Amazon dominates online retailing in the world’s most advanced economies and is among the world’s most valuable companies by stock market value. But Amazon does have weaknesses. The coronavirus exposed vulnerabilities in its ability to respond to supply disruptions. Plus, its very success makes Amazon a target for politicians and regulators the world over.

Amazon.com Inc. dominates ecommerce in the world’s most advanced economies, the third-most valuable company in the world and leads all U.S. retailers in consumer satisfaction. What’s more, Amazon trails only Apple as the most-admired company in an annual survey of business executives by Fortune magazine. By many measures, Amazon is a remarkably successful company and a formidable competitor for any company selling merchandise to consumers. But for all its remarkable success, Amazon has weaknesses, including some that have been highlighted by the coronavirus pandemic. And its very success has made it a major target of politicians and regulators around the world—which in the end could lead to legal action that could undermine some of Amazon’s strengths.

And Amazon’s aspirations go far beyond retail. It has established itself as the leader in the highly lucrative business of providing cloud computing services to companies, government agencies and other enterprises. It’s well on its way to building a significant package-delivery service, has established a strong beachhead in the growing arena of business-to-business ecommerce and is taking steps to become a force in healthcare.

Amazon, No. 1 in the 2020 Digital Commerce 360 Top 1000, is not so much a retailer as a technology company. It uses its powerful assets—a loyal customer base of hundreds of millions of consumers globally, a world-class information technology infrastructure and a sky-high stock market valuation—to move boldly into big markets where it sees an opportunity to provide services more efficiently than existing competitors do today.

Let’s take a look at some of Amazon’s amazing successes and then its weaknesses.

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3 strengths, 3 weaknesses of Amazon

Among Amazon’s many highlights are the following:

  • Online retail dominance: Sales on Amazon.com accounted for 37.5% of U.S. online retail sales in 2019, up from 7.7% in 2010, capping a remarkable decade of expansion. Amazon also accounted for 59.5% of U.S. ecommerce growth in 2019. Furthermore, Amazon is the leading online retailer in Western Europe and one of the top two ecommerce players in Japan, along with Rakuten Ichiba.
  • Amazon Prime keeps shoppers coming back: Membership in Amazon Prime keeps growing, reaching 118 million U.S. consumers in March 2020, up from 103 million a year earlier, according to Consumer Intelligence Research Partners. A survey by RBC Capital Markets found 83% of Prime members shop on Amazon at least twice a month and 59% spend at least $800 annually with Amazon.
  • Investors are very bullish on Amazon: Amazon is No. 2 in stock market valuation behind Apple Inc. at more than $1.6 trillion. Its ratio of stock price to earnings is 128, more than four times the average of nearly 30 for all Standard & Poors 500 stocks, an indication of investors’ confidence in Amazon’s future. The high price of Amazon’s shares gives it valuable capital with which to acquire other companies and compensate employees without paying high salaries.

But here are three ways Amazon appears vulnerable:

  • Its just-in-time inventory strategy faltered in the pandemic: Amazon’s obsession with efficiency includes keeping just enough inventory in its warehouses to meet likely demand. But when the COVID-19 outbreak hit and Amazon had to prioritize high-demand items, it stopped accepting deliveries of nonessential products. Thus, many customers could not find what they want or experienced lengthy delivery delays. The result: Only 64% of online consumers responding to an annual RBC Capital Markets survey said they were “extremely” or “very” satisfied with Amazon in June 2020, versus 73% in 2019, 72% in 2018 and 82% in 2017.
  • Politicians and regulators are taking aim at Amazon: Federal and state regulators in the U.S., as well as their peers in Canada and the European Union are investigating whether Amazon takes advantage of third-party sellers on its marketplaces. France is considering a moratorium on the construction of new ecommerce warehouses, which would slow down Amazon’s expansion plans. In India, the government has taken steps to protect local retailers from foreign giants like Amazon and Walmart.
  • Amazon’s retail operations are barely profitable: Amazon reports big profits each quarter but most of them come from its Amazon Web Services cloud-computing unit, which accounted for 63.3% of Amazon’s earnings in 2019, up from 58.7% in 2018, and at least two-thirds of profits in every year from 2015-17. Most of the rest of Amazon’s profits come from advertising. That means if it were forced to divest itself of AWS or its marketplace business—which helps attract advertisers—it might not have the profits to offer generous free and fast shipping options, among other perks Prime members love.

This brief summary barely scratches the surface of Amazon’s explosive growth and its new ventures. For a complete picture, read the 2020 Amazon Report, which includes:

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  • 88 pages in PDF format providing a data-driven look at Amazon’s sales, growth over time, ecommerce market share in the U.S. and other major markets around the world, and comparison with major retailer rivals.
  • 64 charts providing thousands of data points from more than 15 years of proprietary Digital Commerce 360 research and dozens of third-party sources.
  • An in-depth look at Amazon Marketplace sellers, including their share of Amazon’s sales, and the commission fees they pay by category, as well as total SKUs on Amazon versus major competitors.
  • Amazon Prime data, including membership growth, satisfaction, annual spend and demographic data, as well as how much Amazon spends on movie and TV show content provided to Prime members.
  • A deep dive into Amazon’s expansion in grocery and apparel.
  • A list and category analysis of Amazon’s private-label brands and discussion of Amazon’s private-label goals.
  • Data on Amazon’s bricks-and-mortar store formats and analysis of its offline strategy.
  • Detail on Amazon’s growth as an advertising platform and U.S. online advertising market share, as well as Amazon’s own spending on paid search and other forms of advertising.
  • Detail on Amazon’s U.S. retail websites and international marketplaces.
  • An in-depth look at Amazon’s growing network of distribution centers, both in the U.S. and worldwide, and its strategy for growing its own package-delivery service.
  • Analysis of Amazon’s finances, including the profitability of its retail operations.
  • A detailed look at Amazon Business, its growing business-to-business ecommerce platform, including its international expansion and growth of Amazon Business Prime.
  • An assessment of the political challenges facing Amazon around the world.
  • An analysis of how the coronavirus pandemic is impacting Amazon’s business.
  • Exclusive data on Amazon Prime Day sales.

The 2020 Amazon Report can be downloaded now as a PDF for $499. Digital Commerce 360 Gold and Platinum members receive a complimentary copy of this report as a part of their membership.

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