Greg Zakowicz, senior commerce marketing analyst, Bronto
Cash is king. Well, actually, Amazon is king. And it certainly creates a lot of cash. Not only does Amazon continue to dominate e-commerce, but it also impacts almost every line of business—from supermarkets to web services. Now it’s even getting into pharmaceuticals.
The folks over at Amazon are not dumb. They test, and they try. Often times, they even fail. But while they push the limits of getting to market, they’ve also proven to be patient. More importantly, they’re very calculated.
Walmart is trying to become Amazon. Ironically, though, I see Amazon as actually trying to become Walmart. Why? Because while e-commerce is growing, 92% of retail sales come from brick-and-mortar stores. Brick-and-mortar sales will continue to give up share to e-commerce, but e-commerce won’t replace it. People will continue to shop in-store, and Amazon knows that.
Here’s why I think it makes sense for Amazon to get into the supercenter game. I’m sure they’ll come up with a snazzier name, but let’s call it Amazon Life. Anyway, let’s explore this a bit, shall we?
Brick-and-Mortar: We all know Amazon is no longer an e-commerce pure-play. It has its own book stores, it now has Whole Foods (and is expanding pick-up lockers in some locations), it has stand-alone pickup lockers, and it’s also partnered with Kohl’s. This partnership makes Kohl’s a return-hub for Amazon customers, as well as a place to purchase some Amazon products, such as the Echo. From what I can tell, the only reason Kohl’s agreed to this is because they believe in the “if you can’t beat ‘em, join ‘em” philosophy. I don’t see this ending well for them.
I envision Amazon using Kohl’s as a testing ground to track how many returns are actually made at these locations. Are people willing to drive to a physical store to make returns? If so, how frequently? Will this additional flexibility increase the rate of return, or will it remain steady? I’ll bet Amazon is analyzing this very closely.
Kohl’s, on the other hand, is likely banking on the idea that when someone returns an item, notably clothing, they might stick around to shop for better-fitting replacement items. While this makes sense, it’s not sustainable. Amazon offers too many products for Kohl’s to bank on generating enough clothing returns and related sales to expand its market share. Amazon has over a dozen private labels in the clothing category alone and is showing no sign of slowing its expansion in this category. Why would Amazon want to potentially lose sales to Kohl’s, whose shoppers are the perfect demographic for some of its own product lines?
Shipping costs continue to rise and eat away at margins. Having a more central location where consumers could pick up orders, even same day, could cut these costs significantly. According to fulfillment software vendor Temando, 82% of shoppers said they want the option to buy online and pick up in-store. The cost of paying for returns would significantly be reduced as well. Much like the Kohl’s model, consumers would bring their returns to the store. And, oh yeah, as with the Kohl’s theory, people may want to shop for a new size or product to replace the return while they’re there. The good news here is that all the money would stay with Amazon.
Amazon’s private labels. They continue to be big sellers, and they’re constantly expanding. This includes the most recent launch of Amazon’s first two furniture lines. With over 30 private labels, there will be no shortage of products to display in-store, especially with the fashion lines. I’m going to guess that clothing makes up a large percentage of Amazon’s returns. And with the investment made in the Amazon Look [the version of Echo with a built-in camera], having a local store to assemble a wardrobe for try-on makes sense. It should also help reduce back-and-forth shipping costs under the current Prime Wardrobe subscription model.
The Whole Foods play. The chain is already a brick-and-mortar presence with over 400 stores, but they’re often cramped. Being able to buy groceries (even for pickup) while grabbing a new USB chord, pair of socks and your prescription refill all in one stop certainly sounds like a win-win for consumers. It has been for Walmart. This combination into a supercenter format should allow for a more streamlined distribution process.
Amazon pharmacies. While it doesn’t yet have the permits to operate an actual pharmacy, Amazon is certainly going to get there. Now, unless it purchases a drugstore chain (which is quite possible), it will have to either build out stand-alone drug stores (too costly), integrate them into an already cramped Whole Foods space (not likely) or simply be mail-order-only (least likely).
Amazon warehousing and fulfillment. Consolidation into storefronts could provide Amazon with even more leverage when dealing with brands to use its warehouse and fulfillment services. Knowing consumers could buy and pick up same-day would create some urgency for brands to want to keep their product both in-stock in stores and for quick shipping online. Brands would likely need to pay for larger Amazon warehousing, increasing Amazon billings.
Showrooming. Of course, consumers love showrooming. Just ask Best Buy! This is especially true for larger purchases, such as TVs. Too bad Amazon doesn’t sell electronics. Oh, wait. You won’t need to visit a showroom and then check Amazon for its price.
Data suggests that that millennials and Gen Zers actually like going into stores, but they’re also quite comfortable shopping online. More importantly, they value time, convenience and the experience. Many retailers lack a focus on the in-store customer experience. Amazon doesn’t—and won’t. You can bet that people walking into an Amazon Life (name not official) location would be greeted with convenience and excellent customer service.
Could This Change Prime Memberships?
Consider this. If all of this happened, Amazon might have the ability to differentiate Prime offerings, such as Prime Standard and Prime+. How would they differ?
Just hypothesizing, Prime Standard could be similar to what you have today. Free, two-day shipping and free returns, as well as other media-type services. There would remain a charge for Prime Pantry deliveries; however, instead of offering same-day delivery for free, you would instead have access to same-day pickup at one of their locations.
Prime+ could be offered at a slightly higher price point and include the same-day delivery as an added option. You may even have the delivery charge for grocery orders waived one time each month. You could look for other added benefits to either program, such as tying in meal or fashion subscription services in some way.
So, while Walmart is chasing Amazon, I think Amazon quietly has its sights set on being more like Walmart. Being able to physically provide a customer-centric experience that Prime and non-Prime members alike have come to expect from Amazon can go a long way toward further cementing customer loyalty to the brand.
Brick-and-mortar isn’t dead. It just needs to be done better! And I bet Amazon will be just the one to prove it to us.
Bronto, part of Oracle Corp., is the email service provider for 125 of the Top 1000 online retailers in North America.
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