March 30, 2009
Amazon Called Best Retailer in the World
It was not
that many years ago that a good number of people thought Jeff Bezos was
either not that bright or perhaps a bit unbalanced because they saw no
way that Amazon.com could be a sustainable business model. Mr. Bezos’
detractors (rightly so) pointed to the number of years the company went
without making money.
Today, as a Barron’s article entitled The
World’s Best Retailer suggests, Amazon is looked at quite differently.
While not immune from the effects of the economic downturn (it just announced
it would close three distribution centers), the online merchant comes
off its best year ever in 2008. With an emphasis on centralized distribution
and automation, the e-tailer markets and delivers goods at a lower cost
than many multi-channel competitors.
"A
lot of consumers are migrating to Amazon," Walter Price, a technology
investor from Allianz Global Investors, told Barron’s.
"It simply has a better retail model, and it is only getting better."
"We have
a negative operating cycle,"
Tom Szkutak, chief financial officer at Amazon.com,
told attendees at a recent Morgan Stanley conference. "So, as we grew,
we generated cash from working capital. And we are all about maximizing profit
dollars, not individual margins."
"We
really want to offer low prices every day…[but breadth of] selection
is very key to growth,"
he added.
"E-commerce
now starts and ends with Amazon, and eventually it will show up with higher
sales," Mr. Price said. "As they get more volume, their costs
relative to their prices should come down, which should improve their profits
over time," he says.
Mr.
Price also sees Amazon’s move into web services, AKA cloud services, as
another way for the company to leverage its investment in systems such
as database development and management to generate profits from other companies
with neither the focus nor the finances to do it themselves. Amazon, according
to Barron’s, has spent $2 billion on its systems over the past 10
years.
Discussion Questions: Is Amazon.com one of
the world’s best retailers (if not the best)? What makes it so? Where
do you see the greatest opportunities for the company in the future?
What practices should other retailers pick up from them?
BrainTrust
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In terms of opportunity, I blogged a few weeks ago that Amazon, not Best Buy or Walmart, may be best poised to grab the lion’s share of Circuit City’s customers. Shopping in the low-pressure privacy of your own home, no taxes and pretty good shipping (especially if you have a prime membership on Amazon) vs. high pressure or indifference, service plan come-ons and/or hikes through produce and panties to get to the CE department. That’s a pretty compelling advantage.
As vast as Amazon’s product assortments have become, I do see big room for improvement in their search capabilities. Searching for a specific gourmet food item, for example, invariably pulls up the item (if you’re lucky) along with clothing, books, and other unrelated products. When I go shopping for anything other than books on Amazon, I make sure I’m in a comfortable chair. Even much-venerated Zappos, an etailer that still focuses primarily on one category (shoes), has this problem. Both run the risk of being hobbled by their killer app: seemingly “endless” (ironically, the name of Amazon’s own shoe site) selection and search options.
It took Amazon.com a long time to make a profit. Initially I was one of the skeptics who said their business model would never work, but they hung in there and used technology and changing consumer shopping prerogatives to build a very strong niche in online shopping.
I also agree with Professor Bart Weiss that they are not yet ready to be considered the “best” retailer in the world; they don’t face nearly the same challenges as traditional brick & mortar retailers. However, what we see in Amazon.com is a vision of what the great retailers of the future might look like. Their number one differentiation is the excellent marriage between customer focus and technology. For instance, the use of the “one key” order entry was unique and patentable.
The new wave of Internet retailers have the advantage of starting from scratch; many without the encumbrances of traditional retailers. Amazon.com is the wave of the future but we should withhold the Oscars until the rest of the online competition catches up and perhaps out distances them.
Like many dot.com era businesses, I think Amazon has always liked to think of itself as not like other businesses, and in one respect that’s true: it attracts an inordinate amount of attention (often of the positive–even fawning–variety); while I haven’t read the Barron’s article, its title suggests that attraction still exists.
But in the long run, all businesses ARE alike: they need to make a profit, need to fend off competitors, and–while maintaining growth–need to avoid costly diversions from “core competencies;” while Amazon may eventually establish a long track record of doing this, it’s too early in the game to say they’ve made it.
A retailer is defined as the seller of record–and in this sense, Amazon is the gold standard right now, whether it stocks the product or not.
In 5 years, Amazon will be as large or larger than Sears Holdings (Sears+Kmart+Services) given their current 15-20% annual growth rate. Consumers like the fact they can buy from Amazon or a marketplace partner–Amazon likes the fact they get a piece of every transaction (as well as all the customer data–not the retailer). The only way to beat them is through cross-channel dominance and given the high cost of operating a brick and mortar retailer today, that might be a losing strategy unless there is a compelling value proposition (e.g. Costco).
I don’t shop online much, but I have used Amazon.ca on many occasions. To me, I can find pretty much whatever I want from lots of web retailers, but Amazon does shine in most cases…
1. Overall good prices. Not always the best, but good overall.
2. Free shipping when you order $39 in Canada.
3. Huge breadth of product for the categories they support in Canada.
4. Most products have excellent product details and descriptions.
5. Delivery is quick even when using standard ground mail.
6. The most important factor…easily the best search engine. It seems to know exactly what you are looking for. Other e-tailers often have lousy search engines, but Amazon always seems to display what you want as the first or second display. Makes it easy.
I truly agree that Amazon has created a business model that continues to make customers loyal. The way they have brought together online resources to get what you want just keeps getting better. Locating difficult-to-find and out-of-print books from a vast range of associate booksellers was easy, reliable, and affordable. Consumable offerings keep expanding–reflecting new interests–but are accessible and affordable. One of the brightest spots in retailing.
Not quite the world’s best, but very near. It comes down to “room for improvement.” Any company that claims to be world’s best or gets bestowed with that moniker apparently has no room to improve. But every merchant has room for improvement because no single retailer gets everything right. The more important question here is what other companies can learn. And it isn’t Tactic A or Service B. It’s what appears to be a philosophy of striving continuously to achieve an unattainable goal: to be the world’s best.
Nearly eleven years ago, a Wall Street Journal reporter asked me, “Will Amazon.com become the Wal-Mart of the Internet?”
I replied at the time, “No, I expect Wal-Mart will become the Wal-Mart of the Internet.”
Today the question might be better posed: “Who will become the Amazon.com of retailing?”
Amazon.com, it seems, was destined to become something else. Not a retailer in the old sense, but an innovator in product distribution and customer service that has changed fundamental thinking across online and offline retail channels.
Without Amazon there might be no “long tail” of product assortment; no “people like you also bought…”; no one-click ordering”; no product review pages.
I say Amazon is not a retailer. It’s the vanguard of the next thing–post-retail, more service provider than merchant.
They know what what do to and how to do it well. Amazon’s customer service is probably the best in the world and their product depth offers a very convenient place to shop online.
Whenever I get into a conversation about Amazon, the one thought that always pops up is that not only is Amazon an excellent online store, but it is an equally excellent online resource for shopping. Amazon’s architecture makes it a great place to compare prices and get product reviews and specifications. Amazon is a customer-driven company and it shows by how they deploy themselves.
What is dying usually dies. Many of the current methods of retailing are ailing and will soon be added to those already pronounced “Dead.” Technology has changed retailing and our buying lives. Amazon is ahead of that evolving curve. That qualifies Amazon as being one of the very best retailers.
Amazon certainly is one of the best retailers at constantly moving the model forward, offering new features, products, and services. It enhances the shopping experience and gives the customer a reason to keep coming back. It also fulfills well on the basic promise–buy here and you will get a low (not necessarily the lowest) price coupled with good service. Like all successful early innovators it needs to stay sharp to avoid being knocked off its pedestal. Developments such as the Kindle and now version 2 of the Kindle are keeping it up there. While there are sites that do bits and pieces better than Amazon, right now it does qualify as one of the best in the retail space.
There is one word that describes Amazon’s success over traditional retailers: “agile.” Amazon is a company designed to “turn on a dime,” so to speak. The distribution network was designed to ship books, DVDs, and CDs. And then wait a minute, there was a market for toys, appliances, etc. The team shifted quickly.
The company has little politics since they look to hire the best “geeks.” They do a good job of allowing personalization and marketing to the individual. One reason they may adapt so quickly is the age group of the team. They have bright young thinkers that were not afraid to recreate the world of retail.
Amazon is one of the best retailers in the world. Between the products it directly sells and the myriad of other businesses that attach themselves as independent stores, Amazon offers an amazingly broad selection of items and trusted customer service. Even if they don’t have the lowest price on an item, many consumers will select to purchase through Amazon due to the trust that Amazon inspires.
Amazon has reinvented the concept of the web-based retailer as the new “department store,” without ever feeling the need to develop a parallel bricks-and-mortar strategy. They fly in the face of the conventional wisdom that multichannel retail is the only way to go. And they brilliantly leveraged their original focus on books to develop credibility in many other categories. Their emphasis on breadth of assortment, competitive pricing, great execution and customer relationship management should be a lesson to all retailers.
Not to quibble about definitions, but retailers are typically defined as businesses that sell products and/or services to end users–consumers or families. If one accepts this definition, eBay is not a retailer–eBay is a mall manager selling virtual ‘space’ to retailers. Most of eBay’s revenue to generated by sales to retailers, not end-user consumers. Similarly, a lot of Amazon’s business is generated by providing services (cloud computing, distribution/fulfillment, etc) to retailers and businesses, not selling to consumers.
With respect to its retail business, Amazon is certainly a leader in features offered on its website, its customer database management, its distribution/fulfillment services, its customer service, and its brand image building activities. Its operational skills are excellent, but Amazon does not have to deal with the merchandise management challenges of developing integrating multi-channel operations, store brands, managing inventory and assortments of perishable and fashion merchandise, casual merchandising of stores, and managing store employees. Thus, within its sphere of retail activities, Amazon is certainly cutting edge, but its sphere of retail activities is limited.
It’s interesting that the comments (so far) are more about Amazon the store. The thing that really has stood out to me, since its beginning, is that at the core of Amazon’s business strategy was its customer. Amazon pioneered, scaled and sustains the use of collaborative filtering and other tools to maximize relevance of its offerings to its customers.
As I (and Joe Nocera in The New York Times) wrote about fifteen months ago, Jeff Bezos is obsessed with thinking about Amazon’s customers.
How many other retailer CEOs (or other CEOs period) think like that?
Since all the other BrainTrust panelists have done such a great job of mentioning Amazon’s customer service, product selection and aggressive pricing, I thought I would touch on the business model.
To focus on dollar amounts rather than margins is both smart and realistic, especially for an online business. This way of thinking encourages the business to put its efforts into growing sales rather than growing profits. And in the end it’s the entire business that benefits by gaining larger market share, lowering costs, and increasing revenues.
Amazon = Awesome!!!
’nuff said.
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In terms of opportunity, I blogged a few weeks ago that Amazon, not Best Buy or Walmart, may be best poised to grab the lion’s share of Circuit City’s customers. Shopping in the low-pressure privacy of your own home, no taxes and pretty good shipping (especially if you have a prime membership on Amazon) vs. high pressure or indifference, service plan come-ons and/or hikes through produce and panties to get to the CE department. That’s a pretty compelling advantage.
As vast as Amazon’s product assortments have become, I do see big room for improvement in their search capabilities. Searching for a specific gourmet food item, for example, invariably pulls up the item (if you’re lucky) along with clothing, books, and other unrelated products. When I go shopping for anything other than books on Amazon, I make sure I’m in a comfortable chair. Even much-venerated Zappos, an etailer that still focuses primarily on one category (shoes), has this problem. Both run the risk of being hobbled by their killer app: seemingly “endless” (ironically, the name of Amazon’s own shoe site) selection and search options.
It took Amazon.com a long time to make a profit. Initially I was one of the skeptics who said their business model would never work, but they hung in there and used technology and changing consumer shopping prerogatives to build a very strong niche in online shopping.
I also agree with Professor Bart Weiss that they are not yet ready to be considered the “best” retailer in the world; they don’t face nearly the same challenges as traditional brick & mortar retailers. However, what we see in Amazon.com is a vision of what the great retailers of the future might look like. Their number one differentiation is the excellent marriage between customer focus and technology. For instance, the use of the “one key” order entry was unique and patentable.
The new wave of Internet retailers have the advantage of starting from scratch; many without the encumbrances of traditional retailers. Amazon.com is the wave of the future but we should withhold the Oscars until the rest of the online competition catches up and perhaps out distances them.
Like many dot.com era businesses, I think Amazon has always liked to think of itself as not like other businesses, and in one respect that’s true: it attracts an inordinate amount of attention (often of the positive–even fawning–variety); while I haven’t read the Barron’s article, its title suggests that attraction still exists.
But in the long run, all businesses ARE alike: they need to make a profit, need to fend off competitors, and–while maintaining growth–need to avoid costly diversions from “core competencies;” while Amazon may eventually establish a long track record of doing this, it’s too early in the game to say they’ve made it.
A retailer is defined as the seller of record–and in this sense, Amazon is the gold standard right now, whether it stocks the product or not.
In 5 years, Amazon will be as large or larger than Sears Holdings (Sears+Kmart+Services) given their current 15-20% annual growth rate. Consumers like the fact they can buy from Amazon or a marketplace partner–Amazon likes the fact they get a piece of every transaction (as well as all the customer data–not the retailer). The only way to beat them is through cross-channel dominance and given the high cost of operating a brick and mortar retailer today, that might be a losing strategy unless there is a compelling value proposition (e.g. Costco).
I don’t shop online much, but I have used Amazon.ca on many occasions. To me, I can find pretty much whatever I want from lots of web retailers, but Amazon does shine in most cases…
1. Overall good prices. Not always the best, but good overall.
2. Free shipping when you order $39 in Canada.
3. Huge breadth of product for the categories they support in Canada.
4. Most products have excellent product details and descriptions.
5. Delivery is quick even when using standard ground mail.
6. The most important factor…easily the best search engine. It seems to know exactly what you are looking for. Other e-tailers often have lousy search engines, but Amazon always seems to display what you want as the first or second display. Makes it easy.
I truly agree that Amazon has created a business model that continues to make customers loyal. The way they have brought together online resources to get what you want just keeps getting better. Locating difficult-to-find and out-of-print books from a vast range of associate booksellers was easy, reliable, and affordable. Consumable offerings keep expanding–reflecting new interests–but are accessible and affordable. One of the brightest spots in retailing.
Not quite the world’s best, but very near. It comes down to “room for improvement.” Any company that claims to be world’s best or gets bestowed with that moniker apparently has no room to improve. But every merchant has room for improvement because no single retailer gets everything right. The more important question here is what other companies can learn. And it isn’t Tactic A or Service B. It’s what appears to be a philosophy of striving continuously to achieve an unattainable goal: to be the world’s best.
Nearly eleven years ago, a Wall Street Journal reporter asked me, “Will Amazon.com become the Wal-Mart of the Internet?”
I replied at the time, “No, I expect Wal-Mart will become the Wal-Mart of the Internet.”
Today the question might be better posed: “Who will become the Amazon.com of retailing?”
Amazon.com, it seems, was destined to become something else. Not a retailer in the old sense, but an innovator in product distribution and customer service that has changed fundamental thinking across online and offline retail channels.
Without Amazon there might be no “long tail” of product assortment; no “people like you also bought…”; no one-click ordering”; no product review pages.
I say Amazon is not a retailer. It’s the vanguard of the next thing–post-retail, more service provider than merchant.
They know what what do to and how to do it well. Amazon’s customer service is probably the best in the world and their product depth offers a very convenient place to shop online.
Whenever I get into a conversation about Amazon, the one thought that always pops up is that not only is Amazon an excellent online store, but it is an equally excellent online resource for shopping. Amazon’s architecture makes it a great place to compare prices and get product reviews and specifications. Amazon is a customer-driven company and it shows by how they deploy themselves.
What is dying usually dies. Many of the current methods of retailing are ailing and will soon be added to those already pronounced “Dead.” Technology has changed retailing and our buying lives. Amazon is ahead of that evolving curve. That qualifies Amazon as being one of the very best retailers.
Amazon certainly is one of the best retailers at constantly moving the model forward, offering new features, products, and services. It enhances the shopping experience and gives the customer a reason to keep coming back. It also fulfills well on the basic promise–buy here and you will get a low (not necessarily the lowest) price coupled with good service. Like all successful early innovators it needs to stay sharp to avoid being knocked off its pedestal. Developments such as the Kindle and now version 2 of the Kindle are keeping it up there. While there are sites that do bits and pieces better than Amazon, right now it does qualify as one of the best in the retail space.
There is one word that describes Amazon’s success over traditional retailers: “agile.” Amazon is a company designed to “turn on a dime,” so to speak. The distribution network was designed to ship books, DVDs, and CDs. And then wait a minute, there was a market for toys, appliances, etc. The team shifted quickly.
The company has little politics since they look to hire the best “geeks.” They do a good job of allowing personalization and marketing to the individual. One reason they may adapt so quickly is the age group of the team. They have bright young thinkers that were not afraid to recreate the world of retail.
Amazon is one of the best retailers in the world. Between the products it directly sells and the myriad of other businesses that attach themselves as independent stores, Amazon offers an amazingly broad selection of items and trusted customer service. Even if they don’t have the lowest price on an item, many consumers will select to purchase through Amazon due to the trust that Amazon inspires.
Amazon has reinvented the concept of the web-based retailer as the new “department store,” without ever feeling the need to develop a parallel bricks-and-mortar strategy. They fly in the face of the conventional wisdom that multichannel retail is the only way to go. And they brilliantly leveraged their original focus on books to develop credibility in many other categories. Their emphasis on breadth of assortment, competitive pricing, great execution and customer relationship management should be a lesson to all retailers.
Not to quibble about definitions, but retailers are typically defined as businesses that sell products and/or services to end users–consumers or families. If one accepts this definition, eBay is not a retailer–eBay is a mall manager selling virtual ‘space’ to retailers. Most of eBay’s revenue to generated by sales to retailers, not end-user consumers. Similarly, a lot of Amazon’s business is generated by providing services (cloud computing, distribution/fulfillment, etc) to retailers and businesses, not selling to consumers.
With respect to its retail business, Amazon is certainly a leader in features offered on its website, its customer database management, its distribution/fulfillment services, its customer service, and its brand image building activities. Its operational skills are excellent, but Amazon does not have to deal with the merchandise management challenges of developing integrating multi-channel operations, store brands, managing inventory and assortments of perishable and fashion merchandise, casual merchandising of stores, and managing store employees. Thus, within its sphere of retail activities, Amazon is certainly cutting edge, but its sphere of retail activities is limited.
It’s interesting that the comments (so far) are more about Amazon the store. The thing that really has stood out to me, since its beginning, is that at the core of Amazon’s business strategy was its customer. Amazon pioneered, scaled and sustains the use of collaborative filtering and other tools to maximize relevance of its offerings to its customers.
As I (and Joe Nocera in The New York Times) wrote about fifteen months ago, Jeff Bezos is obsessed with thinking about Amazon’s customers.
How many other retailer CEOs (or other CEOs period) think like that?
Since all the other BrainTrust panelists have done such a great job of mentioning Amazon’s customer service, product selection and aggressive pricing, I thought I would touch on the business model.
To focus on dollar amounts rather than margins is both smart and realistic, especially for an online business. This way of thinking encourages the business to put its efforts into growing sales rather than growing profits. And in the end it’s the entire business that benefits by gaining larger market share, lowering costs, and increasing revenues.
Amazon = Awesome!!!
’nuff said.