Amazon’s Department Store Disruption: If You Can Beat Them… Why Join Them?

The news that Amazon AMZN would be joining the ranks of the departments stores it has been beating up for years came as somewhat of a surprise to many retailers.  The industry-slaying ecommerce giant has seen its market cap rise to $1.7 trillion this year. While ecommerce’s overall performance continues to eat market share, traditional retailers respond by closing underperforming stores. UBS analysts predicted that by 2025, the U.S. would have 100,000 fewer stores. Now Amazon wants to open physical stores to sell clothing and household items and facilitate exchanges.

As Adam W. Ifshin, board member at the International Council of Shopping Centers (ICSC), stated earlier this year,

“There’s only one company in e-commerce that matters and it’s Amazon. And what are they doing? They are trying to become Walmart WMT .”

What does Amazon’s foray into brick-and-mortar mean for the industry?  Can Amazon provide enough differentiation in a saturated market to “win” or even compete at the department store business?

The New York Times NYT proclaimed in a headline on August 17 that “People Now Spend More At Amazon Than Walmart,” noting that this milestone was proof that “the online future has arrived. The biggest ecommerce company outside of China has unseated the biggest brick-and-mortar seller.” The article notes that while analysts assumed that this day would come sometime in the not-so-distant future, the pandemic-fueled boom in ecommerce expedited its arrival.  According to eMarketer, Amazon’s take from total ecommerce sales in the U.S. is nearly six times that of Walmart’s, with Amazon capturing “41 cents of every dollar spent online in the United States, while Walmart takes just 7 cents.” Amazon’s marketplace sales dominate its online offerings, with third-party sellers doing more business on Amazon’s platform than Amazon itself does. Yet the advantages this model has over Walmart are clear— Amazon has no costs for manufacturing, inventory, or rent associated with 56 percent of the goods sold on Amazon. Presumably, Amazon will need to take on some of the same costs themselves when they open brick-and-mortar locations, which could potentially level the playing field a bit. 

As I have said before, in my opinion, and it bears repeating,

Amazon is not a retailer. 

Amazon is a master of logistics and tech company.

While Amazon has been the bane of most retailers’ existence, in its quest for greater market and data dominance, Amazon has also ushered in many customer-centric tactics that are, frankly, now table stakes for the rest of the industry.  The industry has learned to be agile and pivot pretty quickly to implement services that appeal to a broad range of consumers.  Prime-like membership programs and free, fast shipping pervade the industry. Yet Amazon continues to dominate the market because it excels at not only getting purchases to consumers quickly, but even more importantly, using predictive analytics to know exactly what their consumers want to purchase…seemingly before the consumer itself even does.

Because Amazon is driven by a digital- and data-first mindset, the company will innovate and change the brick-and-mortar space, and possibly for the better. 

Consumers do like stores—they like to touch and feel and interact with product even if they use many stores today to research and showroom their next online purchase. 

The digital-first mindset will be the key to setting Amazon stores apart from their competition. If you build stores already knowing who your top customers will most likely be (Amazon Prime AMZN members), where they live, their order history, and even the movies and music they stream, then you truly know your customer in ways that many retailers can only imagine. Amazon owns a lot of the ultimate Voice of the Customer data sets and uses all the data at its disposal to sell more product. Imagine how that virtuous cycle could come to life in a physical location. Imagine how much more data Amazon can mine through physical interactions with their customers. They have the opportunity to create unique, hyper-personalized, supremely digitized in-store experience.

But is there a tipping point?

Can Amazon restrict themselves to strategically scale their physical store roll out and offer unique experiences that differentiate them from their competition, or will they make the same mistakes many others have in simply laying out a ton of cookie cutter stores?  Meanwhile, all of Amazon’s competitors should not just be waiting to see what will happen so they can react… just a little too late. They need to be testing, learning, and responding to different approaches and products. Asking customers what and how they can differentiate themselves to stay relevant.

Fueling data collected from the Voice of the Customer with predictive analytics is the future of retail—regardless of whether it’s online or in-store. Companies need to find a best-in-class partner and test, read, and respond like they have never done before. For they are truly in the fight for their existence.