Surviving in the Shadows of Amazon

By Krystal Yip (University of Warwick) and Sarah You (Western University)


Synopsis


Amazon has no doubt dominated its place as a leading retailer, and it seems merely impossible for one to go head-to-head with the giant. COVID-19 has not been particularly helpful either, in fact it has fueled the rapid growth and evolution of retailers like Amazon, Alibaba, among others. Still, there could be room for smaller competitors to survive in Amazon’s shadows and retailers may have a chance at surviving the firm; survival in the new shopping era is down to more than just mastering the basics, but it is also about delivering exceptional customer-centric, acting with innovation and flexibility. 



Table of contents 


Section 1: The Challenge

  • Over 44% of all worldwide product searches begin in Amazon’s search bar compared to circa 13% who start on Google, a drastic contrast to 2009 when Google led product searches at 24% compared to Amazon at 18%.


Section 2: The Opportunities

  • Consumers may be looking for something more than that - a unique experience coupled with high touch service and fidelity.


Section 3: Coopetition 

  • Companies can adopt a different approach and rather than fear Amazon as an enemy, enlist them as a partner and seek opportunities for collaboration and harmony.


Section 4: Outlook 

  • Firms should continually examine organizational structures for ways to scan the marketplace for potential collaborators, or they can choose to compete with the US’s leading online retailer, Amazon. 



The Challenge


Amazon, an American multinational eCommerce chain, has claimed its place as a market leader in a highly saturated environment. Over 44% of all worldwide product searches begin in Amazon’s search bar compared to circa 13% who start on Google, a drastic contrast to 2009 when Google led product searches at 24% compared to Amazon at 18%. It’s no surprise that Amazon presently holds 310 million active customers globally and that the term ‘Amazon Effect’, used to describe the powerful disruption eCommerce has made on the retail market, was coined. As such, beating the e-commerce giant is difficult for other firms due to its depth of warehousing and fulfilment infrastructure, highly deep network and technology advancement. This includes Amazon Prime, the firm’s one-day shipping option and its 24/7 tracking network. Amazon has evidently disrupted the retail industry, and while this has aggravated growth and innovation among others, it has also presented major challenges for other retailers. According to Invesp, over 65% of retailers surveyed expect to offer same-day delivery within the next 2 days however the adaptation will incur heavy costs, especially for small retail businesses that do not have the capital intensity and scalability for quick logistic services & transportation. 


That said, companies such as Cathay Innovation Portfolio and delivery app Glovo have recently gone vertical, launching their version of a ‘darkstore’ - the size of a garage with limited inventory across major metropolitan cities. This enables the guaranteed delivery of maximum 15 minutes, as opposed to Amazon where the majority of its warehouses situate in the outskirts due to the scale of its business and hence, are put at a disadvantage in relation to lead times. In these areas, smaller retailers can leverage their small scale operations for a more seamless process with delivery. 


The competition doesn’t stop there. Amazon is concurrently expanding its platform beyond its usual scope of fast moving consumer goods. In fact, the e-commerce giant has mirrored Alibaba’s push into luxury retail back in 2017 with the launch of its Tmall Luxury Pavilion, coupled with the firm’s recently announced partnerships with luxury fashion designer Oscar de la Renta, among others. At the same time, Amazon is in the process of building a new warehouse in Arizona for its luxury platform, and is also working on a USD$100M marketing campaign. Only an ecommerce giant like Amazon can whip out a new strategy like that. 


With its scalability, Amazon has also recently opened up and invested billions into artificial intelligence for the launch of its first ever physical stores - Amazon Go, which employs cameras and sensors to track customers and their purchases. Despite the store reporting positive results in the first few years of its operation, a takeover of checkout-free stores will prove to be difficult, both from the myriad of issues regarding privacy and data security, but also the inherent lack of trust that stems from people when there is a lack of physical interaction. As such, while Amazon has certainly taken the lead in many aspects, there are other opportunities and addressable markets firms can capitalize on. 



The Opportunities


Undoubtedly, Amazon boasts convenience with its unlimited section of products that are easier to purchase than ever before. That said, consumers may be looking for something more than that - a unique experience coupled with high touch service and fidelity. In a survey by GetApp Lab Research, the majority of respondents valued talking to a real person as the main factors for customer service. Currently there are no live chats visible on Amazon’s website, which could open up an opportunity for smaller retailers to ramp up their customer services online and build deeper relationships with customers. 


Another survey found that nearly ¾ of customers cited brand name as an important factor when selecting a product. Therefore, if Amazon is not retailing the brand consumers want, they lose massive downside. This presents opportunities for eCommerce platforms, those potentially targeting a niche such as luxury e-retailer websites MyTheresa and Farfetch, to step up their platform and supply more exclusive brands. While Amazon has been launching its collaboration with luxury retail stores, many marketers of high-end products in fact view Amazon as a venue for deals and discounts which does not align with the brand’s reputations and image. They fear cannibalizing their own sales and much prefer to curate their own collections via their own exclusive websites or those of trusted partners, than through an ecommerce giant that sells close to every fast moving consumer good. This pegs the following question: will Amazon be able to ever penetrate the upscale market if such perception persists?  


Figure 1: Markdowns on various luxury e-retailer (Financial Times)


Another long-term problem Amazon has been facing is the legitimacy of their platform. For a long time, the company had difficulty regulating third-party sellers on their website. One example of their numerous problems is the rampant counterfeiting that occurs on their platforms. Since Amazon’s sellers are mostly independent agencies that face little supervision from the company itself, there is little oversight as to the legitimacy of what is being sold on the platform. As such, counterfeiting is a huge issue on their website, even to the point where the company’s own line of products got hijacked, and the Department of Homeland Security issued a statement that “customers are often unaware of significant probabilities they face of being defrauded by counterfeiters”. Another issue the company faces is with the vendors themselves. Partially due to the lack of oversight and regulation on the platform, many malicious sellers go unnoticed on the platform, and as a consequence, pose a significant threat to the online marketplace’s integrity through fake malicious feedback, often destroying their competitors’ traffic. As of now, the company still seems to have little success in combating the myriad of problems, with malicious fake reviews and the same counterfeiting issues. Even as recent as this year, a coalition of major retailers in the North American market including Gap, Levi’s and JCPenny launched a petition to the United States government requesting more stringent oversight on the company’s online platform. Part of the numerous problems is due to the massive scope of Amazon’s operations compared to many traditional retailers. Similarly, its mechanism as serving as a platform for sellers to trade goods, rather than an online channel for distributing goods like most online stores decreases the security of the platform as a consequence of increased freedom. In this case, smaller online retail platforms have a massive advantage compared to Amazon as it is much easier to regulate the platform and ensure the legitimacy of its sellers. This is particularly useful in niche markets where the customers are usually hyper-sensitive to any changes in the markets themselves.



Co-existing/Collaboration 


Companies can adopt a different approach and rather than fear Amazon as an enemy, enlist them as a partner and seek opportunities for collaboration and harmony. There have been a plethora of experiences where firms have started to initiate collaboration, one of which includes the USD13.7B merger of American multinational supermarket chain Whole Foods and Amazon. The acquisition has brought upon many synergies, given that Amazon was looking to provide the ability for quicker regional grocery delivery while Whole Food could leverage Amazon’s resources to boost its place among the largest players in the American market with innovation. Another was during the introduction of Kindle e-reading devices where not long after the launch of Apple’s iPad, the two rivals teamed up to distribute Amazon’s e-books through the iPad’s Kindle app. This proved to be a convenient trade-off as Amazon got a wider market for its Kindle and the Apple iPad became deemed as a well-rounded content provider for a selection of e-books. Both firms were able to create and capture value together, whilst simultaneously competing with their software platforms. 


Globally, competitors have already seized the opportunity to partner with Amazon, especially in international markets where the e-commerce giant’s influence is not as strong. In the Indian retail market, local retail conglomerate Reliance Industries Ltd. offered roughly $20 billion for Amazon to collaborate in further expansion, with talks of potentially allowing Amazon to hold as much as 40% percent of their subsidiaries. Back at home, the CEO of Tesla rival Lucid Motors has announced to collaborate with Amazon through integrating the voice assistant Alexa into their new line of electric cars. Many other companies have also decided to take advantage of Amazon’s diverse line of innovate technologies through their robust R&D, such as Warner Music who has partnered with Amazon Music to remaster old tracks, and Morrisons which has recently entered into a new supply agreement with Amazon; in the coming months, hundreds of Morrisons products will be made available to Amazon Prime Now and Amazon Pantry customers, supporting the idea of complementary co-existence among the retail industry. This series of partnerships announced between Amazon and other prominent retailers could potentially mark the beginning of a new trend among retailers taking advantage of the giant’s robust operations and sophisticated technologies to further enhance their own influence in their respective niches. 



Outlook 


It is without a doubt that Amazon holds much bargaining power within the market space; with its massive infrastructure and seemingly unlimited cash, it may be demotivating for relative businesses to compete with the e-commerce giant. That said, there are still a number of ways retailers can differentiate themselves from Amazon and meet an addressable market. This will require fantastic, personal customer experience and support, high-quality products, fast shipping and easy returns. While there are opportunities corporations can deep dive into, perhaps companies can learn to co-exist and collaborate with Amazon for optimised efficiency and resources. Alternatively, firms can share their resources more efficiently or leverage them with competitors through a coopetition-setup. Take Sony and Samsung, for example, which established joint technology and manufacturing plants in South Korea that has pushed them to become market leaders in the LCD TV segment over the past decade. Firms should continually examine organizational structures for ways to scan the marketplace for potential collaborators, or they can choose to compete with the US’s leading online retailer, Amazon.