Amazon has always pushed boundaries to ensure customer delight and low pricing. It took almost 20 years and an ex-Amazon executive for a company to challenge Amazon with proper competition. With Marc Lore in charge, Wal-Mart provides Amazon a competitor that has the deep pockets required to grind Amazon in a meaningful way.
As much as Walmart has benefitted from acquiring Jet.com, the last 18 months have seen Amazon innovate in response. Amazon has shown time and again its willingness to cannibalize itself to ensure that they are in a position to create sustainable revenue. For the purposes of this post, we will look at the period of time after Wal-Mart acquired Jet.com to create a fair comparison.
Technology Innovation
Amazon has developed the Alexa platform into a larger part of their business. Alexa is currently the smart home category leader with Google and others playing catchup. Alexa has made its way into Amazon customer homes without too many issues regarding privacy.
According to CNET, “We want to bring the same simplicity we afford in control today to things like discovering what products work with Alexa, purchasing those products, setting up those products and then using those products. So I think you’ll see us work hard on that. The world of setup is still very heterogenous. There are a multitude of apps and ways of connecting. We’ve done some things to cut through that.”
Amazon launched a new product with commerce at its focus: The Echo Look. This new smart home device offers customers the ability to ask the camera to rate the clothing they wear and help them look their best, among other standard Alexa smart-home features. This iteration of the Alexa product is helping Amazon collect data about consumer purchases in a category where they have traditionally struggled: fashion.
Acquisitions
Amazon, in typical strategic form, ensured that the day Walmart acquired Bonobos, the market would only remember it as the day Amazon announced their acquisition of Whole Foods.
The Amazon Whole Foods deall saw Amazon acquire Whole Foods Market for $42 per share in an all-cash transaction valued at approximately $13.7 billion, including Whole Foods Market’s net debt.
Would Amazon have considered acquiring Whole Foods Market without Walmart’s pressure on them? That assertion is debatable, but it’s possible that Amazon leadership realized in part that they needed physical retail skills in house to counter Walmart’s efforts. Whole Foods has already seen product price decreases under Amazon’s control. Whole Foods also provides Amazon with another data set that ensures that their local efforts lead to Amazon / Whole Foods orders instead of visits to Walmarts. Whole Foods provides another benefit to Prime customers who shop at Whole Foods: as Amazon becomes more involved in their new subsidiary, I suspect that Amazon private label products will be seen in Whole Foods locations.
Private Labels
It is widely known that Amazon is not the market leader in apparel/fashion ecommerce. Fashion shopping online is tough for Amazon, requiring expertise that isn’t in their nature.
Amazon has used their considerable size to create a relationship with a manufacturer (Carter) that previously only made products for big box retail.
In the latest signal that Amazon is being taken seriously as a challenger in apparel for big-box retailers and department stores, Carter has created a new kids clothing brand exclusively for Amazon and its Prime members.
1010Data provides insight into the gains that Amazon’s move into private label retail has earned them. These brands are growing at a great clip, ensuring that Amazon gains market share in fashion without the public knowing it is an Amazon owned entity.
Some of these brands, like AmazonBasics and Amazon Elements, are Amazon branded, but most of the new brands aren’t, like Happy Belly and Lark & Ro. With an 80% YOY growth rate, Amazon’s private-label brands pose a real challenge to traditional brands across hundreds of categories.
Partnerships
In the last 6 months, Amazon has executed more partnerships with competitors than ever before. The partnerships have been diverse: Microsoft for Cortana, Sears for Kenmore products, and more recently, the Kohls partnership (intending to drive sales of Amazon hardware: Alexa). These partnerships are designed to assist Amazon in growing their Alexa enabled customer base. The Microsoft partnership serves to assist with gaining access to software that is widely used by customers (Outlook, etc.) and a bid to develop more and more Alexa Skills.
Amazon has also worked hard on their influencer ecosystem, creating a photo-based social network which aims to create additional sales and data insight off of which they can build more advanced revenue models.
Brands
Amazon also pioneered the opportunity for CPG companies to sell direct to Amazon customers – a direct jab at cutting the WalMart giant out of the picture. To say this strategy is bold is an understatement, but it plays at Amazon’s increasing power.
Amazon.com. has invited some of the world’s biggest brands to its Seattle headquarters in an audacious bid to persuade them that it’s time to start shipping products directly to online shoppers and bypass chains like Wal-Mart, Target and Costco.
The large brand owners such as General Mills, Mondelez, and others are seeing their digital advertising efficacy wane due to disruption from smaller direct to customer startups. Amazon, wanting to be seen as helping large brands succeed, is only benefitting one side of that partnership: Amazon, and thus this concept is yet to be confirmed by any brands.
For US brands, the last 18 months have highlighted the emergence of “ you are either with us or against us” mentality, as Walmart has reportedly asked partners to leave Amazon Web Services and only deliver for them and not for Amazon. Brands must be mindful of the advantages and disadvantages of both of these companies as they both will be ruthless in squeezing value away from partners.
Where do we go from here?
US customers are going to be seeing more value from Amazon and Walmart as they each look to gain wallet share at the other’s expense. Brands and suppliers are going to feel additional strain from both giants as each looks to secure the lowest prices and widest selection on their sites.
In its 20 year history, Amazon has shown that they will be both a missionary and a mercenary to drive consumer delight. Amazon continues to innovate and transform retail into a model that solidifies their dominance, while continuing to attack would-be competitors with any strategy that will ensure victory.
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