Yep we’re gonna say it. The dreaded A-word. Was that a sign or a scream we just heard?
Yes Amazon. We know everyone talks about it but there’s a reason. We keep talking about it because Amazon keeps Amazon-ing. And it will keep on trucking its way through the retail industry and every other industry of its choosing.
Remember how once it was just about selling books online? It’s hard to even imagine, yet if you read certain books or watch certain films its old status is preserved forever. How times have changed!
Today the retail industry both curses and ooh’s over its name. Many blame it for a lot of current challenges, for taking sales away from stores, for creating impossible delivery demands, for muscling in everywhere possible. At the same time, its endless quest for innovation and disruption brings interesting new models and perspectives to light which keep the industry talking.
For some brands and retailers, it’s more than talk though. Some are actively helping Amazon in its market share grab – maybe without even really realising it.
Why do some retailers think working with Amazon is a good idea?
It’s obvious right? The reason someone would choose to sell their brand through Amazon is because of its reach. It’s because its name has mass penetration. It’s because of the 100 million strong Amazon Prime subscriber base. It’s because Amazon has reportedly overtaken Google as the place that US shoppers go first to search for products.
The downside of selling through Amazon is that you get customers used to going there to buy your products. This means they could easily be lured into buying similar products from other companies more cheaply.
This is of particular concern in areas of retail where Amazon is establishing itself as a direct competitor with its own labels – fashion for example. It’s hard to convince customers of the difference between your brand and Amazon’s own similar item. If they see you selling through Amazon, they may feel more confident about taking the punt on other lesser-known brands because it’s been validated as a legit place to shop.
It also raises questions about who owns the customer relationship in the eyes of the customer. Do they see themselves as a customer of your brand or of Amazon? And then there’s the issue of missing out on all that wonderful customer data. Instead you’re giving it to a company that may also be your competitor. A company that might then use it to woo your customers away.
Online sales are a small part of it though. Retailers with traditional brick-and-mortar networks are helping Amazon in ways that some may find hard to understand. Best Buy sells Amazon Fire sticks and TVs and the Amazon Echo in showcase spaces in its stores. Kohl’s has also set up whole areas in some of its stores for selling Echo and other Amazon products. Both retailers feel they benefit from these partnerships. They may even feel that their relative positions are unthreatened by Amazon and this just strengthens them.
But it’s an interesting move given that according to research by the CIRP, people who own an Amazon Echo device spend $400 more annually on Amazon than Prime members. That’s an average spend of $1700 a year. These devices are a ticket to increased sales for Amazon, which means less sales taking place at other retailers – like Kohl’s or Best Buy. If they are at all worried about Amazon stealing their business, they shouldn’t help making buying on Amazon easier. They shouldn’t showcase Amazon devices so that people familiarise themselves with them and then put them in their homes. And then buy from Amazon through them.
What’s more, Kohl’s even takes in returns for Amazon. The logic being that if customers are coming into store to return something they got off Amazon they might just pick up a few items from Kohl’s at the same time. It’s all footfall is one way of looking at it. And there is some argument to be made for being Amazon’s partner in this area, rather than letting someone else take that position.
But this deal also reduces Kohl’s to the position of facilitator of Amazon. It is actively supporting and making Amazon’s business operations easier. The question is what happens when Amazon has a big enough brick-and-mortar network of its own – which it’s already started with the Whole Foods acquisition – to not need Kohl’s for returns anymore?
Are some retailers unconsciously helping Amazon?
If you’re thinking that you’re not helping Amazon dominate because you don’t sell through them or because you don’t sell their products, then you need to think bigger.
One of the most profitable parts of the Amazon ecosystem is the cloud service platform Amazon Web Services (AWS). In fact, it is almost the only profitable part. The money it makes helps fund Amazon’s aggressive, cost-cutting retail operations. And a heck of a lot of retailers have built their ecommerce systems and more on AWS. They’re essentially funding Amazon’s efforts to take away their business. Not the smartest move.
Some retailers have cottoned onto this. Last year Walmart warned its tech suppliers to stop using AWS and move to other services or lose its business. Those are pretty tough terms. Walmart says it wants to protect its sensitive company data from being stored with one of its biggest competitors. But we can’t help but think it might also be trying to hit Amazon where it hurts financially.
So what now?
The Amazon genie is out of the bottle. This isn’t about trying to put it back or to run it out of town with pitchforks and torches. It’s about not actively helping Amazon get ahead and then complaining about it.
Forget questions about whether you should sell through Amazon or not. If all retailers joined forces and decided not to use AWS, to not promote Amazon devices and to not help with Amazon returns then Amazon wouldn’t be able to take market share so quickly.
And while we’re on the subject, retailers should also be banding together to make Amazon pay the same taxes that you do. Its lack of taxes makes it easier for it to sell things cheaper than the competition – eg you! There have been calls on governments to even out the playing field by cutting the rates that brick-and-mortar retailers are forced to pay, but tax loopholes like the ones Amazon uses should also be targeted.
Every retailer needs to think carefully about their links with Amazon and what they really mean. If you think that Amazon’s operations are impacting your own then you need to be careful about supporting them. Some may say that it’s necessary to make a deal with the devil. Some may see opportunity in it. But you should be careful not to get burnt.
How else is Amazon changing the retail game? We’ve got its best innovations wrapped up.