In the era of e-commerce, year after year the growth and financial success of Amazon continues to be noteworthy — seemingly impervious to economic downturns or volatility.
What’s the secret sauce?
The answer is interesting. It isn’t that Amazon dominates any particular product category. Rather, it’s the kind of product — “utilitarian” — that cuts across many categories.
Utilitarian products tend to be practical, generally inexpensive or downright cheap … and typically carry little risk associated with making a regretful purchase choice. They aren’t the type of products that inspire brand affinity, and they typically don’t require very much in the way of pre-purchase research on the part of buyers.
Moreover, on Amazon these utilitarian products have an equally utilitarian path to purchase. Purchase “journeys” — such as they are — are straightforward. Often they begin and end on Amazon’s site, with few or no deviations to conduct research or compare brands.
This is where Amazon excels — in nudging shoppers down the sales funnel while giving them no reason to go away from the website. Amazon makes the purchase steps quick, effortless and satisfying — and probably easier to complete than anyplace else online. If there is a more elegant purchase procedure out there in cyberspace, I have yet to find it.
And if some shoppers might wish to do a little more product evaluation, Amazon makes that possible as well, with consumer reviews offered right on the site for quick and easy evaluation and validation.
Of course, there are certainly product categories that aren’t particularly “utilitarian” in nature, and this is where Amazon’s model is a little less effective. A category such as women’s apparel is more brand-specific and brand-driven, and the purchase journeys in that realm are typically more longer, more circuitous, and more discovery-focused.
But Amazon has effectively carved out a niche in so-called “basic” products to the degree that it has become the “go-to” destination for thousands of products that are “common” in every sense of the word — resulting in some very uncommon business and financial results for the company.
As of today, Packaged Facts estimates that Amazon makes up ~43% of all U.S. e-commerce sales, which is dramatically higher than its ~28% share just four years ago. Continuing its growth trajectory, by 2022 Amazon is expected to make up nearly half of all U.S. e-commerce sales.
That degree of concentration will make it bigger than Walmart — even considering the latter’s huge brick-and-mortar presence which Amazon lacks.
Of course, Walmart continues to possess additional advantages that Amazon cannot match, despite the latter’s acquisition of supermarket chain Whole Foods in 2017. Not only does Walmart have a huge physical footprint in retail, it also offers a wide range of in-store services which entice foot traffic — things like an onsite pharmacy, financial services, and photo processing.
Also working in Walmart’s favor is its dominance in so-called “click-and-collect” shopping orders. According to recent surveys, ~43% of respondents identified Walmart as the pickup location for their last click-and-collect order — three times the share percentage of runner-up Target.
Still, the emergence of Amazon atop the retail industry heap says volumes about the seismic shifts brought about by online retail. The channel hasn’t been around all that long in the grand scheme of things, but its impact has been nothing short of seismic.
How have your shopping habits changed during this time? Do they reflect what has happened in the larger market? Please share your thoughts with other readers here.
As with so many aspects of marketing these days, data segmentation is key to the success of retailers’ sales efforts.
E-marketing may well be the most cost-effective method for reaching customers and driving business, but a recent analysis by Gartner of retail e-marketing activities shows that many retailers are employing tactics that are neither well-targeted … nor particularly compelling.
The Gartner analysis was performed earlier this year and published in a report titled Discount Emails — The New Playbook. The analysis covered more than 98,000 e-mail campaigns conducted by 100 national retail brands.
Trumpeting discounts is one of the oldest tactics in marketing, of course, so it comes as little surprise that those sales messages are pervasive in e-marketing as well.
In fact, Gartner finds that more than half of all e-mail campaigns by retailers feature discounts in their subject lines. Those discount messages are typically sent to nearly 40% of the retailers’ e-mail list — meaning that discount messaging targets broad segments of customers.
Gartner finds that those discount offers generate a ~16% open rate, on average.
Contrast this with retargeting and remarketing e-mails. They make up a much smaller fraction of the e-mail volume, but pull much higher open rates (around 31%). Abandoned shopping cart e-mails generate an even higher average open rate of 32%.
“Welcome” e-mails tend to do well, too — in the 25% to 30% open rate range.
Gartner’s conclusion is as follows:
“Brands that employ less frequent, but timely, relevant e-mails triggered by customer site engagement or transaction outperform their peers.”
Gartner also found that the average national retail brand has more than 25% of its e-mail database overlapping with other national retailer e-lists, making it even more important for brands to differentiate the language of their e-mail subject lines and to engage in more data-driven e-mail targeting in order for their marketing to stand out from the pack.
Let’s see if the national retail brands get better at this over the coming year.
Who’s surprised? It seems as though this retail dinosaur has been on its last legs for years now. Even when Sears merged with Kmart in the early 2000s, I recall one of my business colleagues remarking that it was “one dog of a company buying another dog of a company to create this really big bowser enterprise.”
“Most. Useless. Merger. Ever.” was how another person I know described it.
Indeed, it seems as though Sears’ biggest contributor to its financial bottom-line in recent years has been its real estate holdings. Sales of Sears commercial properties have contributed mightily to the company’s balance sheet, while retail sales seem almost like an afterthought.
“Old school” department store firms such as Macys and Kohls do significantly worse, typically taking between 3% and 4% of clicks apiece.
But Sears has been a poor performer compared even to the weak showing of traditional department stores; Adthena reports that Sears accounts for just 0.7% of online retail clicks.
To add the final nail in the coffin, anyone looking closely at what’s been happening with Sears’ print and online display advertising expenditures can see that the company was busily rearranging the deck chairs on the Titanic. Media measurement firm Statista reports that Sears/Kmart decreased the dollar amount it spent on such advertising from ~$1.5 billion in 2013 to just ~$415 million in 2017. That’s more than a 70% drop during a period of economic recovery.
When the numbers between market growth and advertising decline cross like that, you know exactly where things are headed …
Will Sears or Kmart even be brand names in another decade? It’s difficult to see how.
If you speak with small businesses that sell products online, many will tell you that they chafe under the strong-arm tactics of Amazon and its seller policies.
On the other hand, what’s their alternative?
The reality is that it takes about the same amount of time and effort to run a Walmart or eBay store as it does to run a store at Amazon.
The difference? The sales revenue of a Walmart or eBay store is typically less than 10% of what businesses would generate on Amazon for that same amount of work. That interesting informational nugget comes from James Thompson, a partner at the Buy Box Experts e-tailing consultancy.
(And for small retailers attempting to run their own e-commerce sites, the revenue stream is even lower.)
But even with Amazon’s ascendancy in the world of online commerce, its retail platform remains a frustration to small sellers due to its level of responsiveness to questions and concerns (low) and its sudden, sometimes inexplicable policy changes.
Consumer advocates would counter-argue that Amazon’s seller policies are focused in the right place: looking out for the end-user customer. But others contend that Amazon’s actions aren’t even-handed, nor applied equally.
Take Amazon’s policies on dealing with product shipments and defects. When a seller’s defect order rate goes as high as 1%, Amazon deactivates the vendor’s account automatically. To be reinstated, a seller has to go through an arduous vetting process, during which time Amazon holds all monies due to the seller until every order is shipped and received – even orders that are in dispute.
To make matters even more onerous, the customer service phone number of the seller disappears, making it next-to-impossible for the vendor to clear up any misunderstandings with an end-customer other than by going through the Amazon portal.
Here’s another example: Without prior notification, last month Amazon instituted a new “Pay by Invoice” policy that allows corporate customers a pay period of 30 days.
While this is a great move from the customer’s point of view, most small businesses are used to being paid in two weeks. The new invoice payment policy squeezes the resources of smaller sellers, which often operate under tighter cashflow conditions than larger retailers.
It is true that bigger brands make up an increasing share of volume in the world of Amazon sellers. Those brands bring in the most money, but small businesses round out the portfolio and remain an important component of realizing Amazon’s aims of becoming the big behemoth with an “always and everywhere” presence in the world of retail.
Considering everything, it would seem that Amazon and its sellers should recognize each other’s worth and how much they mean to each other. Amidst everything, there has to be a win-win position that can be reached to the benefit of everyone.
When it comes to online retailing in the United States, Amazon’s been cleaning up for years. And now we have new data from comScore that reveals that Amazon is as dominant online today as it’s ever been.
This chart illustrates it well:
The chart shows that when comparing actual time spent by Americans at each of the Top 10 online retailers, Amazon attracts more viewing time than the other nine entities combined.
Even when considering only mobile minutes, where so much of the growth is happening for digital retailers, Amazon’s mobile viewing time exceeds the combined total digital traffic across eBay, Walmart, Wish, Kohl’s and Etsy.
Pertaining to the mobile sphere, there is an interesting twist that comScore has found in consumer behavior. It turns out, there’s a considerable disparity between the amount of time spent with mobile compared to its share of dollars spent – to the tune of a 40% gap:
In essence, the data show that whereas mobile represents nearly two-thirds of the time spent with online retail, it accounts for only one-fourth of the dollars spent on goods and services.
But this difference is easy to explain: As the largest player in the field, Amazon fulfills a role similar to what Expedia or Trivago do in the travel industry.
Amazon gives consumers a way to scan the marketplace not only for product details but also for prevailing prices, giving them a sense of the expected price ranges for products or services — even if they ultimately choose to purchase elsewhere.
As disruption wends its way through the retail marketplace, jewelers are the latest sector being upended.
In the world of retail, it makes total sense that e-commerce would be making certain sectors such as traditional bookstores a thing of the past. After all, the products they sell are identical to what’s available online — even down to the UPC barcode.
The only difference is a higher price tag – along with a few other impediments like store hours, the hassles of parking and the like.
But as time’s gone on, it’s become clear that the impact of e-commerce is affecting shopping behaviors in retail segments that might never have been thought to be susceptible.
Consider retail fine jewelry. If ever there was a segment where consumers could be expected to want to “see and feel” the merchandise prior to purchasing, it would seem to be this one.
However, a recent analysis by gem and jewelry industry specialist Polygon has found that the U.S. retail jewelry industry is reeling from the triple phenomenon of falling diamond prices, store closures and a liquidity crunch that has persisted since 2016.
Super-competitive pricing offered by online-only retailers and their foreign suppliers has put relentless pressure on gem prices at every step in the supply chain, it turns out. Profit margins have slipped badly as a result.
Consequently, an increasing number of jewelry businesses in the United States have found that economics of maintaining physical stores just aren’t working out. Since 2014. a raft of store closures has affected both independents and chain operations.
At the top of the supply chain, the biggest international producers of gems are responding to the industrywide pressures by cutting costs through mine closures, employee layoffs and assets sales. Probably the most prominent example of this is Anglo-American PLC, which laid off more than 85,000 workers at the beginning of this year, along with putting more than 60% of the company’s assets up for sale.
Par for the course, the relative bright spot in the overall picture is online jewelry sales. Online is taking up the slack of the other channels – but at lower sticker prices. Online retail sales of fine jewelry continue to grow in the high single-digits, even as the rest of the industry struggles mightily to maintain a business model that has become precarious in the new “online everything” world of retail.
I have my doubts that jewelry stores will disappear completely from the shopping malls, like we’ve seen happen with retailers of movies and music. But the days of a jewelry store outlet anchoring every major crossroads intersection at the shopping mall are probably history.
More information on the Polygon report can be found here.
What’s in store for retail? Maybe not much at all …
There have been quite a few news reports about store closings since the beginning of this year — many of them focused on big brands like Kmart, JCPenney and Abercrombie & Fitch.
But what about the retail industry as a whole?
Recently, GetApp conducted research among a more general group of U.S. retailers that run online retail operations as well as a physical stores.
Among this group of respondents, two out of three believe that they could be closing their physical stores within the coming decade and operating their business solely online:
Extremely likely to be running my business solely online by 2027: ~23%
Not sure: ~17%
Extremely unlikely: ~4%
If these figures turn out to be even somewhat accurate, the “retail apocalypse” some news organizations are talking about will have become even more of a reality than even the most hyperventilating journalists are predicting.
It certainly lends additional credibility to current narrative about the downward slide of shopping malls across the United States …
I doubt I know a single person under the age of 75 who hasn’t purchased at least one item of merchandise from Amazon over the years. And I know quite a few people whose only shopping experience for the holidays is a date with the Amazon website.
Still, some of the breathless stories and statistics that are put forward about Amazon and its business model seem almost too impressive to be true.
I’m not just talking about news reports of drone deliveries (a whole lot of “hat” and far less “cattle” there) or the idea that fully-robotic warehouses are just around the corner – although these stories do make for attention-grabbing headlines. (Despite the continued need for human involvement, the way that robots are being used inside Amazon warehouses is still quite impressive.)
Moreover, a study published recently by BloomReach based on a survey of ~2,200 U.S. online consumers finds that Amazon is involved in most online shopping excursions, with nine out of ten online shoppers reporting that they check Amazon’s site even if they end up finding the product they want via another e-commerce resource.
More than half of the BloomReach survey respondents reports that they check on the Amazon site first — which is a new high for the company.
But are all of the reports about Amazon as credible?
Recently Doug Garnett, CEO of advertising agency Atomic Direct, penned a piece that was published in the December 2016 edition of Response Magazine. In it, he threw a dose of cold-water reality on some of the narratives surrounding Amazon and its business accomplishments.
Here are several of them that seem to contradict some of the commonly held perceptions:
“Amazon is a $100 billion retailer.”
Garnett notes that once subtracting Amazon’s non-retail revenue for 2015 (the last year for which financial data is available), the worldwide figure is more like half of that.
In the United States, Amazon’s retail sales are closer to $25 billion, which means it makes up approximately 6% of total retail sales.
That’s still very significant, but it isn’t the dominating presence as it might seem from all of the press hype.
“Amazon is profitable now.”
Yes, it is – and that’s after many years when the company wasn’t. However, approximately three-fourths of Amazon’s profits are due to selling cloud-based services, and the vast majority of the remaining profit dollars come from content delivery such as e-books plus music and video downloads. So traditional retail hard-goods still aren’t generating profits for Amazon.
It turns out, just as retailers like Wal-Mart, Target and K-Mart have discovered, that replicating a retail store online is almost always a money-losing proposition.
To underscore this point, Garnett references this example of a merchandising campaign in 2016 as typical:
“When one unit was sold on Amazon, eight were sold at the retailer’s website and 80 were sold in the brick-and-mortar stores. The profit is in the store.
For mass-market products, brick-and-mortar still dominates. Amazon is a nice incremental revenue stream, [but] not a valid alternative when you’re playing in the big game.”
It also means that companies that are looking to Amazon as a way to push their products into the marketplace should probably think twice.
At the very least, they should keep their expectations realistically modest.
America’s department store chains – and anchor stores at countless shopping malls across the country – are reporting another rounds of disappointing sales and profit figures following the 2016 holiday season.
It underscores what we’ve been seeing all over the country – dead or dying malls.
In fact, retail industry analyst Jan Rogers Kniffen predicts that about one-third of malls in the United States will shut their doors in the coming years.
That’s about 400 of the ~1,100 enclosed malls.
Equally startling, of the ~700 that remain, all but around 250 are expected to continue to struggle.
The problem is multi-faceted. At an estimated 48 sq. ft. of retail space for every man, woman and child in America, that’s a footprint that gotten too big.
“On an apples-to-apples basis, we have twice as much per-capita retail space than any other place in the world,” Kniffen says, adding that the United States is “the most over-stored” country anywhere.
The oversupply of retail space is challenged by changing customer tastes, too. Online shopping is a huge problem for malls, as is the rising popularity of off-price stores in lieu of the department stores like Macy’s and Penneys that have served as important anchors for mall properties all over the country.
Now we hear reports that Macy’s is planning to close numerous store locations during 2017, joining Sears and Penneys which have been doing the same thing over the past several years.
Entertainment – Even in the age of “interactive everything,” consumers – particularly younger ones – continue to seek out gathering places and “experiences.” It’s one reason why some shopping malls have had to deal with large numbers of young people flooding their spaces – not always with pleasant results. Malls seeking out tenants that provide entertainment hubs — such as theme parks and gaming parlors, edutainment, and even virtual-reality content and immersive experiences — will be able to draw customers from a wider geographic area who crave social interaction.
Food and drink – “Food is the new fashion,” some people like to say. Successful malls are getting in on that action, incorporating popular dining options along with unique ones as a way of becoming destination locations.
Retail – Still a core aspect of malls, but with new twists, such as creating retail centers that are also learning zones that bring together consumers, retailers and entertainment. McKinsey uses the example of a sporting goods store that also includes a fitness studio, or offline showrooms for online retail players. More reconfigurable spaces that can be used for pop-up stores, special product launches and seasonal offerings are also options with potential.
Transportation – Getting to and from mall properties with ease is growing in importance, and where some creative thinking might go a way towards making some malls more attractive than others.
Technology – The more that malls can create a “seamless chain” between online and on-site shopping, the better their chances are for staying relevant in the new retail environment. McKinsey posits a number of initiatives, such as creating “virtu-real” formats that provide consumers with a more interactive retail experience through the use of touchscreen navigation portals, virtual fitting rooms, allowing smartphones for e-checkouts, and click-and-collect services to help blend the offline and online shopping experience.
In sum, for shopping malls it means fundamentally rethinking their role — and then adapting their strengths to those of the virtual/interactive world.
If we check back in another five years or so, we should have a pretty good idea which tactics have been successful – and which mall properties, too.
Hopefully, the shopping mall closest to your home won’t look like the one at the top of this article.