Amazon eases way into more lives
Retailer keeps growing with strategy of volume over profit
NEW YORK — Amazon is already a huge part of many people’s lives. And its $13.7 billion deal for the organic grocer Whole Foods likely will bind its avid customers even more tightly, analysts say.
“It kind of feels like they’re taking over so much commerce in our life,” said Erica McGivern, a Whole Foods and Amazon customer who lives in Seattle, where Amazon is based. “It’s intimidating.”
Experts don’t believe U.S. antitrust regulators will oppose the deal. That’s largely because it doesn’t create anything resembling a traditional monopoly. It merely extends Amazon’s long quest to make shopping so convenient that consumers won’t even think about stepping away from its embrace. The more successful that strategy, the more Amazon can monopolize the attention and shopping dollars of its customers — which is legal.
Amazon is just one of several major tech companies — such as Google and Facebook — facing new scrutiny over their market power, which doesn’t map neatly onto traditional notions of monopoly.
When a company dominates a market, it typically pushes up prices to increase profits — something U.S. antitrust law is geared to prevent. Amazon, however, has a track record of keeping prices low and locking customers in to sell more stuff. For instance, the company typically sells gadgets like its tablets for little or no profit — but then pushes people to buy digital movies they can watch on the tablet.
“Amazon’s strategy has always been a volume strategy, not a profit strategy,” said Lauren Beitelspacher, a marketing professor at Babson College in Massachusetts.
Amazon still faces lots of competition. Wal-Mart remains the leading retailer overall, with more than three times Amazon’s retail revenue. Even with Whole Foods,
Amazon will have less than 3 percent of the U.S. market share in groceries, according to Kantar Retail. Wal-Mart is the leader, with a 22 percent share last year.
And while Amazon is the clear leader in e-commerce, 90 percent of worldwide retail spending is at stores, according to eMarketer.
Rather than dominate in market share, Amazon dominates “in reaching into customers’ lives,” Gartner retail analyst Robert Hetu said.
Amazon has gotten some complaints that its most prominent results in shopping searches aren’t always the cheapest. But for many frequent customers — the more affluent ones who tend to be members of Amazon’s $99-ayear Prime loyalty program — Hetu said Amazon just needs to be more convenient.
Convenience can come in the form of Dash buttons, which put reorders of baby
wipes or coffee beans a finger-press away. Voice-shopping capabilities in Alexa-enabled Echo speakers make it possible to shop while doing household chores.
Amazon also offers discounts for shoppers who sign up for regular delivery of frequently purchased items. Free shipping with a Prime membership makes it tempting to check Amazon first, even if rivals also offer free shipping for larger orders. And Amazon offers bonuses and cash back when using its gift cards and credit cards.
The Prime membership offers not just TV shows and movies but also music from such artists as Coldplay, Adele and Bruno Mars with customers accessing entertainment via an Amazon Fire TV device or listening on the Echo.
Add to that a new feature resembling the social network Pinterest. Customers share their favorite designs, recipes, books and other items. But whereas Pinterest users can buy what they like anywhere,
Amazon Spark would direct customers to Amazon’s own store.
“They are pervasive in the fun parts of life, shopping and entertainment,” Beitelspacher said. “You have all these things that evoke positive feelings. So when they introduce something new, it’s much easier for them to overcome the barriers of entry because they have this positive brand equity.”
Amazon deliveries may evoke goodwill among consumers, but they have hastened the decline of several retailers, including bookstore chains.
Amazon’s size also gives it tremendous buying power. Just like Wal-Mart and other big companies, Amazon can use that power to wring low prices from suppliers of products and services that Amazon sells. While Amazon can pass those savings onto customers, analysts say smaller suppliers might have to reduce quality or staff to cut costs. Some might even go out of business.
A Whole Foods Market sits just down the street from Amazon headquarters in Seattle. A Whole Foods and Amazon customer in Seattle said the combination of the two “feels like they’re taking over so much commerce in our life.”