easy and recognizable target for any political activism. All the noise will invariably erode confidence in the retailer.
I’ve been reading W. Brian Arthur’s work on the economics of Increasing Returns. This work predicts the big online dominance — because in a market of increasing returns, there is a point past which competitors cannot succeed and dominance multiplies.
It’s important to remember this when looking at Amazon. As a nation, then, our question has to be: Is it healthy for the US for Amazon to have “locked-in” (Arthur’s term) their success with no realistic competition?
Amazon’s one big competitive disadvantage is not having many stores. While those people who buy online for delivery typically use Amazon, the shoppers that want instant gratification or want “look and feel” would like the retailer to have stores they can visit and see the products. Walmart and Target are pushing hard in this area. Amazon knows this and is using Kohl’s and CVS as pick up places. The pick up places, however, do not provide an opportunity for the sale of another product from Amazon.
In the long run, Amazon will need to solve this issue by acquiring a retail chain with stores. Amazon imitators will continue to evolve in the market as they witness Amazon’s success. The company will have to stay on its toes to stay ahead of the competition.
Amazon is not infallible, but it does continue to challenge the traditional retail model as it creates a new customer engagement model. It has completely changed the way consumers expect to shop by personalizing and suggestive selling in ways that were unheard of 15 years ago. However, it now has the additional challenge that it is no longer just a disrupter in the industry, it is a leader, which puts it under a much stronger microscope. There have been other retail disrupters in the history of retail, just look at Sears or Walmart, and they usually reach a peak. It will be interesting to see if Amazon can continue its dominance through the next decade.
I’ve been a Prime member since its inception, love Prime video and programming, get my TV through a couple of Fire Sticks and my household does a significant piece of purchasing from them every year. Each year when my Prime membership renews at what seem inevitably higher rates, I do the math and so far it has been worth it.
But I think Amazon is showing the strain of its size in some ways with missed delivery dates and especially customer service. It seems impossible lately to get someone on the phone who is capable of thinking beyond their scripted answers and recent interactions have resulted in having the wrong item authorized for return as well as promised credits which never materialize.
So I don’t really agree with the premise that Amazon has won; frankly, they seem as vulnerable as any retailer who takes their eye off the ball. They are a great company, doing lots of things right but if you dial time back about 30 years, you could have said many of the same things about Sears.
Something is in the water in Seattle. Amazon, Starbucks, Microsoft, Nordstrom — but in the 21st Century digital is vulnerable. What are the soft points? Delivery: not ecological, not suited for many consumer, and waiting for government to catch-up — regulation is coming. Pricing: yes good but almost many commodity products are cheaper somewhere else. And the cool/kewl factor. What does it take to switch horses in a digital world? And I’m a Prime customer….