Narrative: Amazon Dominates E-Commerce
Each narrative page (like this) has a page describing and evaluating the narrative, followed by all the posts on the site tagged with that narrative. Scroll down beyond the introduction to see the posts.
The Bad News and the Really Bad News for Retailers Fighting Amazon.com – WSJ (Mar 6, 2017)
There are some interesting numbers in here – notably that at its current growth rate, Amazon’s North American retail business could double in size in the next three years, or put another way, that it could suck the same amount of value out of the US retail market in that period as in its entire history to date. Realistically, growth is going to slow a bit, so it’ll take a little longer than that, but the broader point remains: Amazon is vacuuming up tens of billions of dollars of additional retail spend each year, and that has to come from somewhere. Given how small a share e-commerce still has of total retail spend in the US, that means it’s largely going to come from brick and mortar retailers, who have been suffering as a result. Some retailers have been able to recover a little lately in sales growth, but largely at the expense of margins, while one or two retailers have managed to find niches that seem somewhat immune to Amazon’s encroachment. We’re not going to see brick and mortar retailers take this all lying down, though, and one of the most interesting things to watch in the next couple of years will be how effectively these companies can pare Amazon’s growth back if they’re willing to be aggressive enough on margins. I suspect we saw a little of this in Q4, when Amazon’s growth rate dropped a few percentage points, but we might see more of it going forward.
via WSJ
WPP CEO Sir Martin Sorrell: Amazon keeps me up worrying at night – Business Insider (Mar 3, 2017)
WPP is one of the world’s largest ad agencies, and Martin Sorrell is its CEO. As such, what he says about trends in advertising is worth listening to, and he says he worries more about Amazon than almost anything else. That’s because Amazon’s ad business is both growing fast and has the potential to displace agencies and work directly with advertisers, much as Facebook does. This story is fascinating, because it’s a great reminder that Amazon is building a decent-sized ad business largely under the radar – hardly anyone ever talks about it, but it’s becoming pretty big. This article cites eMarketer forecasts, which are about the only estimates I ever seem to see, and which suggest the ad business is getting pretty big – over a billion dollars in 2016. You may not have thought about it much, but certain searches on Amazon lead to pages literally full of ads. Given how many people now start product searches on Amazon, it’s in an enviable, Google-like position of being able to serve up ads that are directly relevant to what consumers are interested in right now. That combination of relevance and timeliness is rare – almost everyone else can manage relevance, but timeliness is much tougher. Though Amazon isn’t going to rival Google or Facebook’s scale in the near future, it’s arguably got a strong shot at becoming number three in online advertising in the near term.
via Business Insider
More than 33 Million Customers Have Used Amazon Payments to Make a Purchase (Feb 7, 2017)
Amazon put out some new numbers around its third party Payments platform today – volume nearly doubled in 2016, 33 million customers have now used it, over half those using it are Prime members, and around a third of transactions were on a mobile device. There’s good growth here for Payments, which doesn’t get much press but has made quiet but steady progress since its launch. But it’s also worth putting in context – the leader in the space, PayPal, reported 197 million active customer accounts as of the end of 2016, up from 179 million a year earlier, so Amazon may be growing but it’s way behind. Amazon, of course, has over 300 million active customer accounts itself, but most of those only use their accounts to shop on Amazon.com. All the more interesting, then, that the two companies are apparently in talks about working together in some way.
via Amazon
Amazon Reports Fourth Quarter 2016 Financial Results (Feb 2, 2017)
Amazon had a somewhat disappointing quarter relative to analyst estimates, as growth slowed in its core e-commerce business. Unit shipment growth, which had been above 25% for the last five quarters, dropped suddenly to 24%, which impacted overall growth rates, as those dropped for the second quarter in a row. The International business had significant losses for the second straight quarter as Amazon invests more heavily overseas in fulfillment, market entry, and extending services like Prime video globally. AWS grew at a healthy clip, though margins are flattening at around 26% lately. As usual, executives on the earnings call were not helpful in understanding or predicting the big swings in both growth rates and investment levels, though guidance for Q1 looks fairly light. The official explanations are the anniversary of a leap year in 2015, which added 150 basis points to growth, and currency headwinds, which are being mentioned more frequently again on earnings calls lately. But it looks as though Amazon may be expecting slightly slower growth in Q1 too. Dropping back down to the high teens and low twenties growth rates Amazon saw in 2014 and 2015 wouldn’t be the end of the world, but it would be a rather different trajectory from the one it’s been on for the past year and a half, and investors would react accordingly.
via Amazon
Target has stunned its employees by suddenly shutting down two big innovation projects – Recode (Feb 2, 2017)
Amazon got lots of attention around its Amazon Go store concept a few weeks back, though it’s still an extremely limited pilot program. Target, on the other hand, seems to have just killed off its own similar initiative out of nowhere. It’s obviously tempting to view this as some kind of response to Amazon’s moves, but given Amazon’s tiny presence in physical retail it seems far more likely Target simply felt the project wasn’t delivering meaningful results and its innovation budget was best spent elsewhere. Having said that, if physical retailers can’t at least attempt to compete with Amazon in innovating on their home turf, it doesn’t bode well for their ability to stand up to it more broadly.
via Recode
Amazon is building a $1.5 billion hub for its own cargo airline – Recode (Feb 1, 2017)
Yet another story about Amazon’s deepening investment in shipping infrastructure (see also ocean liners). Its Prime Air freight investment is an existing strategy, but Amazon is leasing the planes and has been using existing hubs, whereas this new $1.5 billion investment is to create its own hub in Kentucky. Amazon’s claim that it isn’t looking to compete with UPS gets harder to believe all the time.
via Recode
Walmart is going after Amazon Prime with free two-day shipping and no membership fee – Recode (Jan 31, 2017)
Walmart is making two changes to its free shipping program: eliminating the $49 annual fee, and lowering the minimum purchase amount that qualifies for free shipping from $50 to $35. This doesn’t give the impression of Walmart coming from a position of strength, but rather one of weakness, where it has to keep making concessions and changes to try to make its equivalents to Amazon’s Prime service look more enticing. Of course, there’s also an argument to be made that Amazon’s Prime service works so well psychologically precisely because it has a hefty annual fee – once you make that commitment, you’re more likely to purchase lots of things through the site to justify and make use of the money already spent. Removing the membership fee means that users have no special reason to prefer Walmart over Amazon for any given purchase. At this point, I don’t think many people are choosing Amazon for shipping alone – they likely just think of Amazon as the default option for online retail, and if they happen to be Prime members (which many American households are) that seals the deal. Short of going all-in on free shipping a la Zappos, I’m not sure that any changes Walmart makes to its shipping policies and prices will move the needle meaningfully.
via Recode
Amazon Expands Into Ocean Freight – WSJ (Jan 25, 2017)
Amazon seems to be treating building its own shipping infrastructure as a major strategic goal at present, from running its own planes to shipping its own sea freight. That’s partly about leverage over the traditional companies it has historically outsourced these jobs to, and partly about flexibility and control over the infrastructure it needs to get the job done. The further Amazon goes down this route, the harder it becomes for anyone to compete on a level playing field – Amazon’s logistics and distribution infrastructure is reaching a point where it’s becoming a massive competitive advantage.
via WSJ
Target Announces November/December Comparable Store Sales Down 3% – Target (Jan 18, 2017)
This is Target’s preliminary press release for fourth quarter sales, which provides November/December comparable sales data in percentage growth terms, and the picture isn’t great. Comparable store sales were down 3% year on year for the last two months, and even though digital (online) sales were up 30%, that couldn’t make up the difference, and total transactions were flat while fourth quarter revenue will be down. The reason is that digital sales still make up only a tiny minority of Target’s overall sales – 5% in the 2015 holiday season, so a lower share than e-commerce’s overall share of US retail sales. That number will certainly be higher for 2016, but it highlights the challenge all big brick and mortar retailers have to face in Amazon: even if they’re able to match its strong growth in online sales, their physical retail operations still take an even bigger hit.
via Target 2016 Holiday Sales Press Release
To take on Amazon, Walmart is streamlining its retail and web teams – Recode (Jan 13, 2017)
Every story about Walmart (or any other brick and mortar retailer) rejigging its e-commerce arm is bound to be seen in the context of Amazon’s dominance of the space, and Walmart has famously struggled in e-commerce despite its massive scale. At least two of these moves are about consolidating leadership of online and offline retail domains, which is a logical step (and one that Apple, for example, took a couple of years ago). Others reflect ongoing hiring from outside Walmart to strengthen its leadership team, and it looks like Jet is also being further integrated into the company, which was inevitable. Walmart won’t report its December quarter earnings until February 21st, but it will be well worth watching what impact, if any, Jet is said to have had on its performance.
via To take on Amazon, Walmart is streamlining its retail and web teams – Recode