Rethinking Amazon
For a major retail chain, letting a competitor sell its proprietary brands is tantamount to treason.
You would never see Walmart stores carry racks of Cat and Jack shirts, the children’s apparel brand from archrival Target. Or Kroger hawking Walmart’s Sam’s Choice meats.
But as with practically everything else in retail, Amazon.com is rewriting the rules.
As Amazon continues to steal market share from rivals, some competitors are choosing what probably seems like the lesser of the two evils: joining Amazon instead of fighting it. Last week, Sears said it would sell its prized Kenmore appliances on Amazon. And in June, Nike, which operates its own stores and website, said it will offer its footwear through the Seattle online giant.
The irony is that traditional brick-and-mortar chains have long argued that proprietary brands are the ultimate weapon against Amazon. Amazon might sell commodity stuff available anywhere, but these retailers offer unique brands that people can buy only through them — online or off.
But Amazon is not just another seller. It’s an enormous online marketplace that can materially shift shopping patterns in a single day. A study by research firm Sense360 estimated that 10 major retailers, including Target, Best Buy and Barnes & Noble, suffered a 24 percent decline in store traffic on July 11, when Amazon celebrated its Prime Day with sales and promo-
tions, compared with the previous 17 Tuesdays.
Retailers just can’t ignore those kinds of numbers. That’s why they should consider following Sears’ lead and work with Amazon, said retail consultant Brittain Ladd.
Among the biggest losers on Amazon Prime Day: Sears, which suffered a 36 percent decline in traffic.
Sears’ decision reflects “a new reality in retail,” said Ladd, a former strategist with Amazon who worked on the AmazonFresh grocery business. “Amazon customers want appliances, so why not (offer Kenmore appliances) on the leading e-commerce platform?”
“The goal is to sell product,” he said. “What do they have to lose?”
Other than pride? It’s not like retailers like Sears are new to websites; Amazon just does it a lot better. (Sears created Sears.com in 1999.) Outsourcing online selling to Amazon is a tacit acknowledgment that a retailer failed at e-commerce.
And teaming with Amazon could just hasten a retailer’s demise. In addition to gaining valuable insights into selling appliances, Amazon will learn how to better fill big-ticket orders (transportation, warehousing) for cumbersome items like washing machines and dryers, said retail consultant Brian Kelly.
Amazon is building up its home-services business, too. While Sears says its Sears Home Services unit will benefit from the deal, Amazon, with control of the customer relationship, could displace Sears with its own vendors.
A study by Upstream Commerce, a retail intelligence firm that tracks pricing, suggests that Amazon will use the pricing data from outside merchants who sell through it to ultimately compete with them.
In women’s apparel, 25 percent of the top products initially offered by marketplace vendors were sold by Amazon within 12 weeks, according to the report.
“The possibility that Amazon is ‘stalking’ its vendors for their assortment ... demonstrates a powerful practice where Amazon is yet again showing the way to the entire industry,” Upstream Commerce CEO Amos Peleg said in a statement.
Kelly, a former chief marketing officer for Sears.com, doesn’t think we should read too much into Sears’ deal with Amazon. The retailer has been struggling for quite some time, which means the partnership might be too little, too late to save Sears.
“It’s not going to help Sears that much,” Kelly said. Amazon will probably reduce prices on Kenmore, heightening the “risk of the race to the bottom” for a once-profitable brand.
Other analysts believe the partnership is simply a means for Sears to quickly sell the Kenmore brand to Amazon should Sears go bankrupt, as many predict. Already, Sears has sold its Craftsman tool line to Stanley Black & Decker.
But Ladd has a valid point: Amazon has become so dominant that retailers need to rethink their business models and explore creative partnerships, even with rivals.
“Everything should be up for discussion,” Ladd said.
But Ladd noted that partnerships can benefit both sides.
Take Priceline.com. At first, car rental companies thought the travel site, in which people can bid for things like airline tickets, would be an existential threat to the industry.
Ultimately, these companies chose to work with Priceline, and the result has been higher revenue for everyone, Ladd said.
He also notes that Amazon is not simply selling Kenmore appliances. The company is working with Sears to integrate Amazon’s Alexa voice technology so customers can, for example, control air conditioners or reorder laundry detergent with verbal commands.
“Amazon does not just want to enter categories,” Ladd said. “It wants to reimagine categories.”
Pride aside, brick-andmortar retailers might need to rethink their relationship with Amazon for this simple reason: Consumer spending has not been growing, which means there is only a limited number of dollars up for grabs. And the stronger Amazon gets, the more irrelevant traditional retailers become. Thomas Lee is a San Francisco Chronicle columnist. He is the author of “Rebuilding Empires” (St. Martin’s Press) on the future of big-box retail in the digital age. Email: tlee@sfchronicle.com Twitter: @ByTomLee