What is Amazon effect?

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The customer preferences to the way of shopping have drastically changed in the one last decade. Earlier the consumer had to go to the market to purchase something for himself or his family. Then came along the modern era of online retailers and e-commerce which changed the consumer journey. Today, man can find the exact items he’s looking for without having to look very hard and can purchase them and arrange to have them delivered with just a few clicks.

Amazon

We all know what Amazon is, and what it does. From books, appliances, apparels, furniture, to the latest gadgets, Amazon delivers almost everything at our doorstep. It’s no surprise that Amazon is one of the today’s most respected e-commerce giants that has about 244 million active users and is valued at more than $430 billion.

According to The Motley Fool, “Amazon’s North American sales increased 25.2% in 2016. Meanwhile, the U.S. Census Bureau has been tracking e-commerce sales growth at around 15.5% through the first three-quarters of the year.

With e-commerce accounting for such a significant share of retail growth in the United States, Amazon’s biggest competitors, like Wal-Mart, are really feeling the hurt. While Amazon’s North American sales increased 25.2% last year, Wal-Mart’s overall U.S. sales increased just 3.3% through the first three-quarters of the year.”

Here’s a chart given below that explains how tremendously Amazon has acquired large shares of sales in North America in a short span of time compared to retail stores.

The Amazon Effect

Since Amazon is so huge, it has an enormous effect in the marketplace. The name Amazon Effect is an acknowledgement of Amazon’s early and continuing domination in online sales. This domination has created a disruption in the retail market due to the huge shift of the customer to buy things online instead of going to the market.

The Amazon Effect is the impact, the digital marketplace has on the traditional business model regarding consumer expectations and the new competitive landscape.

How is Amazon Effect affecting the global retail world?

Many long-standing retail companies, from departmental stores to brands fear the consequences of the new competitive landscape that Amazon has created in the field of retail.

Amazon will have 19 percent share of the U.S. apparel market by 2020, up from 6.7 percent just last to last year. That number is based on a survey which claims that 20 percent of U.S. consumers “frequently” buy clothes on Amazon and that Amazon Prime members — also up 50 percent year over year — are 5.5 times more likely to do so. Source

Today, the retail marketplace is changing drastically and the brands will have to figure out a way to compete with Amazon’s quality and swift service.

The simple chart below explains what is taking place in retail today. Many traditional retailers report slipping sales because of the turbulence in the market created by Amazon.

Due to the Amazon Effect, the entire brick-and-mortar retail industry is slowly shutting down. JCPenney is closing 140 stores (14%,) Macy’s is closing 100 stores (15%,) Sears is closing 150 stores (15%,) HHGregg is closing 88 (40%) as it prepares for bankruptcy and CVS is closing 70 stores. Kohl’s is planning to shrink the size of almost all its stores to reflect lower sales. SourceForbes

The above quote portrays Amazon as a classic example of vertical integration as it owns both the market infrastructure and goods and services themselves too.

Opportunities for Small and Medium enterprises
  • Small businesses could be quivering in their figurative boots, but they don’t need to be. The Amazon Effect could come as an advantage as long as they invest in technology to speed up production.
  • With the influence of the Amazon Effect, small or medium enterprises have the opportunity to tap into the worldwide sales channel more so than ever before.
    Of course, there is a need to think about the ways of how to do the business, but e-retail can help an enterprise to plan and market its product better. Also, e-retail gives the enterprises a wide reach to their products and the capability to reach to the masses by providing them a platform to sell their products.
  • Amazon can work as another channel for the enterprises to sell their product along with their presence over other social platforms like eBay or Facebook.
  • Having E-retail as a mode of revenue generation can provide better visibility for your product.
  • The small manufacturers can get a competitive advantage over large manufacturers when it comes to making small quantities for e-retailers, which is frequently seen in case of e-retail. The factories work on smaller and more customised orders which have a shorter lead time and lower inventory levels. This is something that an overseas manufacturers/big manufacturers cannot match.

Hence, there are plenty of practical steps small enterprise owners can take to make the Amazon effect work for them and make their businesses more sustainable.

The future of Amazon Effect

E-retail is a vast thing in today’s world and it is expected to get bigger with time. Amazon’s marketplace benefits smaller sellers and manufacturers by connecting them with an enormous customer base and fulfilment program and is expected to do the same in the future. The “Amazon effect” has already changed shipping, logistics, employment, and brick-and-mortar stores, and e-retail shows no signs of slowing down.

Although the good or bad of Amazon effect remains debatable but it is surely giving many companies ways to plan their business strategy to take advantage of e-commerce’s significant impact and learn how to provide their customers a better service.


References

1. Thomas, A. (2017). The Amazon effect is hitting the apparel industry. CNBC
https://www.cnbc.com/2017/07/10/heres-how-the-amazon-effect-is-hitting-the-apparel-industry.html

2. Amazon Effect. Tech Target (2017)
http://whatis.techtarget.com/definition/Amazon-effect

3. Huff, S. (2017). The Amazon Effect” and the Future of Retail Competition. Millennial Marketing. http://www.millennialmarketing.com/2016/11/the-amazon-effect-the-future-of-retail-competition/

4. How big is Amazon. Buy Box Experts. (2017)
https://www.buyboxexperts.com/how-big-is-amazon-infographic/

5. Thomas, L. (2017). This chart shows how quickly Amazon is ‘eating the retail world. CNBC.
https://www.cnbc.com/2017/07/07/amazon-is-eating-the-retail-world.html

6. Paul, R. (2017). Amazon is worth almost twice as much as Walmart. CNN Money.
http://money.cnn.com/2017/04/04/investing/amazon-stock-900-alltime-high/index.html

7. McCall, T. (2016). The ‘Amazon Effect’ Is Crippling Department Stores. Fashionista.
https://fashionista.com/2016/05/amazon-effect

8. Hartung, A. (2017). How The ‘Amazon Effect’ Will Change Your Life And Investments. Forbes.
https://www.forbes.com/sites/adamhartung/2017/02/28/how-the-amazon-effect-will-change-your-life-and-investments/#4ea72c475e76

9. Pemberton, C. (2017). The Amazon Effect: What It Means for Your Small Business. MasterCard Biz.
https://www.mastercardbiz.com/2017/01/06/the-amazon-effect-what-it-means-for-your-small-business/

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2 Comments

  1. morganr100 says



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    Hi Mausmi, I would have thought that during Amazons conception, rather than compete with Amazon, who we know does not stock everything that it sells, Retailers, large and small, and or Manufacturers would have tried to join in as say Partner Suppliers, making the delivery with ,say, Joint Branding and sharing the profits with Amazon. Many small retailers in the Food and Groceries are sort of franchises with a central supplier. Many Fashion Retailers operate on 400% Mark ups to cover their costs and mark Downs. Their market is shrinking fast. Rather than try and compete and die, maybe it is better to join in some how and keep a market share and Brand alive. The old idiom goes ‘ If you cant Beat them, Join them’ Not everyone’s choice I know.
    Another great topic to keep the grey matter active.
    Best Wishes
    Frank

    1. Mausmi Ambastha says



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      Well said, Frank. Competing with e-retail giants like Amazon is a popular topic in the retail community. It is obviously not a great idea to compete with giants like Amazon or Walmart.
      I think if someone still tries to compete, then rather trying to sell directly against Amazon, they should sell the products that are not typically found on Amazon or similar sites. That can be one of the ways of competing.

      Otherwise, at the rate at which the retail market is shrinking, to go with Amazon would be a better idea as this will give the retailers great exposure and a platform to grow.

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