Will Amazon change classic retail?

amazon logoAmazon has already changed the way we think about online retail and its influence and disrupting force of change and inovation has just began to sink in. The company reported a $48.07 billion revenue in  2011, making it by far the largest online retailer, followed by Staples  and Apple ($10.6 billion and $6.6 billion respectively). The company started by selling books and later expanded into CD’s DVD’s, MP3, ebooks but also jewelry, electronics, furniture, apparel and even food. Here are some of the reasons why Amazon is going to be a game changer in offline retail in the following years.

 

Lack of innovative competition.

It was probably Jeff Bezos visionary strategy that led the company but it also had something to do with established industries refusing to change. As you probably know it was Amazon that bet big bucks on eBooks and eBook readers but it was the lack of competition that made it so successful in that department. While the team at Lab 126, Amazon’s Kindle research team, was working hard to launch its first viable product, the competition was ignoring or at most distantly observing the emerging market. It took Barnes&Noble 2 years to launch Nook, after the first Kindle hit the market.

After eBooks proved to be such a successful story Amazon moved on to selling what the market demanded – tablets that run an Android powered, Amazon flavored operating system, allowing the company to research consumer preferences (by analyzing Kindle Fire web traffic), and most important – selling apps. As a direct result of this move Amazon is now the largest Android apps seller, closing in to the iTunes AppStore.

Amazon has a few tricks up its sleeves

Amazon is not just a retailer. It is a brand loved by customers partly because of its previous underdog image (long time gone as it is estimated to overtake Walmart by 2020) and partly because it sells things people love – books, music, apps even jewelry and furniture. But there is more. Here are some of its “to be loved” products:

1. Amazon TV 

Amazon is known for selling media. Books, music, video – it’s all media. Why not join the soon-to-be-trendy market for digital TV? It has already shown it can use it’s market share to launch a digital product that streamlines media consumption (the Kindle) – so why not TV?

The company’s model features low cost (even under production costs) hardware retail as a way to create an infrastructure to deliver content profitable so TV might just be the natural choice in post-Kindle business development.

2. Amazon Offline stores

Amazon Lockers is the first step toward an offline presence. It may sound strange but Amazon will need to create offline stores in order to tackle the offline retailers. Why? Online retail is big and is growing fast but if you look at the bigger picture it is still only 8.9% of total retail revenue, even in the US.

Such a bold move may be a little different than what we expect. Brick and mortar stores have basically stayed the same for the past century so maybe there is a need for a change. Amazon Lockers may be the store of the future, not just an experiment.

3. Amazon’s private label

So far Amazon worked as a rather large market place for all kinds of products and suppliers. It may be time for the company to tackle some of the largest and most profitable companies in the world. There is speculation of an Amazon private label, that could produce everyday items such as personal care, child care or clothing. Such a bold move would really be disruptive as the competitors in this market are P&G, Unilever and others such.

The global economy can’t handle the “classic retail”

The global supply chain puts too much burden on consumers. P&G’s margin was down from 25% (dec 2008) to approximately 7% (dec 2012). To handle the global operations, marketing costs supporting dozens of brands and still turn profit in a recession means that P&G’s products must start with a rather large margin, supported by mass market advertising.

Amazon is a different kind of business. It doesn’t need large margins. It’s flexible and fast. It can adapt and can tackle markets even before incumbents notice it as a threat. My bet is that Amazon’s influence, not only on retail but on global economy as a whole, is just beginning to show.