Interviews, insight & analysis on Ecommerce

Alex Payne

Amazon department stores will deepen existential threat to traditional retailers and prompt brands to restrategise

By Alex Payne, CEO at eDesk

Seemingly discontent with conquering the worlds of ecommerce, streaming and groceries, the tech giant is said to be launching its own department stores – so what does this mean for retail?

Despite being recognised globally for rapid online retail and putting personal assistants in our homes, Amazon is reportedly embarking on a new department store mission. One thing is for sure: it will have no shortage of items to stock.

This news is Amazon’s clearest signal yet that consumer brands, now and in the future, must adopt a multi-channel strategy both off and online. Brand owners will find it increasingly difficult to ignore these large physical shops that will operate like department stores, especially one as recognisable and wealthy as Amazon, which saw net sales rise 27% year-on-year to $113.1bn in Q2 2021

The old model of distribution through high street stores, shopping malls and your own website is changing. Online marketplaces – led by Amazon – are fast-becoming the new supermarkets, with massive reach, deep consumer insight and super-powerful 121 marketing. Too many well-known consumer brands have failed to fully embrace online and commit to its potential, thinking that their own website was enough. It’s a risky strategy and these companies are depending on the strength of their brands, which will be increasingly tested as the rules change and online starts to reinvent the physical shopping experience.

Amazon has accelerated the importance of having a truly comprehensive channel strategy, as it blends its online capabilities with real-world opportunities. It has brand equity and experiences it can leverage that other traditional retailers do not. For instance, Amazon champions Black Friday but also introduced its own shopping bonanza with Prime Day, so it stands to benefit significantly in the offline arena if its online sales are anything to go by. Indeed, Prime members in 20 countries shopped more and saved more during Prime Day 2021 than any of the previous Prime Days, with more than 250 million items bought. Growth here could be exponential as online continues to rise and Amazon department stores will offer another option for choice-hungry shoppers.

This shrewd and disruptive step by Amazon starts to bring the distribution model full circle, but on very different terms than those that used to exist with old-fashioned department stores in the 20th century. Amazon brings a completely different suite of capabilities to the table, having invested in an incredibly powerful mix of consumer services ranging from online stores and streaming to in-home assistants and physical stores. The opening of cashless store Amazon Go, the acquisition of Whole Foods and launch of smaller shops and pop-ups have all been an ongoing prelude to this new milestone.

The concept of digitally-driven department stores like these from Amazon will have other implications. The unit economics and retail margins of retail stores get upended when combined with seamless online browsing. Click-and-collect and its various hybrid permutations will enable new approaches to inventory management. The seamless integration of in-store browsing and digital identity management will allow anything not in stock to be delivered straight away. And Amazon will benefit hugely as the cost of shipping for its enormously popular Prime service drops as customers collect their purchases themselves. All this is going to change how we shop.

Physical retail has struggled against the rise of ecommerce – take Debenhams’ collapse and Boohoo swooping in to buy it for online-only use, while ASOS consumed Arcadia – but Amazon taking to the streets changes the narrative. Following in the footsteps of previous pure-play e-tailers, like Birchbox, Amazon sees great benefit and cost efficiencies in having an in-person store. A physical presence will benefit consumers by offering further convenience, allowing them to easily return unwanted items as they go about their day. And of course, it will benefit from some serendipity for consumers, as unplanned in-store purchases increase.

Amazon has an almost bottomless knowledge of what online shoppers desire, as well as the logistical capabilities to facilitate demand, which creates an interesting proposition for the modern consumer. Our survey of 2,000 UK and US shoppers revealed 96% and 95% of respondents respectively have used Amazon. Additional data has shown that customers appreciate Amazon’s product selection and speed, which makes for a compelling shopping experience – leveraging this with a store-based offering alongside its considerable brand reputation seems like the next logical step.

Now is the time to strengthen your multi-channel strategy. Marketplaces are here to stay, and getting stronger by the day, and it’s not just Amazon. Walmart online sales grew 79% last year, Etsy by 106.7%,and eBay by 16.9%, driven by the enormous benefits of choice, price and convenience for consumers. Brand owners will need to decide how to embrace this channel rather than fight it, as it’s where consumers are going. With the exception of Walmart, these marketplaces are innovating much faster than traditional department stores in the high street and shopping mall.

In an era of same day shipping and growing customer demands, online sellers need to provide five-star customer service with faster response times than ever before. Every single transaction with customers counts and should truly matter. Maintaining a consistent approach in how you communicate to customers whether in positive or negative situations, will show shoppers what your business is all about. Resulting in higher customer satisfaction, prevention of bad online reviews and, ultimately, more sales.

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