Amazon: The (soon-to-be) #2 Global Retailer
What will the retail landscape look like in five years? There are many ways to answer that question, but one thing will remain the same: Walmart will still be the largest retail with estimated global sales of USD587 billion. But Amazon will be the #2 global retailer at USD157 billion in sales, surpassing today’s second- and third-place global leaders Tesco and Carrefour, as well as other emerging players surpassing USD100 billion over the next few years—Costco, Kroger, Seven & I, Schwartz Group (Lidl), and Metro (plus Walgreens if you include Alliance Boots). Despite this fact, many companies still treat Amazon as a start-up bookseller that is irrelevant to their business.
Kantar Retail has been predicting Amazon’s disruptive impact for the past two years, talking with our clients about the implications of this new “Life in the Amazon.” In November 2012, Fortune named Jeff Bezos as its Businessman of the Year, recognizing the Amazon CEO as the “ultimate disruptor.” At retail’s Big Show in January 2013, Bezos accepted the Gold Medal Award from the National Retailer Federation. Two pieces of evidence that Amazon, the new disruptor, has arrived.
At the heart of the Amazon impact is misunderstanding around this innovative retailer that breaks all the rules. A technology company that is learning retail, Amazon’s relentless focus on the consumer and long-term vision is disruptive to competitors that don’t understand the fundamentally different business model and its economics. Bezos’ words exemplify the culture at Amazon that fosters the chaos and disruptive innovation in which Amazon thrives—and which challenges and upends the existing retail environment:
- Long—term vision: “By lengthening the time horizon, you can engage in endeavours that you could never otherwise pursue. At Amazon we like things to work in five to seven years. We're willing to plant seeds, let them grow. We are stubborn on vision and flexible on the details."
- Exploration: “We like to invent. We like to pioneer. We … aren’t afraid to look down dark alleys, seeking bright new opportunities, even though some lead to dead ends. Either way, Amazon likes the challenge of exploring.”
- Pricing: “There are two kinds of companies, those that work to try to charge more and those that work to charge less. We will be the second.”
- Customer obsession: “Our version of a perfect customer experience is one in which our customer doesn't want to talk to us. Every time a customer contacts us, we see it as a defect.”
- Competition & invention: “When [competitors are] in the shower in the morning, they're thinking about how they're going to get ahead of one of their top competitors. Here in the shower, we're thinking about how we are going to invent something on behalf of a customer."
Competing with Amazon requires understanding its core strategies, not its tactics. Amazon is a retailer still evolving its business model, but its nimbleness and a long-term, steadfast focus requires competitors to adopt new strategies and business model economics. That magnitude and level of change is tough for any company—but especially tough for those that have continued to drive growth and profitability via continued process improvement and efficiencies (vs. true innovation). Many competitors have turned a blind eye or been in denial about the threat of Amazon, but heading into 2013 we are starting to see some proactive responses.