Amazon’s Retail Influence Is Huge, And Rarely Understood

Written by Retail Week
June 13th, 2012

Editor’s Note: Maybe retail chains have been worrying about Amazon for the wrong reasons. The usual E-tail advantages—no sales-floor replenishment problems, no sales tax, no slippage—combined with Amazon’s huge size can make it seem like pure-play online retail is Amazon’s secret sauce.

But this story, published by Retail Week, StorefrontBacktalk‘s new U.K. content partner, suggests Amazon’s real ace in the hole is CRM data—specifically how Amazon obsessively analyzes it to understand how, why and what customers buy.

The piece quotes former Amazon Principal Engineer Darren Vengroff saying, “mountains of data and hundreds or thousands of experiments” are behind every new Amazon play, no matter how small. Chains have much of the same data, but they leverage it to hand out coupons one customer at a time. Amazon does it wholesale, slicing and dicing to identify whole new lines of business to invade. Unless chains get a lot more intense about data very fast, that Amazon advantage will just keep growing—sales tax or no sales tax.

The full extent of Amazon’s influence on the retail industry has perhaps only recently started to sink in.

A few years ago, it was seen as a brilliant E-tailer—the poster child of the 1990s online boom. Today, it is increasingly recognized as a game changer, and in only a few years has become the business that everyone watches with a degree of apprehension, as well as admiration.

Its success is reflected in its global sales: in 2011 they reached $44.1 billion (£28.5 billion), compared with $10.72 billion just five years earlier.

The list of new services it has introduced to E-tail is impressive. Innovations include product reviews, personalized offers and a one-click checkout process. It has overhauled the entertainment category, and traditional players such as HMV and Waterstones languished in its wake. And its ability to creep into new realms, launch new services and steal market share with little fanfare has made retail’s biggest players take notice, particularly over the past couple of years.

Many traditional retail giants are playing catch-up with some of Amazon’s innovations. Tesco, for instance, launched its own Marketplace in what is the latest attempt by a retailer to challenge Amazon’s dominance and WHSmith responded to the Kindle with its own E-reader, the Kobo. “The clever bit is how Amazon has by stealth taken away an awful lot of the market place,” said Sarah Wilson, director of consulting operations at Egremont Group. “I’m not sure people really noticed.”

What makes Amazon particularly significant, however, is that it is morphing into something much more than a retailer. Competing with Apple and Google, it is attempting to create a new environment, which retailers and consumers must operate within. Amazon is eyeing every part of the value chain, from content produced by its UK publishing arm, launched in April, to consumer gadgets such as the Kindle, introduced in the U.K. in 2009.

“Competing with Amazon may not be the only answer—participating may also be necessary,” said Michael Jary, partner at OC&C Strategy Consultants. “Retailers that are retailing in a traditional sense, particularly in non-exclusive product, will come under increasing pressure.”

Whether retailers participate by selling the Kindle—as Waterstones disclosed in May it would do—selling goods via Marketplace, or selling novels published by Amazon—they may find cooperating with one of their most aggressive competitors unavoidable.

Investment In Technology

But how has Amazon evolved from being an efficient online bookseller to become a global giant that directly affects other retailers’ strategic direction in a little over 15 years?

The E-tailer has always, and continues to, invest a large amount in technology and data analytics. It has cultivated strong customer loyalty and trust by providing good service, and it has set a fearsome pace of change, said Planet Retail Analyst Lisa Byfield-Green. “A lot of retailers haven’t been able to keep up,” she added.


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