The Amazon Effect & What it Means for Retailers
When Jeff Bezos began operating a digital bookstore from his Seattle garage back in 1994, he couldn't have imagined where it would lead. However, in the first 30 days following that launch, the fledgling ecommerce store had already sold its products to customers in all 50 states and in 45 different countries.
25 years on and Amazon is a household name with over 210 million unique visitors to its site every month and a net revenue of $232.89 billion in 2018 alone. 89% of shoppers have gone on the record saying they're more likely to buy from the ecommerce giant than any of its competitors. Amazon's premium Prime service had an estimated 105 million subscribers in the US in June 2019 — up 10 million on the previous year — each spending an average of $1,400 annually.
Amazon provides its customers with a consistent and hassle-free experience which serves to build trust and keep people coming back time and time again.
The Amazon Effect
While we could happily fill an entire article purely on the laurels of Amazon, the success of the digital behemoth is constantly causing seismic shifts in the retail market. Amazon is constantly raising the bar of customer expectations, making it harder and harder for smaller brands with other business models to keep up.
However, the Amazon business model is unsustainable. Amazon's commitment to a last-mile strategy — one which emphasizes market share instead of customer service — means that the retail arm of its business isn't a profit generator. Amazon undercuts other retailers and uses that power to increase its market share. The company's profits instead come from its other lines of business, such as advertising revenue, Amazon Web Services, etc.
Another way Amazon has been shaking up the retail business is by dipping its sizable toe into the manufacturing industry and launching its own products through private labeling. The concept of private labeling means buying products manufactured by a third party and selling it with your own packaging and branding. This means that, if Amazon sees a certain type of product doing well on its platform, it can come in with its own version and undercut them. This is a common complaint from smaller brands and manufacturers that rely on Amazon for their direct-to-consumer sales.
"Amazon has contributed to the increased competitive pricing pressure in the consumer products world," writes Lewis Robinson for getelastic.com. "There were concerns that unlimited shelf space on Amazon would make small challenger brands endanger large incumbent brands. Yet, that isn't the case, given that online buyers still only purchase from the listings where big brands dominate. However, expanding private label offerings on online trading platforms will probably be the bigger threat. Online trading platforms, Amazon included, are easier to penetrate than brick-and-mortar stores, and that's why their impact on consumer products has been significant."
With Amazon presenting such a clear and present danger for small to medium-sized businesses — both in terms of market share and costs — how can brands rebalance their efforts in the retail space to mitigate the impact as much as possible?
Analytics and Business Intelligence
One of the ways in which a brand can help itself grow, even in the shadow of Amazon, is through the intelligent analysis of data and the implementation of the insights gleaned from it. A new year is just getting started and businesses will be looking at their performance over the last twelve months, assessing how well or badly they've done, and trying to discover ways of making 2020 even more successful.
These forward-looking businesses obviously want to increase sales and attract more customers, but they also want to retain the ones they already have. They, therefore, need to be constantly improving their business and offerings while taking care not to alienate their existing base with changes that transform the core brand identity too much.
This is achieved through business intelligence, a practice that requires a deep dive into your current business, so you can honestly sort the wheat from the chaff. When analyzing your business intelligence, look at which products your customers love as well as which ones consistently sell well — these are the ones you can keep steady to avoid alienating your base. Products that don't sell so well but still perform should be the ones on which you focus most of your attention — can these be improved upon or promoted in a better way?
Finally, you have the products which are performing badly. There is no point continuing to push products that simply aren't resonating with your audience, so consider replacing these items with alternatives or removing them from your inventory altogether. Consider holding a sale to clear any remaining stock and then have a look at finding new products that will complement those which are already performing well.
Competitive is another area that warrants your attention. Whereas business intelligence has you looking at internal data to assess how well your brand is performing, competitive intelligence means looking at your wider market and discovering more about your competitors. By analyzing other businesses operating in the same space — both in terms of industry and geography — you can learn from their successes and failures and thus learn from or avoid them yourself.
Data Visualization
The previous point brings us nicely to the way in which you can visualize your data. Data visualization takes all that raw information and presents it in the form of graphical representations, which can make exploration and identification of deep insights far simpler.
Data presented in a flat table can make it incredibly difficult to carry out the kind of analysis required to make your information actionable. However, by plotting the data pictorially, finding the key insights in a year's — or even a decade's — worth of data is relatively quick and easy.
Visualization also comes into play as a communication tool. Your average decision maker isn't a data scientist and will struggle to make sense of large blocks of raw information. This means that, when you're trying to communicate the importance of a new direction based on data, it can be difficult to make your point salient. However, with graphically presented data, you can make sure your message gets across clearly every time, enabling decision makers to quickly assess the situation and decide on the best course of action.
Display the relevant facts, keep things simple, hide unwanted details in your visuals, use less data by using filters, use color to provide focus, categorize large data with drill-down behavior, auto-refresh to show the most recent data, don't show too much information in your visuals, and you'll be able to truly unlock the power of your company data.
Business Process Improvement
Another way companies can keep their business running at maximum efficiency is through continuous business process improvement. When running a business, it can be incredibly easy to let process stagnate — how many times have you been shown how to do something in a job and questioned it, only to be greeted with the response, "Well, that's the way we've always done it"?
However, while old processes may be as comfortable as your favorite pair of slippers, they can actually be doing your business more harm than good. Look at any Amazon fulfillment center and you'll discover that each element of the processes there have been fine-tuned to maximize efficiency while maintaining accuracy
Popular in manufacturing and supply chain operations, we are now starting to see lean processes penetrate other industries like retail. In retail, lean seeks to maximize customer value while minimizing waste. In the context of lean, waste refers to any expense or effort that is expended but which does not produce something the customer is willing to pay for.
For example, if you look at the backroom of your average-sized retail warehouse, you'll no doubt find a significant amount of waste. Old furniture, broken and returned products, building materials and more all serve to make your warehouse cluttered and therefore difficult to navigate and work from effectively. However, by clearing away everything which isn't important to your business today, you can ensure that your staff can seamlessly handle the demands of your customers.
Enterprise Workflow Management
Another place where many businesses can become inefficient is when tasks need to be transferred through multiple departments in order to get approval. The time spent transferring these tasks is often significantly greater than that spent actually performing them.
Into this space steps workflow management. This innovative concept seeks to automate as many of these repeatable business tasks as possible and remove the need for your valuable human staff to spend too much time on them.
Workflow management begins by mapping out the business process and the way in which information flows through your organization. You can then spot where the inefficiencies lie and use workflow management software to reduce the time required for the execution of tasks, eliminate the transfer time of tasks, improve efficiency due to the removal of unnecessary tasks, achieve clarity on business process, enhance workplace communication, and offer better customer service.
Take a platform such as Trello for example. With something like this in your toolkit, you can make sure all interested parties have access to the same information and remove the need for tasks to be distributed manually and inefficiently. Cards for each project are updated for everyone in real time and tasks can be approved and assigned with a few clicks.
Consulting
As a business owner, you probably remember a time when you had to be a jack of all trades. When first starting out in the wonderful world of retail, you probably didn't have had an army of staff at hand and would have had to carry out many day-to-day tasks, such as accounting, procurement, administration, and more all by yourself.
Now that your business is (hopefully) growing, there is nothing wrong with getting outside advice from real experts. A good consultant will have years of knowledge and experience in a particular field and will be able to tear through your business like a whirlwind to identify better ways of carrying out your work.
When it comes to our own businesses, our emotional attachment to them can often make us blind to the issues which are preventing them from reaching their full potential. Independent consultants don't suffer from this attachment and will be able to view your operations in a detached and objective manner, getting to the heart of what is holding you back.
We can't all be experts at everything and there is no shame in deferring to others — especially when it comes to the long-term health of your businesses. Consultants are one of the best ways to eliminate inefficiencies and implement new strategies — including the ones discussed above — for your retail business.
Final Thoughts
Amazon isn't going anywhere; of that, you can be certain. The ecommerce giant's influence will continue to be felt throughout the retail industry — both online and in physical stores — and that influence is only likely to grow as time goes on.
The onus then falls to other retailers to rebalance their operations and make themselves fit to meet the Amazon effect head on. There is no point competing on price, as this results in a race to the bottom from which there can emerge only a single victor (hint: it won't be you), so you need to focus instead on the way your business operates internally and use data, digital technology, expertise, and more to trim the fat and get lean and mean.
Over the coming year, we are sure to see retailers who fail to achieve this fall to the wayside.
As Natalie Berg writes for Forbes, "We'll continue to see a bifurcation of winners and losers as the industry sheds itself of status quo retailers (translation: brace yourself for more doom and gloom). The ubiquitously connected 'on-my-terms' shopper is here to stay. We'll see a continuation of the convergence of physical and digital retail. The race to stamp out friction and inefficiencies will only accelerate, and reinvention of the physical store will remain top of the boardroom agenda."
The message is very clear: Either rebalance and meet the challenge, or risk being left behind in the retail race. There is still very much a future for physical retail, but only if it's willing to evolve.
The Amazon Effect is set to be a hot topic at Retail Finance Connect 2020, taking place in June at the JW Marriott Miami, Miami, FL.
Please download the agenda today for more information and insights.