Amazon hits the top, but can it stay there?
Now that Amazon has overtaken Walmart in size, will Amazon someday rule the entire retail world?
The answer is no.
But the consensus opinion among retailing experts is that Amazon.com Inc. will exert ever increasing influence over the way we shop.
And that the online retail business formula Amazon has perfected over 27 years will shove brick-and-mortar stores to the sidelines if not into the grave.
Canadians spend about $9.4 billion a year on Amazon, according to global e-commerce tracker ecommerceDB. That makes Amazon Canada one of the country’s biggest retailers.
Amazon Canada is building additional fulfilment centres across the country at a furious pace. It is trying to keep up with rapidly increasing consumer demand that has required it to bolster its Canadian workforce of about 23,000 employees by several thousand more.
This month, it was reported that Amazon’s worldwide sales have eclipsed those of Walmart Inc., for decades the world’s biggest retailer outside of China, where Alibaba Group Holding Ltd. racks up about twice the sales of Amazon.
Amazon is estimated to have posted sales of more than $771 billion in the 12 months ending in June. During roughly that same period, Walmart reported
sales of $715 billion for the 12 months ending in July.
“It is a historic moment,” Juozas Kaziukenas, founder of the Marketplace Pulse research firm, told the New York Times.
“Walmart has been around for so long, and now Amazon comes around with a different model and replaces them as No. 1.”
But Amazon might not have the winning model for enduring retail dominance.
Here’s why.
Too many competitors. As a general store, Amazon is in competition with everybody. Amazon carries an incredible variety of products (not to be mistaken for depth of product selection).
Amazon sells lawn mowers, balsamic vinegar, wedding gowns, zero gravity massage chairs, dildos for men, cockatiel bird seed, and Homer’s “Iliad” and “Odyssey” in a single volume available in leather-bound, paperback, Kindle and audiobook formats.
History has not been kind to general stores.
They long ago gave way to specialty retailers. There is nothing special about Amazon’s merchandise, which can easily be found in greater choice, range of quality, and often lower prices elsewhere.
The one thing that is special about Amazon is the ease of shopping there, though it does require you to have internet access.
Amazon’s power to intimidate merchants and the thirdparty vendors that sell on its platform, forcing them to dance to its tune, derives from its commanding share of the U.S. e-commerce market. That currently sits at almost 40 per cent. Walmart is a distant second, with 5.3 per cent.
But Amazon is losing that edge as its rivals sharpen their e-commerce skills.
Walmart now generates about 16 per cent of its revenue online. Other growing online players include Target Corp. (18 per cent of total 2020 revenue from its online store), Home Depot Inc. (19 per cent), and Best Buy Co. Inc. (38 per cent).
Walmart’s e-commerce sales jumped by 79 per cent in 2020. Target’s online sales soared by 145 per cent. Amazon’s revenue grew by an impressive 38 per cent last year. But Amazon is no longer the fastest growing player in e-commerce, retail’s fastest growing sector.
Nike Inc. removed its goods from Amazon a few years ago, taking back control over how they are displayed and marketed. Nike now derives about 20 per cent of total revenues from its own digital sales outlets.
It is now easy to become an online merchant. Ottawabased Shopify Inc. is only the largest of several companies that create and manage ecommerce sites for third parties.
In its latest reporting period, the quarter ending July 28, the gross merchandise value (GMV) sold by Shopify’s more than 1.7 million client businesses was about $53 billion.
A winning new hybrid business model. In the non-Amazon retail world, merchants are successfully experimenting with two major sales channels to Amazon’s one. Which is, brick and mortar and online.
Turns out brick and mortar is here to stay, contrary to the “retail apocalypse” forecast as recently as the late 2010s, when Sears Holdings Corp. filed for bankruptcy protection.
With a total market value of $3.2 trillion, America’s publicly traded retailers, most of them still committed to traditional stores, are 88 per cent more valuable than they were at the start of 2018.
Walmart doesn’t have to build a network of fulfilment centres. It already has one.
Walmart is retrofitting its 11,500 U.S. stores into minidistribution centres. Because an estimated nine of 10 Americans live within 15 minutes of those stores, returns are easy, along with same-day pickup or delivery.
Walmart isn’t alone in deploying this hybrid strategy, in which shoppers purchase an item in the store that first enticed them online, or viceversa.
Online shopping is great for quick order processing. But, obviously, only traditional “high-touch” stores enable shoppers to see and feel the product they’re buying.
That’s what makes the hybrid model so compelling.
But Amazon is basically an online-only retailer. Exploiting the hybrid model, which probably will define retail for the next generation, would require Amazon to spend decades trying to replicate the brickand-mortar
ubiquity of retailers like Walmart, Canadian Tire Corp. Ltd. and Hudson’s Bay Co.
Amazon is also the one with the bullseye on its back. (Apologies to Target and its logo.) Rivals will take sizable online market share from Amazon because that’s where the money is.
Amazon is a conglomerate.
Conglomerates are a failed business model. They have too many moving parts to manage with competence, as history as shown time and again.
Amazon is an online department store, a brick-and-mortar grocer (Whole Foods), a movie producer (Amazon Studios), a streaming service (Prime Video), and a provider of advertising, health care, logistics and cloud-computing services. It is also a manufacturer and seller of electronic devices.
By contrast, most of Amazon’s rivals are wholly focused on retailing.
It has been widely reported that the task for Andy Jassy, the Amazon CEO who replaced founder Jeff Bezos this year, is to deal with U.S. and European antitrust authorities set on busting up Amazon. It isn’t.
Amazon, already besieged with rivals, will have still more competition as almost every merchant upgrades its online business.
The task for Jassy is to pick a lane.
Jassy, 53, built Amazon’s formidable cloud-computing business (Amazon Web Services, or AWS), which accounts for almost 60 per cent of Amazon’s operating profits.
And AWS, the leader in its field, is in a fight to the finish with Microsoft Corp., which sees the cloud as one of its chief means of growing revenue.
In the coming crunch, the legacy Jassy will be most keen to protect is his own, AWS. And not a marginally profitable retailing legacy of Jeff Bezos.