Evan Schuman's StorefrontBacktalk

Matt Piner, lead consultant at Conlumino, pointed out that Amazon got its Web site functionality right early on, and managed to keep prices low by leveraging its cheaper overheads. In addition, it quickly broadened its offer beyond the core book market. “It’s become the modern-day equivalent of the department store,” said Piner. “Amazon is the epitome of the threat that retailers face from pure-plays.”

Amazon drives this pace of change by being unafraid of risk and unwaveringly forward-looking. U.K. Managing Director Chris North said at the Retail Week Conference this year: “We take a five- to seven-year view on investments. It gives us access to opportunities you will not have access to.”

It is this strategic, long-term view that sets Amazon apart from many other retailers beholden to quarterly updates and City reactions. Amazon Founder Jeff Bezos managed to convince investors that the company needs to think long term, and the success of initiatives such as the Kindle helped to strengthen his argument. Investors gave the company the breathing space to adopt this strategy, and it has rewarded their patience by constantly generating new ideas.

Darren Vengroff, a former principal engineer at Amazon and now chief scientist at data mining company RichRelevance, said these ideas come from an obsessive focus on data.

He said the company organized into small groups that have a lot of autonomy in their particular part of the business. “They get to the point where they understand it so deeply that they see opportunities that others might not,” Vengroff said. “It’s not so much a culture of a ‘eureka’ moment—ideas don’t come from nowhere but from a lot of analysis.”

Vengroff said a deep understanding of how people shop also drives the organization. If an Amazon employee has an idea, no matter how small, he or she must sit down and look at every piece of data available that might indicate whether it will succeed. “You don’t know how things will work until you launch it, but you look for clues and you build up a picture,” Vengroff said. “You don’t do anything at Amazon without that kind of data-driven analysis. Behind every catchphrase are mountains of data and hundreds or thousands of experiments that have been done on the site.”

It is this focus on data analysis that enables Amazon to operate differently from other retailers. Traditional retailers, particularly Tesco and Sainsbury’s, have focused on and invested in data for years through their loyalty card schemes. But Vengroff argued that Amazon has a “laser focus” on its customers that others have not matched. “The Amazon experience boils down to one key thing that manifests itself throughout the organization—making sure they understand at a very deep level how people are shopping, why they’re doing certain things, and what they will and won’t respond to,” Vengroff said.

How To Compete

Amazon’s operation is formidable, so how can retailers compete with such a juggernaut? Having missed the opportunity to get a head start in E-tail, many traditional retailers now understand the importance of E-Commerce, and the next few years will doubtless see them bite back with a few great ideas of their own. Already, multichannel retailers such as John Lewis and Aurora operate in ways Amazon would not be able to—John Lewis’s reputation for service sets it apart, and Aurora is using its extensive network of stores to provide one-hour delivery services. And while the lessons Amazon can teach retailers should not be underestimated, it is also wise to avoid being overwhelmed by the threat.

“There are ways to compete with Amazon and I’m sure retailers will find a way to do that,” said Jary. “10 or 15 years ago, everyone was panicking about not being able to compete with Walmart. It has indeed changed the industry, but retailers have also found ways to compete with it.”