I don’t want to come across as an Amazon fanboy but I have covered them a few times (here, here, here, here, here – actually there here’s the whole list), and this week is no different.
Over the past few months I have been talking to a few Retailers about Amazon setting up across the ditch by end of the year and there have been two general reactions:
- Oh shit or
- Oh they aren’t interested in NZ, there are many barriers to get here, we are different, we have time etc
If I was a Retailer I would be with the first response and here’s why
- Amazon makes up 43% of all online retail sales in the US
- 52% of US consumers go direct to Amazon when they shop online,. They use Amazon as a search engine so high SEO rankings become redundant
- It is not out of realms of possibility that they will also service NZ and service it well. The Iconic can do overnight delivery from Aust to NZ so there is no reason why Amazon can’t do the same thing
- Amazon has my credit card details therefore enabling one click purchasing
- Prime is Amazon’s loyalty scheme. It’s pretty powerful, offering free delivery, Netflix and Spotify plus unlimited photo storage. It has an interesting physiological dynamic too in that you pay $US99 to be a member, that in turn commits you to using them
- An extensive product range means 40% of Amazon’s sales (on a unit basis) are sold by 3rd-party merchants; most of these merchants leverage Fulfilled-by-Amazon. Products are stored in Amazon’s warehouses with unified check out and the same delivery options
- Amazon are already innovating with checkoutless bricks and mortar stores Amazon Go (90 Sec video or the longer 4 minute version) which take physical Retail to a whole new place with very low friction for the consumer and associated lower operating costs for Amazon
- Amazon is playing a very long term game , they are focused on long term health over short term performance.
- Bezos has been reliably saying this sort of thing for years, so let’s untangle it. Free cash flow is cash from operations minus capital expenditures, or what’s left over after spending on warehouses, conveyor belts, robots, and data centers for its cloud computing business. Bezos is more concerned with driving cash flow than making money because he believes the opportunity offered by the Internet, and by e-commerce, is massive and still largely untapped. To him, it’s still a land grab. So he’s prepared to cut prices to the bone and add all those freebies to cultivate customer loyalty and drive sales growth. Then he reinvests it all in more low prices and further expansion, driving additional customer loyalty.
- This leads to this chart
- And finally, the one chart that would really scare me
So, what are you going to do?
If you are a Retailer the above is pretty scary and it is all well and good me saying a Goliath is coming but what should you do?
At the highest level here are a couple of actions:
- Wake up and confront the brutal reality that is Amazon – The first thing to do is stop burying your head in the sand, you have time, not much but at least some
- The second is find a way to co-exist rather than compete, don’t go head to head. There will only be one winner.
What does this mean
- Obsess about the customer experience
- Online – how can you offer same day or overnight delivery (look it can be done today), or even better 4 hour or 2 hour delivery
- Remove the risk – have a generous returns policy think Zappos (I know it is part of Amazon but you get the picture)
- Value your best customers – what can you give them over and above the standard?
- Find better ways to engage with the customer: Use live chat
- Basically, get much closer to your customer.
- Make sure you don’t score own goals – have the stock on hand.
- Own your niche – be the expert, have specialty products and go deeper than anyone else in the market. Narrow and deep is the new black.
- Innovate – can you change your pricing model? Can you offer a subscription for lower prices, bundle etc
- Link online and offline experiences: Try in store and ship to home
- Build a fanbase – start today
- Actually, don’t compete head on – play your own game
- As Neil Blumenthal, Co-CEO at Warby Parker said I don’t think retail is dead. Mediocre retail experiences are dead.
Of course, your mileage will vary but you need to start thinking and taking action on these things today.
PS: See I’m not a fanboy. I haven’t once mentioned the purchase of Whole Foods or the impact that might have in Australia
PPS: You just have to watch this video….
PPPS:Here is a great infographic from on how to beat Amazon BigCommerce and Wiser