Episerver welcomes guest blogger Retail Prophet Doug Stephens. In this blog post and in our on-demand webinar, on May 31, he discusses how retailers can beat ecommerce giants through better customer experiences.
From the beginning it was clear that Jeff Bezos had one thing in mind for Amazon and that was to build a company that would offer the world’s greatest assortment of products and to do so with the highest conceivable level of convenience.
From its founding in the 1990’s, Amazon not only weathered the dotcom bust but through rapid diversification, ingenuity and continual refinement of its model has evolved into an innovation powerhouse that can quite literally tank the valuations of incumbent competitors simply by inferring even a mild interest in entering their categories.
Today, Amazon accounts for about half of all online sales in the United States and takes more than 60 percent of every incremental dollar spent online. Even more staggering perhaps are analyst predictions that within two years the company will enjoy a 10 percent share of the U.S. retail market as a whole. One propellant of its meteoric growth is its Prime membership program, now a staple in a staggering 82 percent of U.S. households with incomes over $110,000. And the U.S. of course, is only one of the 13 global marketplaces that Amazon very effectively operates.
More importantly, Amazon’s competitors can no longer take comfort in Amazon’s absence of profitability. Over the last 11 straight quarters, Amazon has realized a profit of which an increasing amount is being spun by its retail business.
Some retailers like Walmart, for example, are attempting to take the fight directly to Amazon on their own terms, although one can’t help but wonder if by doing so they’re not stepping directly into Jeff Bezos’ well-laid trap. Amazon has a tendency to bait retailers into dangerous decisions. Other retailers such as Sears and Kohl’s have determined that cooperating with Amazon is a better option. Sears is now installing Amazon-purchased tires at its stores and Kohl’s is installing Amazon technology departments in many of its locations. Amazon is essentially making every store an Amazon store.
Part of the difficulty in identifying a viable retail strategy with which to compete against Amazon is that Amazon is not really a retailer. In truth, Amazon is a data, innovation, media, technology, logistics, advertising, publishing and shipping company, that also happens to offer over half a billion products! It’s precisely this unique ecosystem of offerings, revenue streams, and ways to market that make the company so dangerous and its tactics so difficult to anticipate. Conventional retail calculus simply doesn’t apply when competing with Amazon.
Mirroring, if not perhaps overshadowing Amazon’s reign of terror in the west is Alibaba.com,“the beast from the east”. The brainchild of Chinese entrepreneur Jack Ma, Alibaba has enjoyed a similar path to dominance in the Asian market and like Amazon, has become an intricate conglomeration of different revenue streams, business models, marketplaces and service offerings. There may be no other company with the capacity to post the sort of jaw-dropping sales numbers that Alibaba manages. For example, on what Chinese consumers celebrate as “Singles Day” (essentially the Chinese equivalent of Cyber Monday) Alibaba sold an astonishing 8.6 billion dollars worth of goods…in just the first hour! That’s 143 million dollars per minute. Over the course of the day the company would go on to sell over 23.8 billion dollars worth of merchandise, a figure equaling about 65 percent of the market capitalization of Target Corporation. Moreover, it does so with an operating margin of over 30 percent, essentially Amazon on steroids. And like Amazon, Alibaba is also evolving into a physical retailer, touting what Jack Ma refers to as “The New Retail”, a term he uses to describe the company’s seamless combination of brick and mortar experiences powered by online convenience and data.
Yet, despite their enormous scale and seeming impenetrability, both Amazon and Alibaba do have inherent weaknesses that savvy retailers can and should capitalize upon.
I’m not suggesting that there’s a silver bullet or even that the majority of retailers will come out of this unscathed. There will undoubtedly be significant casualties across categories. But the fundamental question, “Can a retailer remain viable and successful in a world being increasingly dominated by Amazon and Alibaba?” is, according to my research, a resounding yes.
The answer lies in understanding that the attributes that make these two companies so formidable are, in fact, the same things that contribute to their vulnerability. Retailers that understand the respective Achilles heel of these giants, stand not only to sustain the disruption they’re causing but also to capitalize as a direct consequence of it.
To learn more, I hope you’ll join me in a webinar with the team at Episerver on May 31st as we unpack the insights, tools and strategies necessary to not only survive Amazon and Alibaba but to thrive in their presence.