Amazon Sees Marketplace Defections
Some
of Amazon.com’s biggest customers
are leaving. The e-tailing giant,
which generates roughly a third of
its revenues from its marketplace,
has seen Buy.com, Gap and Macy’s go
off on their own in recent months.
Of course, there was Target and Toys "R" Us before that.
Some are
pulling away from Amazon because of fears the association puts them at a competitive
disadvantage.
"We didn’t want to give them information on product pricing and
sales that Amazon could potentially use against us," Neel Grover, president
and CEO of Buy.com, told Internet Retailer. Buy.com left Amazon’s marketplace
in October.
Smaller retailers are also jumping the Amazon ship.
Richard Sexton, president
and founder of Carolina Rustica, which operates a single furniture store and
CarolinaRustica.com, told Internet Retailer that
there were problems with photos and product descriptions on the site. "Customer
expectations could be different from our ability to deliver."
He also
said service had slipped. Where once he had a dedicated account manager, now
he had to send messages to an Amazon email, sometimes waiting up to two days
for a reply.
"We couldn’t pick up a phone a talk to anyone," Mr. Sexton
told Internet Retailer. "It was like an e-mail black hole."
Amazon
faces issues with its marketplace while other large businesses such as Mastercard,
Sears and USAA open their own versions of online malls to consumers.
Discussion Questions
Discussion Question: Are the retailers leaving Amazon’s marketplace a sign of trouble at the e-tailer?
The abandonment is a sign of two things–the ongoing evolution and maturing of Internet commerce and a growing rejection of Amazon’s business practices which do appear to disadvantage at least some business partners over time.
No question Amazon likes to seek out partners to “teach” them about various market segments and, equally without question, that rarely benefits the trading partner.
From a shopper standpoint, this is a big deal. If major brands aren’t accessible on Amazon, the shopper must go directly to the retailer’s site or another aggregator site (e.g. Shopzilla). The shopper probably doesn’t care much about whether Shopzilla or Amazon led her to the merchandise; she probably cares more about price, quality and service. She can easily redirect her search. No big deal for her.
Meantime, what would the absence of major brands mean for the positioning of Amazon in the marketplace? Amazon could become the aggregator for smaller brands who need the traffic and eyeballs. Shoppers could begin to equate Amazon with “cool” brands, local vendors, and niche products. However, worryingly, smaller brands are also defecting. This is a huge Red Flag. Wake up, Amazon!
E-commerce is maturing and there will always be a “hey, we can do that more cheaply, better, etc.” discussion among trading partners. Some will leave to do it themselves, some will always leave because they’re not getting attention. However, the one thing they can’t take with them is the Amazon customer that goes to Amazon first to look for whatever they’re trying to find. My sense is that there is a significant and possibly growing number of customers (like me) who have gotten into the habit of always starting a search for something at Amazon for the simple fact that I usually find it there. Unless it’s a really unique product, leaving the Amazon umbrella will lose a lot of potential customers.
Ryan said it all. The e-commerce marketplace is maturing and just as Amazon has learned from handling the online sales of major retailers, those retailers have learned from Amazon.
That being said, Amazon will remain a retail powerhouse and continue to grow by partnering with other retailers and making strategic purchases of others.
I agree with Ryan. This is a maturing market. Once a leader and a visionary in the e-commerce market, Amazon is doing very little if anything to provide new value add. Amazon needs to learn how to stay ahead of their competition. Instead, they are allowing their customers to become their competition. In addition, it sounds like they are pushing customers away with their very lame customer service. For now, I think Amazon is safe and they still have the most experience in online etailing. But they need to continue to add additional value if they expect to keep customers.
Major retailers need to move away from Amazon to be able to control their brand, their distribution and their customers.
When someone buys through Amazon, are they the retailer’s customer or Amazon’s customer?
Why would retailers keep supporting someone who in reality is in direct competition with them? Amazon does not care who you buy from as long as you buy through them.
Amazon just becomes a bigger and better opportunity for the retailers that remain. Smaller, more nimble and more innovative retailers that connect with Amazon as only one ‘channel’ of many will benefit. Those leaving will feel the ‘big hurt’.
Amazon is the ‘first stop’ for many online consumers. Relying on consumers to check multiple sites again and again seeking what they are looking for is to me not such a great strategy. Then again, what do I know. I check Amazon first. I know they execute, have a fair price, and good results. Why wouldn’t I keep going back?
Could that be considered loyalty?
First of all, companies with double digit growth are not mature. They have a long way to go before they reach maturity.
With regard to retailers leaving Amazon…Amazon’s success will never be predicated on being a middle party for other retailers. Amazon’s successful business model is as a retailer/distributor of goods to customers. Amazon’s acquisitions of Zappos and Diapers are more in keeping with their business model.
As for the retailers leaving Amazon…a mistake for the retailer, not for Amazon. The real question is where will they get the exposure of buyers that they would get on Amazon?
This is called teaching your future competition. It is very similar to Supervalu supplying Target with groceries until they are big enough to build their own facility. Sometimes short range decisions can have long range negative impacts.
Two words–customer data. Guess who benefits from all those products flowing into Amazon’s cart? The partner retailer? Nope. Yes, that company generates a transaction–although it is question if that transaction is truly incremental. But those transactions generate zero in terms of consumer relationship, database development, or behavioral insight–Amazon keeps all of it, at a cost of 10% of the sale. This is the ultimate, low cost, profitable loyalty program with other retailers doing the heavy lifting.
Is there a risk in avoiding Amazon? Sure–you don’t benefit from the massive eyeballs. But if your assortment is differentiated enough to compete on elements other than price, you don’t need them (speaking from a medium to large retailer perspective; it’s a different story for small players).
The real question is: what were some of these retailers doing on Amazon.com in the first place? Macy’s and Best Buy for example don’t really have any meaningful brands of their own. Their only relevance would be the 3rd party brands they were selling to consumers. And if they couldn’t execute that on their own, they they had little or nothing to add in value.
Which begs the question of whether they will survive on their own anyway. One could infer that their days are numbered in any case.
I agree with Ryan’s succinct comments. What we might be seeing is a shaking out of what was a one source marketplace. The evolution of technology and increasing ability of others to do the same thing makes it a competitive situation. May the best, most convincing company win the battle. The war? Now that is another story.
Note that this evidence points towards big retailers leaving Amazon Marketplace. There is not enough evidence showing that small ones are leaving in any significant numbers. (One example doesn’t really say much.) Selling on Amazon Marketplace is a good proposition for low-volume long-tail product sellers. These sellers add the millions of low volume products to Amazon which make up the above stated one-third of revenue. This relationship is a win-win one — the small sellers get access to customers, customers get access to rare products they otherwise would not be able to find, and Amazon keeps a cut of the revenue from products it probably does not even know of.
Big retailers deal only with a limited selection of high-volume products (in terms of unique SKUs, say a few thousand, not millions) most of which Amazon is likely selling itself because they are popular products. In this competition, of course Amazon prioritizes its own sales because it owns the platform.
Whoever sells on Amazon as a third-party seller will benefit only by selling products that Amazon itself does not sell. Otherwise, Amazon will always beat them at the game. Their leaving Amazon is not a significant loss to Amazon in any way.
My coauthors and I have written a recent paper on this and other related phenomena. You can find it here if interested.
Interested in some firsthand experience from an Amazon.com seller? I have used their service for three years as an adjunct to my e-commerce website and they represent about 5% of my sales. Although I am tiny, tiny, tiny compared to the giants that are seceding from Amazon, I’m about to leave, too. Let me give you three reasons: First, they consistently understate our shipping costs by at least 50% and we can’t get them to change. Our product requires expensive FedEx signature service to 97 countries. So, we lose money on Amazon orders in addition to their 15% cut and monthly fee.
Second, they try to control our contact with our customers. My product depends heavily on 24/7 customer email support for success. If customers order through Amazon and communicate with me through their Amazon link, I cannot deliver that service sufficiently. So, when I receive an Amazon order, I communicate through the Amazon filter (at that point, the only link I have with the customer) and direct them to go to our website and contact me through an email link provided there. That way, I can get the customer’s direct email address which allows me to give them the full breadth of the services for which they’ve paid. BUT, if I try to send the customer my email support address through the Amazon communication filter, AMAZON STRIPS OUT MY EMAIL ADDRESS! Additionally, if the customer tries to send me their direct email address through the Amazon filter, THEY STRIP OUT THOSE EMAIL ADDRESSES, TOO! About half of our Amazon.com customers never contact us directly for reasons of their own. Thus, we cannot serve them properly.
Third and finally, what about refunds and returns? Amazon is very unclear on this. Do we refund 85% and Amazon refunds their 15%? What is the customer service protocol for Amazon.com orders? We simply don’t know.
I’m just a little guy, like the CarolinaRustica.com mentioned in George Anderson’s introduction to this topic. It’s no surprise to me, as it probably is not to Carolina Rustica’s Richard Sexton, that Amazon.com has some serious housekeeping to do. To me, Amazon is more trouble than they’re worth.
Another sign of retailers taking control of their own destiny and their data; Amazon is acting as a third party and reaping the benefits of amassing customer purchase data, retailers and brands are realizing they are losing hold of their greatest asset–their customer, their ability to leverage the data to make decisions better, direct communications with that customer, etc.
Vertical integration of the sales process direct to customer is becoming more and more prevalent (e.g. through manufacturers selling direct to customers via bricks and mortar stores and e-commerce) so that the customer relationship and shopping experience is owned and controlled by the brand rather than some 3rd party.
This is just another sign of the need to be directly connected to the customer, understanding that customer and presenting a shopping experience that is in line with the business values.
Amazon will continue to succeed by mining their customer data, identifying the customer need and serving it better than anyone else, but that will require the right set of products and brands.