Amazon continue to drive transformation across the retail market. But what are some of their key strengths and weaknesses and what do these tell us about how they’ll evolve themselves. Oliver Banks explores 6 ways in which Amazon will transform themselves and what you can do about it.
We’ve all heard about Amazon. We all know about the impact it’s had on retail. In fact, we’re often talking about Amazon as the big evil force that’s put out lots of other businesses. But, is it Amazon that has done that or have those businesses failed to adapt? Have they failed to recognise the changing world? Ultimately, have these businesses just failed to transform?
Whatever your thoughts on this, you would have to accept that Amazon has made a significant change to the retail market. So, in this episode, hear more about what could be next for the retail giant. You’ll find out:
- How Amazon are doing right now.
- Where they struggle today.
- How they could transform over the next few years.
- What you should do as a result.
The death of the department store
We often hear about the “death of the department store”. But I argue that we use department stores more than ever before. After all, Amazon is essentially a department store. It’s just using a different channel rather than bricks and mortar stores.
The Seattle based giant have changed the landscape for these stores, yes. But, all they’ve done is change the channel and focus on their unique selling points or their USPs.
We’re all writing off department stores as a model but what we forget is that Amazon is still a department store.
However, they’re now a bit more than just a department store. They do the wildly successful Amazon Web Services (AWS). They’re a brand of electronic goods. Alexa controls our homes (and perhaps our lives). They understand and optimise technology more than many classic tech companies do.
How are Amazon doing right now
Consistently delivering Prime Day and Black Friday
We’ve seen Amazon really deliver on consistency with these promotional, trading events. Consumers are trusting Amazon to deliver in these events. That’s both operationally – getting the right product delivered on time – as well as through the website / app. You’ll never hear about the Amazon website falling over on one of these days. But, you do still hear about websites creaking under the insane pressure and traffic that these online sales events drive.
Continual growth of Prime membership
Prime Day shows the value of a loyalty scheme. What Amazon have done with Prime is, arguably, nothing short of genius. They have asked people to pay money for their membership which in turn makes them more loyal and spend more money. Brilliant.
Plus, Prime membership is continuing to grow. eMarketer forecast that in 2019, 51.3% of US households will be Amazon Prime members. According to their latest forecasts, that’s about 5.2 million more households than last year. And this looks set to continue at a similar rate for the next couple of years.
Amazon’s own brand ranges aren’t basic
Amazon continue to drive their own brand products. Smart speakers from their Echo range feature prominently on the homepage. Fire tablets and TV sticks are big sellers. Plus, they continue to expand the Amazon Basics range. These own brand products will continue to drive revenue for Amazon and embed their ecosystem deeper into a customer’s life.
Alexa is our digital assistant of choice
Enabled through the Echo products, Alexa is now controlling our homes and our lives. CIRP (Consumer Intelligence Research Partners) showed that Amazon own 70% of the smart speaker market and that is a rapidly growing market. In fact, it’s been forecast to grow 40% annually for the next 5 years.
Advertising is a big growth area
Advertising revenues are increasing at a big rate. In 2018, Amazon generated $10.1 billion in ad revenue. Interestingly, that’s an increase of 117% YoY from 2017’s $4.7 billion. When you’re measuing in billions, a triple digit growth rate shows the potential!
Innovation and R&D remains a big focus
Amazon is renowned for reinvesting more into R&D. In turn, they’ve brought many great innovations to the retail market. One click purchasing. Their instant ordering “Dash” buttons (now retired). The checkout-less Amazon Go store.
Recent data collated by Coresight Research shows they’re now turning that innovative streak to the internet of things (IoT).
Cloud computing has been a cash cow
Amazon Web Services (AWS) is continuing to do well. Essentially, it’s still responsible for their overall profit margin. However, that is slowing. They’re facing competition from Microsoft Azure. Steve Dennis has recently written an excellent Forbes article diving into this in more detail.
3rd party sellers contribute half of Amazon sales
Amazon marketplace is becoming crowded. Around 50% of all sales on Amazon marketplaces come from third-party sellers. In fact, there are now over 5 million sellers, with a growth rate of around 1 million sellers per year.
Focus on delivering through Amazon Logistics
Amazon Logistics is the biggest fulfilment partner for Amazon.com. They’re bigger now than the classic delivery firms.
In fact, they’ve recently started a franchise model where you could start your own premium last mile delivery firm. For a small investment, you could have your own Amazon branded delivery force. We’re not talking about gig economy type drivers, loaded with parcels in their cars. This is going to premium, with branded uniforms and access to Amazon technology, we should expect to see Amazon Logistics step up the delivery quality.
Plus, they’re investing more in air freight capability and aim to have 70 of their Amazon Air planes in the sky by 2021. This gives Amazon a unique ability to own more of the supply chain and be more independent from the classic carriers. In particular, FedEd, who have recently rejected Amazon’s use of their planes. Competition in this area is certainly hotting up.
Furthermore, their drone R&D is well publicised and is slowly progressing to proper realisation.
Where do Amazon struggle
There are a number of areas where Amazon struggle. I’m diving into these in more detail.
Functional, but not very fun
This was a key point in the discussion with Miya Knights and Natalie Berg when they were on the Retail Transformation Show.
Listen to that conversation now in episode 16: How Amazon Are Transforming Retail (part 1) and episode 17: Beyond The Age Of Amazon (part 2).
You should also read Amazon: how the world’s most relentless retailer will continue to revolutionise commerce. This is the brilliant book by Natalie Berg and Miya Knights where they dive into the strategy and tactics employed by Amazon.
In the book, Natalie and Miya also explore the great concept “what Amazon can’t do”. Here, you should look at how you can do things that the big, online (well, mainly online) giant can’t do.
How loyal are Amazon customers
It remains to be see how loyal Amazon customers are when there is a viable alternative. They don’t invest in the relationship with customers. There is poor personalisation which gets in the way more than it helps. The experience is good but nothing to really remember.
So, if there was a player that came into the market with a similar proposition, how many would stick with Amazon and how many would swap their allegiance? Only time will tell us that.
Excessive range with no curation
Amazon’s range has been a point of difference for some time. However, it’s getting so extreme now that it is blocking customers and adding friction to the customer jouney. Just take a look at some data collected from a range of retail websites. Imagine that you’re looking for a new electric toothbrush, you might search for just that. The results that you get back show the depth of Amazon’s range and how difficult and overwhelming that can make like for a customer.
Predictions for how Amazon will transform
In light of these strengths and weaknesses, I’m making 6 predictions for how Amazon will transform. You’ll need to listen in to the episode to get the scoop on these. I also share 3 ways in which you can adapt to improve and transform your business in light of these changes.
I made reference to Viv Craske too – you should definitely check out his thoughts on how to optimise for selling through Amazon.
What are your predictions for the future of Amazon? How do you think they’ll evolve? Drop a comment down below or send me an email: firstname.lastname@example.org.
I’m also going to be starting some conversations on LinkedIn, so remember to connect with me there to check them out.
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