Amazon in Focus: Details on a Disruptive Retailer and the Playbook for Vendors

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Amazon in Focus is RetailNet Group's authoritative new study, with groundbreaking insight into the world's most disruptive retailer and a playbook to maximizing profitable growth.

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Amazon in Focus: Details on a Disruptive Retailer and the Playbook for Vendors

  1. 1. APRIL 2013RETAILNETGROUP.COM | RNGDIGITAL@RETAILNETGROUP.COM© RetailNet Group 2013
  2. 2. Copyright & DisclaimerThe analyses and conclusions presented in this work representthe opinions of RetailNet Group. The views expressed do notnecessarily reflect the views of the management of theretailers or suppliers under discussion.This work is not endorsed or otherwise supported by themanagement of the companies covered.© 2013 RetailNet Group, All Rights Reserved. No part of thispublication may be reproduced, stored in any retrieval system,or transmitted, in any form or by any means, electronic,mechanical, photocopying, or otherwise, without the priorwritten permission of the publisher. www.retailnetgroup.com
  3. 3. Even As It Scales, Amazon’sGrowth Outpaces CompetitorsUS Store-Based Retail(SBR) is growing at3.4% CAGR 13-16Total US Ecommerce isgrowing at ~3.5X SBRAmazon is growing at~2X ecommerce in theUSOutpacing US Store-BasedRetail’s Growth Rate by 6X:Source: RNG research & analysis58%51% 48%34%26%22%8%23%30%0%10%20%30%40%50%60%70%80%90%100%2007 2012 2016EShareofTotalUSEcommerceSalesBrick&Mortar.com Pure-Play AmazonAmazon is Consolidating Non-Store Retail in the US
  4. 4. Including 3P GMV, Amazon isAlready an ~$86B RetailerSource: RNG research & analysisIncluding 3P Gross Merchandise Value (GMV), Amazon is currently:• The 7th largest retailer globally• 23% of global ecommerce sales
  5. 5. Amazon’s Influence Goes WayBeyond What it SellsSource: RNG research & analysis; *Forrester July 2012Amazon’s “limitless” selection &info-rich product detail pagesmake it a destination for productresearch30%13%0%5%10%15%20%25%30%35%Amazon GoogleShare of Product Research byOriginAmazon has growing influence over offlineretail as shoppers research before the trip &in-store—a key driver of “digitally-influenced” retail*
  6. 6. Amazon Defies ConventionalFinancial and Retail MetricsSource: RNG research & analysis-$5.00-$4.00-$3.00-$2.00-$1.00$0.00$1.00$2.00$0$50$100$150$200$250$3002000200120022003200420052006200720082009201020112012Stock Price Earnings/ShareAmazon’s EPS defies conventionallogic, but investors (and vendors)see long-term earnings potential:• Amazon takes the long view and iswilling to be misunderstood• Amazon constantly reinvests in growthand new businesses, e.g. offering fastersubsidized shipping over increasingmargins• Amazon is selectively willing to sell at aloss/low margins to win lifetimecustomers and “annuity” revenuestreams (i.e. Kindle Fire)• As the low cost player, low margins helpAmazon gain share and discouragepotential competitors
  7. 7. Amazon’s Asset-Light Structure andPlatform Approach are Key AdvantagesSource: RNG research & analysisAmazon’s asset structure is verydifferent from Brick & MortarretailersB&M:• Assets are ~30% as a percent ofsales• They include primarilydepreciating assets along withrent & labor, which continue toincrease in cost over timeAmazon:• Assets are ~9% of sales• Amazon is asset-light and itsassets include technologies thatget less expensive over time i.e.data storage• Amazon has optimized its assetbase and created ancillarybusinesses out of excesscapacity i.e. FBA & ASW
  8. 8. AmazonFresh is Coming…The ‘Trojan Horse’ for Same-Day Delivery?Phase 1:2007-2012SeattleIncubationPhase 2: 2013RumoredExpansion(California)Phase 3:2014+“National”ExpansionBuilding on its “forwarddeploy” fulfillment centernetwork, Amazon couldmatch demand to truckcapacity to delivergeneral merchandisesame-day in cities thatoffer AmazonFreshSource: RNG research & analysisAmazon incubatesAmazonFresh, its full-basket grocery deliveryservice, includingAmazon’s own last-miledelivery fleet
  9. 9. Masters of Real-Time Retailing…Dynamic Pricing, Merchandising, and MarketingSource: RNG research & analysisPrices change by the hour25-30% of sales are drivenby personalizedrecommendations
  10. 10. Amazon’s Dynamic Pricing Model isDisruptive—and Shoppers Love ItSource: RNG research & analysisAmazon checksagainst its ownplatform’s 3P pricesInternal assessmentsof the importance ofthe ASINPricingAlgorithmSelling PriceAmazon crawls keycompetitor’s sitesShopper-scannedprices from in-storeMAP/MSRPShown PriceGreat Price CommunicationMAP
  11. 11. When Amazon Wins Shoppers, It Retains Them—and Grows Wallet Share ExponentiallyA $79 annual membership programs entitling members tofree 2-day shipping on over 15M eligible items & accessto a Prime Instant Video• Launched in the US in 2005 and currently available inall markets except China• Prime members visit the site 3X non-prime andhouseholds spend 3-5X non-prime householdsAn auto-replenishment program for consumables like papertowels, shampoo, and diapers with free shipping and adiscount of 5% or 15% (with at least 5 subscriptions)• Launched in the US in 2007 and currently available inthe UK, Germany, France, and Japan• Accounts for 40%+ of Amazon’s sales in certainconsumables categories• Instrumental in the growth of many consumablescategories (i.e. Baby)Source: RNG research & analysis
  12. 12. Amazon Does Have Vulnerabilities• Its competitors already have large, loyal customer bases and localinventory—and they’re investing aggressively• Non-store economics are hard, especially for low-cost, heavy, andtemperature-controlled items• It is platform-driven, not partnership-driven; some vendors find itdifficult to work with, unwilling to share data, and expensive to fund• Amazon competes with 3P sellers it increasingly depends on• It is an item merchant; it doesn’t benefit from the blended economics(or data) of full-basket models• Its user experience prioritizes the functional over the emotional – hardfor premium/aspirational/lifestyle brands to accept• Online category specialists (verticals) can best its one-size-fits-allapproach to merchandising• It struggles in key international markets, especially as a late entrantSource: RNG and Ideoclick research & analysis
  13. 13. The Skillset and Playbook for AmazonVendors are Different than Brick-and-Mortar• You do business through Amazon, not withAmazon• “The internal sell” is as complex as engagingAmazon itself• Winning the digital shelf requires world-classdigital assets (images, copy, reviews, etc.)• The economics of non-store retailing are complex• The merchandising menu is long; it’s essential toknow what works (and what doesn’t)Source: Ideoclick; RNG research & analysis
  14. 14. Learn MoreFor more about Amazon, stay tuned for a webinar on May 1 and theforthcoming release of Amazon in Focus: The Authoritative Guide to Amazonfor Retailers and Suppliers• Amazon In Focus – May 1 @ 1pm EST– Register– Add to Calendar– Event Password: Amazon• Pre-Order Amazon in Focus HERE• Sign up for the Amazon in Focus Session at the RNG 2013 Mid-YearForum HERE– Chicago, June 27thQuestions? Comments?• Call: 757-270-3839• Email: RNGDIGITAL@retailnetgroup.com• Web: RetailNetGroup.com
  15. 15. Amazon in Focus: 200+ Slides, Full-TextCommentary, & Half-Day WorkshopAmazon in Detail• The growth model explained• Growth trajectory: country andcategory expansion• Culture & organization structure• Economics & financial model• Pricing, marketing, andmerchandising approaches• Fulfillment center network andlogistics model• AmazonFresh in DetailThe Amazon VendorPlaybook• Launching new products on Amazon• Improving search ranking on Amazon• Delivering high-performance product detailpages• Assortment strategies• Best funding practices• Optimizing packaging, pack configurationand supply chain• Getting optimal value from Amazon RetailAnalytics (ARA)• Strategic Vendor Services (SVS) – If, when,and how• Managing key third party (3P) marketplacechallenges• Closing out and liquidating on Amazon

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