Amazon is a force to be reckoned with. According to Slice, which culled data from more than 2 million digital transactions, Amazon accounted for 53 percent of total U.S. e-commerce growth in 2016; that’s up from 40 percent in 2015. Amazon has also hogged more than half of the 11.4 percent gain reported by the Commerce Department in 2016. Further, Amazon has over 60 million Prime subscribers, a captive and ‘locked-in’ consumer base. As Amazon becomes a more dominant force it will undoubtedly be putting more companies out of business than it already has.
Essentially, Amazon is crushing it, and by “it,” I mean us.
It’s Amazon’s world and we just live here. Should we panic? Yep. Here’s why:
Amazon is forcing mediocre retailers out of business
When it comes to the e-commerce marketplace, Amazon is a giant walking among us mere mortals. Amazon has steadily grown over the last five years while store-based sales have shrunk.
With sales declining, many of these stores are closing their doors permanently. Recently, The Limited closed nearly all its 250 stores and is converting into an online-only retailer. Wet Seal is following suit.
As these retailers are restructuring or closing shop entirely, Amazon disclosed in its most recent earnings announcement that it now accounts for 43 percent of all online sales in the U.S. and has increased its online market-share from 33 percent in 2015 to 43 percent in 2016.
One silver lining in retail is off-price. Discount retailers like TJ Maxx and Burlington Stores are still competing on close-out pricing. According to J.P. Morgan Chase, these retailers are forecasted to add $20 billion in incremental sales over the next five years by delivering bargain prices to recession-wary deal hunters with prices 40-60 percent below full-price peers.
The Whole Foods acquisition gives Amazon a 400-store footprint
Most analysts and investors comment that the tech giant’s $13.7 billion deal with Whole Foods will largely upend the landscape for super markets, food delivery services and meal-kit companies.
Converting Prime members to buying groceries with Amazon has the most potential. Amazon will likely create exclusive offers for Prime members in Whole Foods stores which national grocers like Kroger’s cannot replicate. Amazon will also create distribution synergies by using the store footprint for online order pick-ups and returns which will increase Whole Foods foot traffic leading to spontaneous purchases.
Amazon introduced low price, private label products.
With Amazon’s launch of private label household items in late 2014, Amazon cornered yet another market. Look at baby wipes as an example of Amazon’s market share.
Even though Amazon Elements are only available to Prime members, Amazon gained a 16 percent market share among the top 10 brands of baby wipes. That puts them within shouting distance behind Huggies (33 percent) and Pampers (26 percent).
Amazon has also launched dozens of private label brands and products, including consumer packaged goods and household items (Presto!), food (Happy Belly), beauty products (Beauty Bar), home improvement (Denali) and furniture (Strathwood). Amazon has also launched several niche brands in apparel such as Buttoned Down, Franklin & Freeman, Franklin Tailored, James & Erin, Lark & Ro, North Eleven, Scout + Ro and Society New York.
Amazon’s model pits manufacturers against each other
Private label products are not our biggest concern as retailers and brands. What we should we really be concerned about is protecting our own brand image from Chinese merchants selling on Amazon’s marketplace.
In 2015, Amazon began pushing for more Chinese merchants to start selling on their U.S. and European marketplaces. This greased the pathways for manufacturers in the “world’s factory” to sell directly to end consumers in the West. Along with that came the issue of counterfeit goods to compete directly against legitimate brands in the same marketplace, often on the same pages. While counterfeit items were traditionally relegated to the commercial backstreets and underground markets, they are now being sold side-by-side the genuine products themselves, thanks to Amazon.
While Amazon’s system of listing similar items on the same pages keeps the marketplace, orderly and prohibits duplicate listings, it also creates a situation for buyers where it becomes very difficult to know if the product they purchase is going to be counterfeit or not.
One interesting trend is that many of the companies who are having their products counterfeited on Amazon are not just large recognizable brands, but also smaller, “mom and pop” brands. Grassroots entrepreneurs who design and develop creative new products that the market responds to positively are putting themselves directly in these cyber-scammers crosshairs. Due to the lack of effective regulation within the Amazon marketplace, these entrepreneurs compete (poorly) with copycats.
Amazon has set its eyes on the $1 trillion-dollar B2B eCommerce market
Amazon is taking its knowledge, scale, and sophistication to the b2b wholesale and distributor business model.
Amazon has been testing the prospect of selling to businesses since it launched Amazon Supply in 2012. After the sunset of Supply and introduction of Amazon Business, Amazon has steadily grown its reputation with B2B buyers. One study found that half of respondents said they plan to increase their spending on Amazon Business, while only 13 percent said they plan to spend less. The study further indicated that many Amazon Business customers are satisfied with the marketplace’s self-service features. A wide majority of respondents—75 percent—said it’s not important for them to have a visit from a supplier’s representative.
While many B2B manufacturers are still insulated, it won’t be long before Amazon comes after these manufacturers with private label products. Removing any real world interpersonal interaction from our B2B dealings, streamlining and automating this process will quickly gain Amazon a seat at the head of the B2B manufacturing table.
In summary, the shaky ground retailers were standing on is quickly forming a landslide. Amazon has virtually taken over the e-commerce marketplace. Left and right, Amazon is shaking up the way we’ve done business for decades. The Amazon-pocolypse is upon us. The question now is how will we adapt? Will you panic, or will you gain perspective?