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Amazoncom Inc in Retailing (World)

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Amazoncom Inc in Retailing (World)

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AMAZON.

COM, INC IN RETAILING (WORLD)

June 2020
CORONAVIRUS (COVID-19)

Retailing’s primary research was executed before COVID-19 became a global

pandemic. As such, the impact of COVID-19 was not considered in our forecast.
The impact of COVID-19 will be considered within the analysis of this report.

Given the scale and impact of COVID-19, at both global and national levels, the
situation is continuously evolving. For the latest insight on COVID-19 and how
it can be expected to impact demand across industries, economies and
consumers, you can access strategic analysis and regular updates on
www.euromonitor.com and via the Passport system, where new content is
being added on a systematic basis as the situation develops.

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 2

INTRODUCTION

Scope

▪ All values expressed in this report are in US dollar terms, using a fixed Disclaimer

exchange rate (2019), unless otherwise stated. Much of the information in this briefing
is of a statistical nature and, while
▪ 2019 figures are based on part-year estimates. every attempt has been made to
ensure accuracy and reliability,
▪ All forecast data are expressed in constant terms; inflationary effects are Euromonitor International cannot be
discounted. Conversely, all historical data are expressed in current terms; held responsible for omissions or
errors.
inflationary effects are taken into account. Figures in tables and analyses are
calculated from unrounded data and
may not sum. Analyses found in the
briefings may not totally reflect the
Retailing companies’ opinions, reader discretion
is advised.

Grocery Retailers Non-Grocery Non-Store Amazon.com, with its business

Mixed Retailers model based on low prices, wide-
Specialists Retailing ranging merchandise, convenience,
customer satisfaction, quality
recommendations and delivery
E- efficiency, hits a number of high
Commerce demand features in the modern retail
climate. Distinct strength in the US
market belies its potential in
developing regions such as India,
where it is striving to become a major
▪Report closing date: 20 May 2020 - the date the report writing stopped. player. This report includes an
▪Discussions and feedback from our clients are a vital part of all of our research at overview of how Amazon has been
Euromonitor International. We welcome the chance to continue the conversation - affected by coronavirus and
strategies for brands thinking of
full contact information for the author(s) can be found at the end of this report. selling through Amazon.

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 3

Strategic evaluation
Competitive positioning and global presence
Amazon in the US
Amazon’s business model: The Prime flywheel
Amazon’s business model: The hardware ecosystem
Private label
Operations and logistics
Risks
Amazon for brands
COVID-19 and Amazon
STRATEGIC EVALUATION

Key Amazon.com Inc facts

Amazon.com Inc ▪ Amazon.com Inc, the US-based retail giant, is one of the
world’s largest e-commerce companies. In spite of the
Headquarters: Seattle, WA, USA explosion of online retail competition, it has managed to
maintain its market share in e-commerce while
Regional involvement: Global navigating an expansion of brick-and-mortar and service
offerings.
Key category involvement: E-commerce ▪ The company’s success is based on a strategy of
selection, price and convenience. It began as a bookseller
World retailing value share in 1994, and now sells items in most product categories
2.0%
2019: including books, music, toys and games, consumer
electronics, housewares, health and beauty, apparel, and
World retailing value
19.0% food, in addition to services such as local delivery, media,
growth 2017-2018: advertising, web hosting, and increasingly, payments.
▪ Its retail strategy is based on a multifunctional website at the centre of its shoppers’ commercial lives. Amazon
Prime, the company’s membership service, provides the value needed to accomplish this through unlimited
rapid shipping, video and music streaming, e-book borrowing, and discounts. Shopping features include
customer reviews, wish lists, one-click shopping, personalised recommendations, and multiple shipping
options. Customer support, which includes tracking information, is extremely reliable.
▪ On top of this, it acts as a third party retail platform for other merchants to whom it provides distribution
services, sells its own brand of state-of-the-art consumer electronics at cost, produces and distributes its own
media including award-winning TV shows and films, and maintains a substantial business hosting web services
and offering advertising opportunities in a business-to-business capacity. The scope of the company is truly
enormous.

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 5

STRATEGIC EVALUATION

Amazon profits continue to grow

Net Sales vs Net Income: 2016-2019 ▪ Amazon continued to see rapid sales growth between
2016 2017 2018 2019 2016 and 2019 as it built out its technology and ads
300 14 services, saw cross-border sales continue to grow, and
continued to drive purchases of Amazon hardware and
devices. Amazon’s penchant for experimentation and
12
250 revenue reinvestment had caused the company to flirt with
losses in 2012 and 2014, but long-term growth of its B2B
10 AWS service and the maturation of its core US business

Net income (USD billion)

200 have seen net income grow each year since 2014.
Net sales (USD billion)

8 ▪ All this has been done while passing very little cost onto
shoppers. Price competitiveness is one of the company’s
150
key strengths. However, a willingness to increase the price
6
of Prime membership and its inability to avoid sales tax
100
have created a slightly more expensive experience in
4 recent years. Amazon now seeks to prove to customers
that its offer is still valuable by adding on a number of
50 services to make up for changes in cost.
2
▪ As a result, increased profits will not lead to a slowdown in
investment from Amazon. Its focus on long-term value
0 0 includes new lines of business, more warehouses and
2016 2017 2018 2019
shipping vehicles, upgraded electronic devices and
Net Sales Net Income services, cloud computing services, video streaming,
Source: Amazon company filings foreign investment, and more.

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 6

STRATEGIC EVALUATION

Investment in technology and fulfilment power growth

Amazon Operating Expenses by Category, ▪ Throughout its history, Amazon has generally
Excluding Cost of Sales: 2016-2019 avoided short-term profit in favour of long-term
50 growth. The most recent years have seen costs
40 increase substantially for shipping and fulfilment,
USD billion

30 and technology and content. Combined, the two

20
amounted to nearly 30% of all expenses in 2019,
up from approximately 20% in 2013.
10
0
▪ The increase in investment in these two areas
Fulfillment Marketing Technology & General & indicates long-term support for the idea of
Content Administrative Amazon as a platform. Fulfilment services allow
2016 2017 2018 2019 Amazon to more adequately serve the needs of its
third party merchants and shoppers, while
Amazon Web Services: Sales and Sales Growth: technology and content power the ecosystem that
2016-2019 incentivises consumers to join Prime.
40 60% ▪ Amazon’s reliance on tech is no more apparent
than the growth of Amazon Web Services, its cloud
Year on year growth
50%
30 computing arm, that offers database management
USD billion

40%
20 30% tools to companies as large as Netflix, Salesforce
20% and GE. One of, if not the key driver behind the
10 recent boost in profits, the service continues to
10%
0 0% expand geographically (service to France was
2016 2017 2018 2019 rolled out in 2017) and by industry (Lumberyard,
Net Sales Sales Growth a cross-platform engine for video game design was
Source: Amazon company filings introduced in 2016).

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 7

STRATEGIC EVALUATION

Domestic sales, growing subscription revenue underpin US sales

Amazon Net Sales by Geographic Region: ▪ Unusually for an international retailer, the company
2016-2019 has consistently seen the strongest sales growth in
200 supposedly mature markets in North America, rather
than emerging markets, which are driving growth for
150
other multinational players. The self-reported CAGR
USD billion

100 for Amazon over 2016-2019 was 21% in North

America, compared to 14% for the company
50 internationally.
0 ▪ The rapid penetration of new technology and greater
2016 2017 2018 2019 sophistication of the company’s domestic consumer
North America International base is a principal reason for this. Amazon’s
Amazon Net Sales to Consumers by Format: increased investment in Prime content and
2016-2019 electronics that access this content shows the
100%
shifting nature of media consumption. The roll-out of
Kindle Unlimited in 2014, launch of Amazon Music
80%
Unlimited in 2016, and heavy investments Amazon is
making in the form of original movie and TV content
% of sales

60%

40%
reflect this.

20%
▪ Amazon has also started to make serious
investments in brick-and-mortar formats, through its
0%
2017 purchase of Whole Foods and launch of home-
2016 2017 2018 2019
Online stores Physical stores Subscription services grown formats such as Amazon Go and Amazon
Source: Amazon company filings Books.

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 8

STRATEGIC EVALUATION

Amazon’s wider corporate strategy in 2020

Building an ecosystem around Developing a seller ecosystem Becoming the best delivery
Prime and low-cost hardware company in the world
▪ “We want Prime to be such a ▪ A key part of drawing shoppers ▪ Low prices and media are not the
good value, you’d be to a marketplace platform is to only components of the value
irresponsible not to be a attract plenty of sellers. Amazon proposition that Amazon offers.
member”, says Jeff Bezos, aims to be a one-stop shop for Convenience is another integral
Amazon’s founder and CEO. By consumers, and to advance that part, especially since Amazon has
packaging enough value into the goal, continues to roll out new lost its sales tax-avoidance
membership, the company hopes seller services to attract as many pricing advantage in most
to create loyal customers for life, merchants as possible to the countries.
ensuring that Amazon is top of platform. ▪ Amazon continues to expand its
mind when consumers set out on ▪ Examples of Amazon’s key seller global footprint to obtain long-
their path to purchase. services include Global Selling term infrastructure advantages.
▪ Making Amazon a part of daily (facilitating cross-border e- This gives Amazon a more
life is also done with physical commerce), Fulfillment by efficient supply chain for its own
goods. The company develops a Amazon (warehousing of items), products and those of third party
number of useful consumer Strategic Account Services merchants that do business in its
electronics, which it then sells at (which offers targeted advice and marketplace. The investment in
cost in order to gain goodwill seller support), and Ads its own ground-based delivery
with users. What Amazon loses (Amazon’s advertising platform). arm, aircraft fleet, automated
out on in short-term margin, it drones, and an ocean freighter, as
makes up for in locking well as continued research into
customers into its services and drones, all illuminate Amazon’s
increased shopping on its site. long-term goals.

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 9

STRATEGIC EVALUATION

SWOT: Amazon.com Inc

STRENGTHS WEAKNESSES

Connected devices Delivery Infrastructure Uncertain outlook in India Ineffective in China

▪ Amazon has been active ▪ Investment in fulfilment ▪ Amazon is an important ▪ Amazon struggled to
in creating and selling a vehicles and shipping e-commerce player in grow its marketplace
wide range of its own centres has increased the India, but faces growing share in China for several
devices. This is likely to ability to support more discontent among years, before ceasing
pay dividends as delivery options and consumers and the third party sales in 2019.
commerce increasingly independent merchants, government for anti- A weak position in the
takes place on many which gives shoppers competitive activities. world’s largest e-
different devices. more options. commerce market will
hurt Amazon.
OPPORTUNITIES THREATS

Marketplace services Alexa Political target Overspreading

▪ Continuing to grow seller ▪ A lead in the voice ▪ Amazon has drawn ▪ Amazon’s core strategy
services, including recognition install-base scrutiny from gives it wide access to a
through international gives Amazon the best environmentalists, labour number of geographic
fulfilment, ads, and bet for establishing a groups, and politicians and product markets, but
future services, improve popular operating over its reach and such a mode of operation
the shopper experience system, allowing them to business practices. opens the company up to
and help drive revenue. own access to the next Amazon faces increased failure and possible
internet platform. pressure as a result. regulation.

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 10

Amazon generally stays ahead of the competition

▪ Amazon outperformed the global e-commerce market over 2011-2019 thanks to astute investment, product
development and cutting-edge customer service. Its innovation is matched by its expansion.

Amazon vs Global E-Commerce Sales Growth, Current Terms: 2011-2019

30%
A B C
25%
Year on year growth

20%

15%

10%

0%
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19
World E-Commerce Amazon E-Commerce

A: Amazon hits its stride, with its B: Despite vastly increased size, C: Amazon struggles in China,
Prime Membership and Fire Tablet the company is able to record hurting international sales, but
both generating major public above-average growth as continues to see strong
interest. Investment in media strategies such as its Indian performance in the US, powered in
partnerships and expansion marketplace, Prime Now, and the part by free one-day shipping and
abroad continue to drive growth Alexa/Echo devices begin to Whole Foods delivery for Prime
too. mature successfully. members.

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 12

COMPETITIVE POSITIONING AND GLOBAL PRESENCE

E-commerce players globally

Top Global Internet Retailers by Value Share and Ranking ▪ The global e-commerce landscape is evolving at an
2015-2019 incredible speed. Historically, it has been centred
Market around the wealthier markets of North America and

2015

2016

2017

2018

2019
Company share Western Europe, where higher disposable income
2019 % and greater internet penetration drove digital sales.
Alibaba Group ▪ However, companies based in Asia Pacific now
2 2 2 2 1 16.2 represent five of the top 10 worldwide. The Chinese
Holding Ltd
market in particular is an e-commerce growth
Amazon.com Inc 1 1 1 1 2 15.0 engine, posting a CAGR of 34% between 2014 and
JD.com Inc 3 3 3 3 3 10.8 2019, an increase in sales of over USD3.9 trillion.
This has underpinned the success of local internet
eBay Inc 4 4 4 4 4 3.5
players such as Alibaba and JD.com. Both generated
Wal-Mart Stores nearly all of their 2019 sales in China and round out
6 7 6 6 5 2.2
Inc the top three globally.
Apple Inc 5 5 5 5 6 2.1 ▪ The growth of Asia-based e-commerce players
combined with Amazon’s struggles in China make
Pinduoduo Inc - 116 24 10 7 1.9
its performance in other Asian markets critical.
Vipshop Amazon has specifically targeted India, and while it
8 9 9 9 9 0.9 has seen its share in that market increase,
Holdings Ltd.
challenges remain. In particular, it faces
Rakuten Inc 7 6 7 8 10 0.9 competition from Flipkart (owned by Walmart).
Amazon is also working to grow in Singapore,
Coupang LLC - - 28 17 11 0.7 launching a localised domain in that market in late
Source: Euromonitor International.
Note: 2019 data are provisional
2019.

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 13

COMPETITIVE POSITIONING AND GLOBAL PRESENCE

Amazon’s current core markets

▪ Amazon has a large footprint in many of the Amazon Sales by Region 2019
top markets with a notable presence in
developed markets, but is considerably E-Commerce Local Internet
Local Internet
weaker in developing economies. Amazon Country Sales Share
Ranking
must establish a foothold in these regions (USD billion) %
before other marketplaces crowd it out of US 181.7 35.6 1
the market, as has already happened in
Japan 24.0 26.9 1
China. India is of particular importance
given its relative infancy and predicted UK 20.8 23.3 1
future growth, but other developed Asian Germany 19.5 28.8 1
markets such as Singapore and South Korea
India 11.5 35.7 2
are important locations as well.
France 8.7 16.6 1
▪ Amazon’s global presence is laid out in the
table (right), with key markets listed. In Canada 2.2 6.3 1
these countries, Amazon is committed to China 2.0 0.2 11
improving its logistical capabilities much
Mexico 1.4 13.4 1
like it has in the US to gain significant share
and sell to countries nearby via cross- UAE 1.2 47.1 1
border. Its execution is obviously strong as Australia 0.9 3.9 4
it maintains a top rank in many of them, Source: Euromonitor International. Note: Sales include first and third party purchases. Sales
with China being the notable exception. are attributed to the market in which the shopper is located.

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 14

COMPETITIVE POSITIONING AND GLOBAL PRESENCE

Amazon’s international reach

Expansion picks up in recent years Amazon Launches of Full Marketplace Operations

▪ Even as it continues to see strong growth in its home

2013
market of the US, over the last decade Amazon has ▪ India
increasingly focused on international expansion,
particularly in emerging markets. The company has 2016
done this through the launch of local domains in key ▪ Mexico
markets, a more steady growth of cross-border sales
in secondary markets, and in the case of the Middle 2017
East, through the sudden acquisition of a major local ▪ Australia
player, Souq.com ▪ Brazil
▪ Middle East (Souq.com acquisition)
E-book sites operate as soft openings
2018
▪ Testing new markets also occurs via Amazon’s e-
book only stores. Without physical merchandise ▪ Turkey
outside Kindle e-readers, Amazon is able to
2019
penetrate smaller markets with low-risk, high-value
products. The company took this approach in Mexico, ▪ Singapore
launching an e-book store in 2013 and then full ▪ UAE (local domain)
operations in the country in 2015. A similar 2020
approach was taken with the company’s expansions
into Brazil, Australia and Singapore. ▪ Netherlands

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 15

COMPETITIVE POSITIONING AND GLOBAL PRESENCE

Amazon falters in China

▪ In China, the company made a series of Amazon Sales to Shoppers in China:

uncharacteristic missteps. Amazon entered China in 2015-2019
2004 with the purchase of joyo.com, which was 6,000
renamed Amazon.cn in 2007. However, the company 5,000
was too attached to its original sales model. It

USD million
4,000
eventually instituted regionally-preferred tactics
3,000
such as cash on delivery, but not before competitors
were able to carve out share. 2,000

▪ Amazon launched Prime in China at the end of 2016 1,000

with free cross-border commerce to attract 0
shoppers, but in 2019 Amazon announced that it was 2015 2016 2017 2018 2019

closing its Amazon.cn marketplace. Amazon Amazon’s Key Competitors in China: 2019
continues to sell goods in China through its
45%
storefront on Tmall (owned by Alibaba), which it 40%
opened in 2015, and to promote cross-border 35%

Share of e-commerce
merchandise to Chinese consumers through Amazon 30%
25%
Global Selling. 20%
▪ While there is significant demand among Chinese 15%
10%
consumers for cross-border shopping, Amazon’s 5%
doubling down on cross-border does not guarantee it 0%
major growth in the world’s largest e-commerce Alibaba JD.com
Pinduoduo Suning.com Amazon
Co Ltd
market. Key competitors Alibaba and JD.com also Source: Euromonitor International estimates from company information, trade
have robust cross-border initiatives. press and primary research

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 16

COMPETITIVE POSITIONING AND GLOBAL PRESENCE

Amazon triples down on its India strategy

▪ Amazon’s 2013 launch of Amazon.in, its Indian Amazon Sales to Shoppers in India:
marketplace and B2B2C site, provides an insight into 2015-2019
how it can continue to roll out its sales model globally, 14,000

even in markets that are difficult or where it has 12,000

limited experience. India does not allow foreign direct 10,000

USD million
investment (FDI) in direct online retail, making the 8,000
marketplace model the easiest way for Amazon to 6,000
access the market. 4,000
▪ Amazon has also learned several lessons from its 2,000
China experience. For example, it has made efforts to 0
maintain distribution even in far-flung regions and 2015 2016 2017 2018 2019

accepts cash despite the cost the company must bear. Amazon’s Key Competitors in India: 2019
These actions should give Amazon better standing with 50%
local shoppers. 45%
40%

Share of e-commerce
▪ Amazon has faced challenges in India too, however, 35%
30%
even as it has spent billions building its presence and
25%
seller services in the country. Most recently, a surprise 20%
visit to India by Amazon CEO Jeff Bezos in early 2020 15%
10%
highlighted the company’s growing pains in India. 5%
Individuals from local retailers held protests, Prime 0%
Minister Modi reportedly refused to meet with Bezos, Walmart Amazon One97
Communications Ltd
and the Indian government launched an antitrust
Source: Euromonitor International estimates from company information, trade
investigation of Amazon and Walmart-owned Flipkart. press and primary research

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 17

COMPETITIVE POSITIONING AND GLOBAL PRESENCE

Amazon grows in the Middle East off its Souq.com acquisition

▪ In July 2017, Amazon completed its USD580 million Amazon Sales to Consumers in the Middle
purchase of Souq.com, the Jabbar Internet Group FZ East and Africa: 2015-2019
LLC retailer. At the time of the acquisition, Souq.com 4,000

was the number one e-commerce player across the 3,500

Middle East and Africa. In 2019, Amazon replaced 3,000

USD million
2,500
Souq.com with Amazon.ae for shoppers in the UAE;
2,000
Souq.com remains available to shoppers in other parts
1,500
of the Middle East. Also in 2019, Amazon launched a
1,000
localised shopping site in Turkey.
500
▪ Souq.com was an acquisition target for Amazon due to 0
its scale - which quickly gave Amazon a leading 2015 2016 2017 2018 2019

position in the region - and a familiar business model,

Amazon’s Key Competitors in the Middle
namely that Souq.com was in the process of growing
East and Africa: 2019
its third party marketplace at the time of the
25%
acquisition.

Share of e-commerce
20%
▪ Grocery is also a shared budding interest. At the time
15%
of its acquisition, Souq owned a stake in Dubai-based
hyper-local delivery service, Instashop. As of early 10%
2020, Instashop had presence in the UAE, Bahrain, 5%
Egypt, Qatar, Lebanon and Egypt while attracting more
0%
than 350,000 users, according to UAE news publication Amazon Jumia eBay Inc Shufersal Ltd Alibaba
The National. Source: Euromonitor International estimates from company information, trade
press and primary research

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 18

COMPETITIVE POSITIONING AND GLOBAL PRESENCE

Amazon enjoys a strong reputation in Mexico

▪ At the time of its 2016 launch in Mexico, Amazon Amazon Sales to Shoppers in Mexico:
already enjoyed high levels of consumer awareness, 2015-2019
which was a driver for rapid sales growth through 1,600
Amazon.com.mx in the first years following its 1,400
launch. Amazon offered a wide variety of product 1,200

USD million
categories when it launched in June 2015, so most 1,000
800
of its efforts in Mexico have gone towards adding
600
new services, such as Amazon Cash.
400
▪ Even as sales have grown through Amazon.com.mx, 200
customers continue to place cross-border orders 0
from Amazon.com for items not listed on 2015 2016 2017 2018 2019

Amazon.com.mx. Another way Amazon drives

cross-border sales is by listing products sold by Amazon’s Key Competitors in Mexico: 2019
16%
Amazon US on Amazon.com.mx. Between its
14%
domestic and foreign sales to Mexican consumers,

Share of e-commerce
12%
Mexico is Amazon’s most developed Latin American 10%
market. 8%

▪ Delivery has also been an area of focus for Amazon 6%

4%
in Mexico. The company offers limited options to
2%
collect Amazon purchases at OXXO convenience
0%
stores, and in early 2020 announced it would install Amazon MercadoLibre Walmart Liverpool
pick-up lockers across Mexico. Source: Euromonitor international estimates from company information, trade
press and primary research

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 19

COMPETITIVE POSITIONING AND GLOBAL PRESENCE

Amazon faces scrutiny as it grows in Western Europe

▪ Amazon has long been an important player in the Amazon Sales in Western Europe: 2015-2019
European e-commerce landscape, having launched 80,000
localised sites in Germany and the UK in 1998. 70,000
Amazon has continued to expand in Western 60,000
Europe over time, including launching localised

USD million
50,000
domains in France (2000), Italy (2010), Spain 40,000
(2011) and the Netherlands (2020). Cross-border 30,000
purchases are also prevalent from various Amazon 20,000
domains across Europe. 10,000
▪ Much of Amazon’s efforts in Western Europe in 0
recent years have focused on building out its suite of 2015 2016 2017 2018 2019

Prime services, including creating localised media Leading E-Commerce Players in Western
content for Prime Video and expanding the Europe: 2019
languages available for Alexa. Western Europe has 25%
also been an early focus for Amazon Business.

Share of e-commerce
20%
▪ Like many other large technology firms, Amazon
15%
has found itself under scrutiny in Europe in recent
years. In particular, in mid-2019, the EU announced 10%

an investigation into Amazon’s use of third party 5%

seller data and whether it violates competition laws. 0%
The investigation is expected to take several years Amazon eBay Apple Inc Otto Group Zalando SE
to complete. Source: Euromonitor international estimates from company information, trade
press and primary research

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 20

The scale of the US makes it central to global retail strategy

▪ Even as Amazon continues to expand abroad via acquisitions and the launch of local domains and additional
services in new international geographies, the US remains is core market. Euromonitor estimates that the US
accounted for 65% of Amazon’s retail sales in 2018, up from 54% in 2015. Note that Euromonitor tracks e-
commerce sales based on where the consumer is located.
▪ The company’s history of innovation and expansion have driven US growth even as Amazon’s share of e-
commerce has grown. Amazon focuses first on developing solutions for its domestic customer base. Once it
creates a viable product or service here, it then begins to roll it out internationally. In this way, the US remains
the company’s growth generator by being the primary recipient of its innovations. Increased content creation
and media partnerships, new grocery experiments and acquisitions, increasing delivery options and new state-
of-the-art consumer electronics all serve to give US consumers more reasons to use Amazon more frequently.

Amazon Share of Sales by Country: 2015/2019

2015

2019

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

USA UK Germany Japan Others

Source: Euromonitor International estimates from company information, trade press and primary research

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 22

AMAZON IN THE US

Amazon’s US e-commerce competitors and position

▪ Amazon is the dominant player within e-commerce Amazon E-Commerce Sales in the US:
in the US, and has been for most of the past decade. 2015-2019
Amazon has played a key role in driving 200,000
development of e-commerce within the US, in no
small part by getting consumers to consider the 150,000

USD million
internet as a channel for buying virtually every type
100,000
of product imaginable. While Amazon famously
started as an online bookstore, the company over
50,000
time has brought US shoppers to consider Amazon
for every occasion. As a result, Euromonitor 0
estimates that 42% of all e-commerce growth in the 2015 2016 2017 2018 2019
US between 2010 and 2019 went to Amazon.
Leading E-Commerce Players in the US: 2019
▪ In the US, Amazon has consistently set the standards
40%
that other online retailers must strive to meet. One
35%
example is Amazon’s Prime membership 30%

Share of e-commerce
programme, launched in 2005. Amazon’s principal 25%
US competitors held off on creating competing 20%
programmes for years, but starting in 2018, many 15%
major US retailers launched similar programmes. 10%
Examples include Bed Bath and Beyond, which 5%
0%
launched BEYOND+ in 2018, and Walmart, which
Amazon eBay Walmart Inc Apple Inc Macys Inc
launched Walmart+ in early 2020.
Source: Euromonitor International estimates from company information, trade
press and primary research

© Euromonitor International RETAILING: AMAZON.COM, INC PASSPORT 23

AMAZON IN THE US

Whole Foods competitors and position

▪ Amazon commands a much smaller part of the US Whole Foods Sales in the US: 2015-2019
grocery retail landscape compared to its e-commerce 16,400
position. Amazon entered store-based grocery retail 16,200
16,000
with the 2017 acquisition of Whole Foods, which has 15,800

USD million
stores in the US and Canada. In 2019, Amazon 15,600
announced that it was exploring launching additional 15,400
15,200
grocery banners in the US and in early 2020, the 15,000
company launched its first Amazon Go supermarket 14,800
14,600
store in Seattle. 14,400
▪ Whole Foods has a reputation for being a go-to 2015* 2016* 2017 2018 2019

destination for health and wellness grocery products. Note: * Indicates a year prior to Amazon’s acquisition of Whole Foods.
Demand for organic, better-for-you and other clean Leading Supermarket Players in the US: 2019
labels among upper-income consumers has only 18%
increased in the US and Canada since Amazon’s 16%

Share of supermarkets
acquisition, benefiting Whole Foods as well as other 14%
12%
health and wellness-orientated players, such as Fresh 10%
Thyme and Sprouts Farmers Market. 8%
6%
▪ Overall, grocery retail in the US is feeling substantial 4%
impacts from value-based grocery, including the rapid 2%
growth of discounter Aldi in the country. So far, Whole 0%
Kroger Co Albertsons Publix Super Walmart Inc Amazon Inc
Foods has been fairly isolated from this development Cos Inc Markets Inc
due to its high-income clientele. Other Amazon forays Source: Euromonitor International estimates from company information, trade
into grocery, however, might see more impacts. press and primary research

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AMAZON IN THE US

Whole Foods adds data, offers Prime benefits

▪ While Whole Foods contributes billions in sales to Timeline of Whole Foods Integration with Amazon
Amazon - Euromonitor estimates that in 2019 in the
US, Whole Foods accounted for 8% of Amazon’s 2017
overall sales - its real value to the company is less ▪ Amazon acquires Whole Foods, announces that
tangible. Amazon started selling groceries in 2007, Amazon Lockers will be installed in Whole Foods
and while its grocery programme gradually stores, and says Whole Foods private label items
expanded over time, the company struggled to gain will be available on Amazon.com (August)
broad traction with its grocery products. Whole
Foods gave Amazon immediate data and insights into 2018
grocery categories, which paired with Amazon’s ▪ Amazon announces Whole Foods items can be
existing shopper data, proved a more powerful bought via Prime Now (February)
combination. ▪ Prime members can access discounts at all Whole
▪ Whole Foods has also offered a brick-and-mortar Foods stores (June)
touchpoint with Prime members and provides ▪ Whole Foods participates in Prime Day for the
numerous ways to emphasise the benefits of being a first time (July)
Prime member. Prime members receive flat ▪ Amazon announces that Whole Foods orders can
be placed via Alexa and Echo smart speakers
discounts at Whole Foods, can get free home delivery (August)
of Whole Foods orders placed online, and can access
Prime-exclusive deals at the supermarket on Prime 2019
Day each July. Prime members spend much more
▪ Amazon waives Prime Fresh and Whole Foods
than non-Prime members with Amazon, making delivery fees for Prime members (November)
offering incentives at Whole Foods a lucrative
proposition.

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AMAZON IN THE US

Amazon Go showcases in-store technology

▪ Amazon Go is Amazon’s convenience store banner

which famously features the company’s “just walk out”
technology. Customers scan their Amazon app to enter
the store, grab the items they want, and leave the store
without needing to go through a cashier-led checkout
process. The first location opened to Amazon
employees only in late 2016. While there have been
rumours that Amazon planned to open thousands of
Amazon Go locations in the following years, as of early
2020, Amazon had only opened approximately 25
Amazon Go convenience stores, all located in Chicago,
New York City, San Francisco, or Seattle.
▪ One challenge facing the Amazon Go format has been a
growing number of US cities and states proposing
legislation banning cashless stores and restaurants. The exterior of an Amazon Go store
Source: Amazon Inc
Notably for Amazon Go, both New York City and San
Francisco have proposed cashless store bans due to
the fact that low-income consumers may not have a
non-cash method of payment. As a result, in mid-2019,
Amazon announced that eventually all Amazon Go
stores would accept cash.

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AMAZON IN THE US

Amazon launches Amazon Go Grocery store in early 2020

▪ In February 2020, Amazon unveiled its long-awaited,

Amazon Go-style supermarket format in Seattle.
Similar to the Amazon Go convenience stores, the
Amazon Go Grocery store requires shoppers to scan
their Amazon app to enter the store. From that point,
consumers can take the items they wish to purchase
and leave the store without going through a formal
checkout process.
▪ The Amazon Go Grocery store features expanded
product categories compared to the Go convenience
stores, such as meal kits, hair care products and an
extensive alcohol selection. The product mix consists
mainly of non-Amazon branded merchandise.
▪ With the launch of Amazon Go Grocery, Amazon also
announced that it would offer the technology that
powers the take-and-go store on a white label basis
to other retailers. Since Amazon launched Amazon
Go several years ago, however, a number of
companies offering take-and-go technology have
launched. Many retailers may prefer to work with a
vendor they do not compete against in e-commerce.
Signage at Amazon’s first Amazon Go Grocery store
Source: Euromonitor International

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AMAZON IN THE US

Amazon Books and 4-Star stores leverage e-commerce insights

▪ While Amazon appears to be concentrating most of

its brick-and-mortar efforts in the grocery space, it
does have two non-grocery, store-based formats:
Amazon Books, launched in 2015, and Amazon 4-
Star, launched in 2018. In early 2020, Amazon had 21
Amazon Books stores and 12 4-Star stores in
operation, all located in the US.
▪ The stores leverage Amazon’s deep and localised
shopper insights for merchandising. Book stores, for
example, often have a section of books popular with
residents of the city the store is located in. User-
submitted reviews from Amazon.com often appear
on the shelf near products. Additionally, the stores
often appear to leverage Amazon’s knowledge of
what else online shoppers commonly purchase along
with a given item, stocking related and adjacent
items in-store.
▪ 4-Star and Amazon Books stores participate in Prime
Day promotions, and Prime members can access
special discounts. The book stores generally have
sections showcasing Amazon electronics, such as Fire
The checkout area at an Amazon Books store
TVs and Echo smart speakers. Image source: Euromonitor International

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AMAZON IN THE US

Amazon’s interest in foodservice is small yet sustained

▪ One small but enduring area of interest for Amazon is foodservice.

Amazon has undertaken a number of experiments in the prepared
food space over the years, including the ability to order takeout
through the Amazon Local app (launched in 2014, discontinued in
2015), workplace food delivery platform Daily Dish (launched in
2016, discontinued in 2019), and Amazon Restaurants (launched
in 2015, discontinued in 2019).
▪ Despite the conclusion of these services, Amazon remains engaged
with foodservice. In mid-2019, Amazon took a stake in UK-based
foodservice delivery platform Deliveroo, which offers restaurant
delivery in Europe, Asia, the Middle East and Australia. The deal
has faced some opposition from UK anti-trust entities, and is still
under investigation.
▪ Beyond restaurant delivery, Amazon’s prepared food offerings
have expanded significantly through retail channels in recent
years. Whole Foods was already well known for its in-store hot
food bars when it was acquired by Amazon. Amazon Go
convenience stores offer a range of convenience store fast food
options including coffee, soft drinks and packaged food items such
as salads and sushi. These offerings help to drive more frequent Hot food bar at a Whole Foods
supermarket
shopper visits to these store locations, while offering Amazon Image source: Euromonitor International
additional insights into purchasing behaviour of customers which
it can use across its operations.

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What is the flywheel?

▪ A flywheel is a mechanism which

uses previously generated
momentum to sustain future
momentum and reinforce stability Search
over time.
▪ Amazon’s flywheel strategy is an
integral component of its long-term
strategy because it is the basis upon
which it hopes to gain market share
and then strengthen its foundation Traffic Selection
within the markets it serves.
▪ The features (shown right) are the
primary components that Amazon
demands from itself and its partners
in order to sustain its flywheel. Each
component supports the other and
the presence of them all creates a
positive feedback loop. All of these
are linked to the Prime membership
programme, the loyalty programme Content Price
used to entrench users.

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AMAZON’S BUSINESS MODEL: THE PRIME FLYWHEEL

Search: from one brand comes many options

Flywheel Import: Amazon’s ultimate goal is to be the start of the path to purchase for all shopping occasions.
Amazon combines its expertise in retail, media distribution and third party marketplace operations to offer a
vast selection with personalised recommendations and quick solutions.
▪ Amazon’s platform strategy combines its decision to offer first and third party sales with its desire to maintain
convenience and comprehensive brand strength. Its vast selection now includes targeted sub-platforms for
goods and services such as Fresh for groceries and Home Services for handyman contracting. It has also been
broadening its digital content with its own productions, content partnerships and access to content libraries.
With all of these things present in one starting location, Amazon’s main site remains the top of the search
funnel. This encourages shoppers to consider Amazon as one unified store, despite the fact that a number of
third party merchants and content partners are broadening its merchandising mix.
▪ The issue with selling too much is
losing focus, which is why Traditional retail
specialists often thrive, but B2C competition (Walmart,
Amazon’s ability to deftly point Otto Group, etc)
shoppers in a number of specific
directions from a broader
Marketplace
platform is a boon. Amazon’s B2B2C competition (eBay,
increasing cache of shopping data Alibaba, Rakuten, etc)
allows it to create powerful
personalisation algorithms,
making the search process Media distribution
Digital
competition (Apple,
expansive and efficient. content Netflix, Sky, etc)

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AMAZON’S BUSINESS MODEL: THE PRIME FLYWHEEL

Selection: the marketplace model expands the endless aisle

Flywheel Import: Gaining more shoppers is about having what they want. This means maintaining the volume of
core goods (the top 20% of sellers) and the variety of long-tail goods (the other 80%). Amazon’s third party
marketplace maintains both while increasing profit and reducing risk.
▪ More sellers means more inventory. More inventory means more shoppers. More shoppers means more sellers.
This is the perpetual cycle of growth Amazon fosters with its third party marketplace. According to the
company, in 2018 58% of physical gross merchandise sales on Amazon were by third party sellers.
▪ Amazon derives three primary benefits from having other sellers on its site. The first is an increase in goods for
sale. Relying on other merchants to increase its product mix gives it broader appeal without the risk that goes
with holding too many long-tail goods. The second is an increase in profits. Amazon not only takes a share of all
sales that third party retailers make; it also sells these merchants B2B services such as the use of its shipping
infrastructure and marketing assistance. Its third benefit is data. Amazon can use its powerful analytics
capabilities to determine which categories are worth pursuing in its own retail business.

B2C Sellers that use Amazon’s

online platform but none
Marketplace of its logistics
infrastructure
B2B2C

Sellers whose items are

Fulfilled by housed with Amazon’s
Digital Amazon
content (FBA)
and given similar
shipping benefits

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AMAZON’S BUSINESS MODEL: THE PRIME FLYWHEEL

Price: value for money with the addition of high-quality services

Flywheel Import: Optimising prices and sharpening customer service remain central to getting customers to
complete their purchase. Doing so is one of the most important ways of portraying value in retail, and Amazon
makes a point of executing on this at all times to the point that it becomes expected.
▪ Lower prices on a wider selection of materials are ▪ The company also records consumer purchase
often the reason people shop online in the first place. history, which gives it a wealth of data on consumer
Amazon has built its business on this mantra, making preferences. Amazon makes good use of these data,
use of price matching (for certain products), free making suggestions of similar or complementary
delivery (after a certain spend is met), and favourable products, which serve to make the online browsing
tax laws to pass on as many savings to the consumer as experience better and increases upsell opportunity
possible. By establishing itself as the low price retailer in an unobtrusive manner.
online in the minds of consumers, the company has ▪ Delivery has also been honed over the years and
positioned itself well for the future when price continues to improve the customer experience. Not
increases or new taxes are unavoidable. only is it free over a certain spend (or for Prime
▪ This strategy informs almost everything the company members), but a variety of options have been added
does. Its consumer electronics products are sold including hourly delivery, same-day delivery,
virtually at cost and instead act as another medium to Sunday delivery and the ability to collect purchases
interact with Amazon’s “storefront”. Consumers are from a growing range of locations.
then tied to the Kindle/Echo ecosystems as they cannot ▪ Old-fashioned voice support is also present. Even
export books or use apps from rival stores. Amazon’s self-branded electronics make use of
▪ Customer service has been the other driver of loyalty customer service, with features that allow speaking
for Amazon’s consumer base. Like all internet pure to a live service representative or virtual assistant.
play retailers, it provides convenience from the Alongside low prices, these services have been
comfort of home, as well as on mobile devices. invaluable in building customer loyalty.

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AMAZON’S BUSINESS MODEL: THE PRIME FLYWHEEL

Content: Amazon refines its webpages and adds more media

Flywheel Import: High-quality content not only gets attention, it keeps eyes on the page. Amazon ensures that
product information is as useful as possible by having informative descriptions, quality pictures and
trustworthy reviews, and is at the forefront of media distribution and production.

Product Pages Media

▪ Amazon’s strategy for in-page content is all about ▪ Amazon’s strategy for media is to not only distribute
accurate, standardised information and attractive content, but produce it as well, giving its Prime
pictures. Sellers will have to pay for A+ content members and media subscribers high-quality
pages, but it will help their search rankings. exclusives.
An A+ Content Page Film and Television Music

Video Games Books

(Publishing) (E-books)

(Livestreaming) (Audiobooks)
Source: Amazon.com

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AMAZON’S BUSINESS MODEL: THE PRIME FLYWHEEL

Traffic: Amazon experiments with different retail models

Flywheel Import: To drive more traffic, Amazon is not content to rest on its laurels with its online website alone.
The company willingly experiments with different models both online and offline to increase its consumer touch
points.
Store Concepts Online Concepts
▪ Book stores: These outlets try to faithfully ▪ Apps: A standard shopping app exists, but separate
recreate Amazon in-store. Prices are not printed, apps such as Amazon Prime Now for rapid local
but rather align with what is online at any delivery and Amazon Music for listening to its
moment. “If you like this” recommendations and catalogue of music give loyal Prime members more to
user reviews and ratings are peppered throughout do on their phones.
the store. Limiting as many variables as possible ▪ New replenishment tools: While Amazon discontinued
gives the company more insight into true its Dash button programme in 2019, it continues to
omnichannel attribution trends. implement new replenishment options for consumers.
▪ Convenience stores: Amazon Go, the US c-store Examples of these initiatives include subscribe and
banner launched in 2017, combines Amazon’s save, the ability to place orders via Alexa, and devices
loyalty programme with checkout-free shopping that increasingly come with automatic replenishment
by recognising the items in shoppers’ baskets and built in.
billing them automatically. ▪ New platforms: Amazon has been branching out with
▪ Supermarkets: Whole Foods and as of 2020, specialised platforms that now include services.
Amazon Go Grocery, constitute Amazon’s forays Examples include Handmade (small batch items),
into supermarket retail. These chains offer Home Services (contractors), Subscribe with Amazon
additional perks to Prime members and provide (digital media and curated boxes) and Amazon
another touchpoint between Amazon and Business (B2B).
shoppers.

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AMAZON’S BUSINESS MODEL: THE PRIME FLYWHEEL

It all revolves around Prime

▪ Amazon’s most important product is not really a The Amazon Prime Timeline
product at all, but rather a membership. For an annual
2005
fee, Amazon Prime subscribers are given access to a ▪ Amazon Prime is created
suite of content including books, music, movies and TV
2007
shows, alongside free 1-2 day shipping and in-store ▪ Amazon Fresh is launched
discounts.
2011
▪ Prime’s ability to funnel new ideas to the most loyal of ▪ The Kindle Owners’ Lending Library is launched
customers is part of what drives its growth. It gives ▪ Prime Instant Video is launched
Amazon the data needed to identify customers upon 2014
which to test new services. Amazon’s first forays into ▪ Prime Music is launched
scalable grocery delivery via Amazon Fresh and ▪ Prime Photos is launched
▪ Prime Now is launched
Amazon Pantry were both only available to Prime ▪ Prime Pantry is launched
members, as is Prime Wardrobe, a service that allows 2015
consumers to try on apparel before deciding which ▪ First annual Prime Day
items to buy. ▪ Amazon Channels are launched on Prime Video
▪2007 - Germany 2016
▪2007 - Japan ▪ Twitch Prime is launched
Prime’s ▪2007 - UK ▪ Monthly/video only membership options added
▪2008 - France
2017
international ▪2011 - Italy
▪ Prime Wardrobe announced
▪2013 - Canada
presence - ▪2016 - India 2018
selected ▪2016 - China
▪ Prime members can access discounts at Whole Foods
▪2017 - Mexico
launches ▪2017 - Singapore
stores
▪2018 - Australia 2019
▪2019 - Brazil ▪ Free one-day delivery

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Building an ecosystem that shoppers cannot live without

“Our business approach is to sell premium hardware at roughly breakeven prices.”

Amazon’s CEO, Jeff Bezos, from the 2012 Annual Report
▪ The second major component of Amazon’s business model comes from its role as a consumer electronics
manufacturer. Amazon is unique in that it does not generally issue hardware to make a profit, but rather to
further its end of becoming the world’s largest retailer. Even though Amazon sells these items at cost, it looks to
make them as useful as possible. Amazon’s virtual assistant, Alexa, comes baked into these products and
reinforces Amazon’s drive for top quality service.
▪ Amazon’s end goal in selling expensive tech at margin is to ensure high volume sales in order to obtain a
foothold in every household. Amazon can then more easily position the software of these devices to incentivise
Amazon sales and drive analytical insights, giving them a longer-term purpose beyond the initial sale of the
device itself.

Useful devices
The Kindle Daily assistance
The Fire Tablet Alexa + The Echo family
Increased sales
Fire TV ▪ The Echo More Prime membership usage
The Echo ▪ The Dot Video and e-book
Ring ▪ The Tap purchases/rentals
▪ The Echo Show Refills and subscriptions

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AMAZON’S BUSINESS MODEL: THE HARDWARE ECOSYSTEM

E-readers: content, not hardware, is king

▪ Amazon’s first foray into consumer electronics is the one

most aligned with its original core competency - books.
With its Kindle e-reader Amazon has managed to carve out
a 59% share of unit volumes in the e-reader space as of
2019.
▪ Amazon’s CEO has indicated that volume sales are more
important than value in the e-reader category, as this
allows the company to sell more digital books from which
it earns a higher margin. Beyond selling Kindle e-books
through Amazon.com, Amazon also offers a service called
Kindle Unlimited, which allows consumers to access a wide
library of e-books for a monthly fee, and Prime Reading,
which allows Prime members to borrow a select number of
curated titles. Amazon also partners with leading authors
to create Amazon-exclusive titles under its Kindle eBook
Exclusives programme.
▪ While there is less pressure for consumers to continually
upgrade their e-readers compared to other electronics
categories, Amazon periodically releases new Kindle The Kindle Oasis 3
versions. For example, in July 2019, Amazon launched the Image source: Amazon.com Inc
Kindle Oasis 3, which features the ability for users to
choose warm rather than white lighting.

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AMAZON’S BUSINESS MODEL: THE HARDWARE ECOSYSTEM

Amazon Fire also drives content consumption

▪ The suite of Fire devices includes remotes, Fire

Sticks (USB devices), and the Fire TV Cube (a voice-
enabled device that connects to a television), Amazon
Fire is the company’s response to devices such as the
Apple TV and Google Chromecast. The Fire devices
allow a consumer to access digital streaming services
- such as Prime Video, but also third party services
such as Netflix - on a standard television. Current
edition Fire devices come with the Alexa voice
assistant installed.
▪ As with Amazon’s Kindle, an important goal of selling
Fire devices it to drive usage of Amazon’s digital
streaming content. While non-Amazon streaming
services can be accessed on Fire devices, Amazon’s
content is generally positioned front and centre.
Users can access content included in their Prime
subscription, as well as rent or purchase additional
titles. The Fire devices also sync with other Amazon
devices, such as Echo speakers and Ring home
The Fire Stick 4K
security, which helps contribute to Amazon’s smart Image source: Amazon.com Inc
home ecosystem.

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AMAZON’S BUSINESS MODEL: THE HARDWARE ECOSYSTEM

Ring acquisition grows Amazon’s smart home offering

▪ While Amazon develops most of its devices

internally (such as the Kindle and Fire) or through
partnering with third party manufacturers to
incorporate Alexa (a range of devices from slow
cookers to printers are available with Alexa), the
company deviated from this strategy in its 2018
acquisition of Ring. Ring primarily makes home
security products, such as video doorbells and
connected cameras. Amazon has maintained Ring’s
branding and has extended its portfolio to include
adjacent devices including security cameras and
exterior lighting.
▪ The Ring acquisition extended Amazon’s smart home
ecosystem into an additional set of categories,
increasing the value of the ecosystem as a whole.
Ring products are now equipped to work with Alexa,
and some, such as the Ring Indoor Cam, are
positioned as devices that allow users to
communicate with each other.
▪ In the last quarter of 2019, Ring launched an Ring Video Doorbell Elite
expanded offering of products to Amazon’s Image source: Ring LLC

international sites, including Australia and the UK.

AMAZON’S BUSINESS MODEL: THE HARDWARE ECOSYSTEM

Echo and Alexa lay the framework for an IoT future

▪ In 2015, Amazon released what would prove to be an

extremely important product: the Echo, powered by the
virtual assistant, Alexa. The product is a device with
several useful services, with the primary interaction
being voice activation.
▪ While the ability to buy items directly, set reminders,
ask for the weather, and play music all add value to the
device, it is the integrative components of the Echo that
are truly forward looking. It is clear that the device was
designed as a hub for the connected home of the future,
with Belkin and Philips integration for lighting and Source: Amazon.com
Note: The 2016 Alexa family - the Tap, FireTV, the Echo and the Dot.
temperature control present from day one.
▪ Amazon has also embraced open source development in ▪ Amazon has demonstrated its enthusiasm for the
an effort to solidify its device as the connected-home Echo by continuing to launch new versions. Since
hub, giving the Echo and all Alexa-enabled devices the launching the original Echo, Amazon has also
ability to gains skills over time. By using the Home Skill launched the Dot (which is economically priced),
API within the Alexa Skills Kit, third party developers the Studio (featuring high-quality speakers), the
have the ability to create programmes that can speak to Show (featuring a screen), Glow (with a built-in
users, using Alexa as the go-between. It has over tens of lamp), Flex (which is small and plugs into an outlet),
thousands of skills as of 2020, with companies as large Buds (which are wireless headphones), and Auto
and diverse as Capital One, Domino’s, Fitbit, KAYAK and (for use in cars), among other many Alexa-enabled
Uber, offering skills. devices.

AMAZON’S BUSINESS MODEL: THE HARDWARE ECOSYSTEM

Alexa on the go: automotive integrations on the rise

▪ Even as Amazon continues to add to its already robust set of connected devices for the home, the company is
also pursuing opportunities to offer Alexa on the go via integrations into vehicles. In addition to the Echo Auto, a
small, aftermarket device a consumer can purchase and affix to their vehicle’s dashboard, Amazon has built out
relationships with major auto manufacturers to have Alexa built in to new models.
▪ For example, Ford was an early partner of Amazon, launching a built-in Alexa integration to its Sync 3 in-car
system in 2017. While most Alexa integrations are focused on non-commerce features, such as music,
directions, adjusting smart home features on the go, and adding items to Amazon cart for future purchase, the
Ford partnership notably allows consumers to place Starbucks orders via Alexa using the Starbucks Mobile
Order system. Other auto companies have joined on more recently. Audi began integrating Alexa into its e-tron
vehicles in 2019. General Motors has announced that it will offer an OEM Alexa voice assistant option into
newer vehicles of several of its brands, including Chevrolet and Cadillac, by mid-2020.
▪ Amazon’s motive for wanting Alexa integrated into as many vehicles as possible is clear. Even if most
consumers never make a meaningful amount of purchases via Alexa while driving, having access to Alexa in
their car will make many shoppers more likely to buy Alexa-enabled devices for the home, rather than devices
from other manufacturers, in order to use just one voice assistant in all contexts. As explored in the previous
slides, the strategic benefit for Amazon from its devices is the opportunity to nudge consumers towards
Amazon rather than retail competitors for a growing number of purchases, enrich the benefits of Prime
membership, and gather data to further personalise services.
▪ The benefits for auto companies are more mixed. Most cite strong consumer demand for third party voice
assistants as a driver of partnering with manufacturers, and there is little question that third party voice
assistants have become much more user friendly than earlier auto industry attempts. By partnering with a third
party, however, auto companies can no longer differentiate themselves on voice assistants, as tech companies
such as Amazon offer the same services to all car companies.

Amazon has placed its private label bets on apparel, fmcg

▪ Since 2009, Amazon has developed a robust portfolio of Amazon Private Label Brands by
private label brands, mainly concentrated in the fashion and Category in the US
fmcg categories. As of 2019, Amazon had 106 private label
100%
fashion brands, according to TJI Research.
▪ Despite the large number of private label brands offered by 90%
Amazon, many industry observers believe that only a handful
80%
of these brands contribute meaningfully to sales. Marketplace
Pulse, for example, estimates that 81% of Amazon’s 2018 70%
private label sales came from just 10 of the company’s brands.
According to a 2019 Amazon Twitter post in response to 60%
criticism from US politician Elizabeth Warren, Amazon sees
only about 1% of its sales come from private label products. 50%

▪ As a result of the limited success Amazon has had with most of 40%
its private label brands, Amazon has prioritised securing
exclusive products from manufacturers in recent years, rather 30%
than continuing to launch its own products. Through these
agreements, the manufacturer handles R&D, manufacturing 20%

and trademarking, while Amazon takes on distribution and

10%
marketing.
▪ Examples include Challenge by GNC, Care Of by Puma, Made 0%
For You by Bic and Simple Joys by Carter’s.
Fashion FMCG Home Furnishings B2B

Source: TJI Research as of November 2019

PRIVATE LABEL

AmazonBasics: brand overview

Year launched: 2009

Key categories: Batteries, electronics accessories
(including headphones, cables and chargers), office
supplies, homewares and home furnishings,
recreational equipment and pet products.
Overview: AmazonBasics was one of Amazon’s first
private label brands, and it remains one of the most
important. When it launched in 2009, AmazonBasics
was focused on electronics accessories, such as HDMI
cables and batteries. Over time, the AmazonBasics
product portfolio has expanded greatly, and it now
includes a wide range of home and office goods.
AmazonBasics is believed to be one of Amazon’s
largest private label brands - according to a 2019
Marketplace Pulse study, 58% of reviews for Amazon
brands were for AmazonBasics products.
AmazonBasics products are particularly prevalent on
Amazon’s e-commerce sites, though some products
are also stocked at Amazon Go convenience stores and
supermarkets.

PRIVATE LABEL

Amazon Mama Bear: brand overview

Year launched: 2017

Key categories: Nappies/Diapers, baby wipes, baby
food, vitamins and dietary supplements and baby skin
care.
Overview: Mama Bear is Amazon’s main private label
brand for baby products. The brand received a
significant boost in 2017, when Amazon began selling
nappies/diapers under the Mama Bear brand. Amazon
previously sold private label nappies/ diapers under
the Amazon Elementals brand, but dropped the
product in 2015. According to CNET, Kimberly-Clark is
the manufacturer of Mama Bear nappies/diapers.
Baby products is an important category for Amazon
because parents are a key target demographic that
Amazon tries to attract to Prime. Prime members who
are parents can access other services through Amazon
Family, which offers a flat 20% discount in the US on
subscriptions of baby products.

PRIVATE LABEL

Amazon 365: brand overview

Year launched: Acquired by Amazon with Whole

Foods in 2017
Key categories: Dairy, frozen goods, oils, savoury
snacks, ice cream and frozen desserts, rice and grains
and spices.
Overview: 365 was the main private label of Whole
Foods prior to Amazon’s acquisition of the
supermarket chain. 365 products can be found in a
wide range of food categories, and many 365 SKUs are
organic or carry other nutritional and ethical labels.
365 played a central role in 365 by Whole Foods
stores, a smaller format store designed with budget-
conscious consumers in mind, though Amazon
eliminated the 365 by Whole Foods stores following
the acquisition.
After the acquisition, Amazon expanded access to 365
by making more products available for sale on its
website. More recently, 365 has played an important
role in Amazon’s online grocery aspirations. 365
products can be found at Whole Foods stores and on
Amazon.com. Image source: Euromonitor International

PRIVATE LABEL

Amazon Essentials: brand overview

Key categories: Womenswear, menswear,

childrenswear, outerwear and underwear
Overview: Amazon Essentials is one of Amazon’s
most substantial apparel private label brands. The
brand focuses on “creating affordable, high-quality,
and long-lasting everyday clothing you can rely on”. Its
product portfolio mainly consists of basic apparel
items, such as t-shirts, sweatshirts, basic shorts, and
onesies for infants.
The brand is geared towards comfort and convenience
- Amazon highlights on Amazon Essentials product
pages that even the sizing is designed to be consistent
over time and across products, making the shopping
experience even more straightforward.

Amazon expands fulfilment centres, options for shoppers

▪ Amazon’s value proposition is centred around the combination of low prices and convenience. Delivery and
fulfilment play a key role in both.
▪ Historically, Amazon used the location of its fulfilment centres strategically to build a favourable tax structure,
often in such a way that made it so that its shoppers did not need to pay local or state sales taxes. The company
used this strategy in the past to avoid some sales taxes selectively in the US and the EU. The company came
under increased pressure to address this issue after being portrayed as a tax dodger in many countries. In order
to head off legal repercussions, the company has met the problem head on by rapidly expanding its warehouse
and fulfilment capabilities in recent years. By mid-2019, according to Amazon, the company had 110 fulfilment
centres, 40 package sortation centres, 100 delivery stations, and 20 air gateways in the US alone to facilitate
rapid, cost-effective distribution.
▪ Another example of the role delivery and fulfilment plays in both prices and convenience is Amazon’s strategy
of offering aggressive free shipping options for consumers. Free shipping has the impact of lowering the overall
cost of an order and is an important consideration for many shoppers as they choose which retailers to shop
from. In the US, Amazon has long set the standard for free shipping minimums with which other retailers have
striven to compete.
▪ One of the key advantages of membership in its Prime programme is increasingly rapid free shipping on most
purchases. In 2019, Amazon added an additional feature to Prime by announcing it would offer free Amazon
Fresh deliveries to US Prime members, waving the former USD14.99 monthly fee for Amazon Fresh. Also in
2019, Amazon announced it would now offer free one-day shipping for US Prime members.
▪ Amazon continues to evaluate new ways to make the delivery process as convenient for shoppers as possible
through initiatives such as Amazon lockers and in-home delivery. Several of these initiatives are profiled in the
slides ahead.

OPERATIONS AND LOGISTICS

An overview of Amazon’s delivery and pick-up initiatives

Launch Geographic
Name Description
Date Presence
Amazon Day An option available to consumers at the time of checkout 2019 USA
that lets shoppers choose one day of the week on which
they want to receive all Amazon packages.
Amazon Fresh A grocery delivery service available at no additional cost 2017 USA, Germany, UK,
for Prime members. Japan
Amazon Hub Amazon Hub is Amazon’s collection of locker and pick-up 2011 USA, UK, Italy,
services, including Amazon Hub lockers, Amazon Hub (launch Mexico, Canada,
Lockers+, Amazon Hub Counters, and Hub by Amazon, of France, Spain,
Amazon’s package solution for apartment buildings. lockers) Germany
Amazon Hub A service that allows businesses to register as a partner 2019 USA,UK, Italy
Counters location. Shoppers can ship their Amazon purchases to a
Counter partner and drop off returns.
Key by Amazon Key by Amazon is a smart lock product. Users of the 2017 USA
product can receive in-home, in-car and in-garage delivery
of Amazon orders.
Prime Now Prime Now is a rapid delivery service offering delivery to 2014 USA, UK, France,
Prime members within one to two hours. Germany, India,
Italy, Japan, Spain

OPERATIONS AND LOGISTICS

Amazon lockers offer low-contact collection

▪ One of Amazon’s key initiatives to expand its suite of

convenient delivery and fulfilment services is Amazon
Hub lockers. Lockers can be found in Whole Foods
stores, shopping centres, hospitals and apartment
buildings, as well as in third party retail stores
including 7-Eleven.
▪ To use an Amazon Hub locker, a consumer must
choose the desired locker location at the time of
checkout. The shopper receives an email when the
package is at the locker and ready to be collected. The
shopper scans the barcode embedded in the email at
the screen and scanner built into the locker. The
machine reads the barcode, and the door to the
individual compartment containing the shopper’s item
opens automatically.
▪ As of early 2020, Amazon had lockers installed in the
US, Japan, the UK, Spain, France, Canada, Germany,
Australia and Italy. In late 2019, Amazon announced it
was aiming to install approximately 400 lockers in
Mexico throughout 2020.
An Amazon Hub locker at a Whole Foods store
Image source: Euromonitor International

OPERATIONS AND LOGISTICS

Amazon Hub Locker+ offers self-service and customer support

▪ Amazon Hub Locker+ are brick-

and-mortar locations that offer
Amazon Hub lockers for package
pick-up and product return
services including packaging
materials. Unlike Amazon Hub
lockers, Hub Locker+ locations
are staffed by employees who can
assist customers with questions.
Due to having a dedicated
physical space and on-site
employees, Amazon Hub Locker+
locations allow for collection of
bulky and heavy items.
▪ Hub Locker+ locations often
include other features, such as
ATMs, free product samples, and
promotional materials for other
Amazon services. Unlike Hub
Lockers, the Hub Locker+ Amazon Hubs feature pick-up lockers, return label printing and drop-off,
locations are generally not customer service and often other services, including ATMs and electronics
accessible 24 hours a day. recycling
Image source: Euromonitor International

OPERATIONS AND LOGISTICS

Kohl’s offers Amazon returns at all locations

▪ In April 2019, US department store chain Kohl’s

announced that consumers could drop off Amazon order
returns at any Kohl’s store location. Kohl’s stores now
feature an Amazon returns counter, where a store
associate accepts unboxed merchandise for returns.
▪ Kohl’s motive for this partnership is to drive greater
traffic to its brick-and-mortar stores. To maximise the
impact, the Amazon returns counter is often located at the
back of Kohl’s stores, so that consumers see as much of
the Kohl’s merchandise as possible during their trip to the
store. So far, the impact of the programme appears to
benefit Amazon more than Kohl’s. While Kohl’s reports
that it has seen some boost in traffic particularly among
younger consumers, its overall sales growth continues to
be lower than the company previously projected.
▪ This is not Kohl’s first partnership with Amazon. Kohl’s
previously operated approximately 30 in-store Amazon
kiosks selling Amazon electronics. Amazon discontinued
its pop-up retail initiative, including the Kohl’s kiosks, in
early 2019. Currently, Kohl’s sells Amazon devices such as Signage about Amazon returns greets Kohl’s
the Echo in its approximately 1,110 stores. customers at the store entrance
Image source: Euromonitor International

OPERATIONS AND LOGISTICS

Amazon increasingly competes with logistics companies

▪ While Amazon has historically depended on third party logistics players to deliver the millions of packages it
sends each year, recent years have seen Amazon increasingly work to develop its own logistics capabilities.
Morgan Stanley estimates that in 2019, Amazon delivered half of its own domestic packages in the US, with
logistics companies such as UPS handling the rest. The growth of Amazon’s cargo air carrier, Amazon Air, and
growing network of ground-based delivery contractors under Amazon Flex has increasingly put Amazon in
direct competition with logistics players who still handle a substantial amount of Amazon’s shipments.
▪ This tension boiled over in 2019. In June, FedEx announced that it would not renew its air-based delivery
contract with Amazon for US shipments of first party products. Two months later, FedEx also chose to not
renew its ground-based contract with Amazon. In December 2019, Amazon temporarily banned third party
merchants in the US from using FedEx to deliver packages to consumers during the busy holiday shopping
season due to alleged on-time delivery issues from FedEx. The ban was lifted in January.
▪ Amazon’s own logistics services give it more control over the shopper experience and make rapid delivery -
such as the one-day and same-day shipping options it increasingly offers shoppers - more feasible. Amazon
continued to spend heavily on building its shipping services domestically and abroad, betting that rapid
delivery will attract shoppers and drive revenue. Additionally, Amazon hoped that economies of scale will
eventually lower the costs of its own delivery network. Through the end of 2019, consumers had responded
very positively to the increasingly rapid free delivery timelines offered by Amazon.
▪ In April 2020, Amazon announced it was pausing its Amazon Shipping pilot programme, which offered
Amazon-owned shipping services to third party merchants that sell on the platform in a select group of US
cities. This decision was made due to unprecedentedly high demand for e-commerce during the early days of
the COVID-19 outbreak in the US.

Warehouse and delivery worker concerns create negative PR

▪ As Amazon has increased the availability of rapid delivery and seen the scale of its operations grow over the
last five years, the company has placed high demands for efficiency and precision on its warehouse and delivery
staff. There has been a limited but growing amount of media coverage highlighting the work practices at
Amazon fulfilment centres and for delivery drivers as being excessively harsh. Furthermore, many of these staff
are part-time employees or independent contractors and as a result, face lower job security and more restricted
access to benefits such as paid time off and health insurance.
▪ Thus far, Amazon has largely skirted major negative repercussions from this coverage due to several factors.
First, fulfilment centres are often located in areas with few other major employers, giving them
disproportionate local influence over labour norms. Second, Amazon has very publicly increased the minimum
hourly rate it pays US employees above government-required minimums and challenged its competitors to do
the same, mainly impacting warehouse employees. In 2018, Amazon announced it would pay all workers at
least USD15 per hour, when the federal minimum wage in the US was USD7.25 per hour. In 2019, the company
upped this to USD16 per hour. Increasing the minimum wage increases the company’s influence in low-income
areas, and diverts attention from other aspects of working conditions.
▪ Along with growing media coverage, Amazon warehouse workers have taken more action themselves. There is
growing discussion of unionisation of employees in the US. In the US and elsewhere, some employees
participated in protests on Prime Day in 2019, Amazon’s flagship shopping event held annually in July. And in
March 2020, Amazon warehouse employees in at least one location conducted a strike to protest lack of
protection for warehouse workers from COVID-19.
▪ Rapid material risk to Amazon’s business does not seem likely to appear in the short term as the world
contends with the economic and social fallout from the COVID-19 pandemic. Over the intermediate term,
Amazon’s continued investments in automation will evolve the conversation. Among the most socially aware
shoppers, however, some may divert their purchases to other retailers.

RISKS

Regulatory burden may increase

▪ Large tech companies are facing greater scrutiny from government regulatory bodies around the world, and
Amazon is no exception. It is possible that Amazon may face greater government oversight, anti-trust scrutiny
and a growing number of investigations into its data, labour and competitive practices. In 2020, Amazon is
already facing growing challenges in the US, the EU and India. These concerns may be either mitigated due to
economic disruption due to the COVID-19 pandemic as Amazon emerges as a central player in the distribution
of household and healthcare goods, or heightened due to negative pandemic-related impacts on small
businesses in particular.

US EU India
▪In mid-2019, the Federal Trade ▪The European Commission also ▪India has strict laws about foreign
Commission began a preliminary opened an investigation into companies operating within the
investigation into Amazon’s Amazon’s activities in 2019, centred country. In early 2020, India
operations, amidst a broad look at around whether the company’s use tightened rules about marketplace
competition in the tech industry in of data from third party merchants platforms and now prohibits foreign-
the US. Big Tech in general has who sell on Amazon’s European owned marketplaces - such as
become a hot topic during the US platforms violates EU rules. Amazon and key rival Flipkart - from
presidential primaries and is likely to ▪More broadly, there is risk that the making first party sales directly to
remain in the news beyond the EU and Amazon are on a long-term consumers.
November elections. collision course regarding the ▪Amazon faces PR challenges in India
▪Of particular concern for Amazon is gathering and usage of consumer more generally, and politicians may
President Donald Trump’s data. Many of Amazon’s services are grab onto those challenges for
antagonistic relationship with built to drive the analytics that allow domestic political reasons. Jeff Bezos
Amazon CEO Jeff Bezos, and the risk its retail sites to personalise made a high-profile trip to India in
that Democratic challengers will recommendations and ads. As the EU early 2020, where he was denied a
latch on to reports of poor conditions has been a global front-runner in meeting with Prime Minister Modi
for Amazon warehouse and delivery pro-privacy legislation, there is some and faced large protests from the
workers. risk for Amazon’s operations there. Confederation of All India Traders.

RISKS

Authenticity of goods remains a challenge

▪ It is difficult for all e-commerce players with marketplace operations to ensure that third party merchants that
list on the platform are selling authentic merchandise. Historically, a key part of Amazon’s anti-counterfeits
approach was its Brand Registry, in which brands were encouraged to enrol for greater protection and policing
of products listed by third parties. To some extent, Amazon used the risk of counterfeits as an incentive for
brands to officially sell on Amazon. By giving consumers an official way to shop from a brand on Amazon,
brands could in theory limit the risk that consumers would buy counterfeits.
▪ This was the case for Nike, which in 2017 announced it would begin selling its products directly on Amazon in
exchange for promises from Amazon to better prevent unauthorised and counterfeit Nike products being sold
by other sellers on the platform. In 2019, however, Nike announced it would discontinue its presence on
Amazon as part of its broad push to rebalance its distribution to favour direct-to-consumer channels. According
to the Wall Street Journal, one factor that led to Nike removing its presence was Amazon’s failure to fully
remove counterfeit Nike products.
▪ Amazon announced a new major anti-counterfeit programme in 2019 called Project Zero. The programme lets
brands remove third party listings of counterfeits of the brands’ products themselves, without having to wait
for Amazon to take action. Project Zero is more helpful for large brands than small ones, however. The initiative
was rolled out first to large brands, and smaller brands may not have the resources to police Amazon for
counterfeit versions of their products, making the self-service feature less useful.
▪ Beyond brand pressure, Amazon’s counterfeit issues are drawing greater attention from regulators. Most
notably, in early 2020, the US Department of Homeland Security published a comprehensive report to the
president titled “Combating Trafficking in Counterfeit and Pirated Goods”. The report announced that US law
enforcement will pursue greater penalties against the platforms that host counterfeit merchandise, and
pressures platforms to undertake a number of initiatives to prohibit counterfeit items and bolster collaboration
with law enforcement.

RISKS

Internationalisation remains a growth area for Amazon

▪ Amazon has continued to see healthy growth in its Selected Localisation Challenges
most mature market, the US, but long-term success
likely depends on maintaining and growing the China
company’s status as a global retailer and tech
company. Amazon has not always been successful at
▪ Amazon did not tailor its user interface and
translating its business model and value proposition experience to local preferences, resulting in a
abroad. Furthermore, backlash in newer markets shopping experience out of sync with what many
against Amazon’s growth and the threat it poses to Chinese shoppers prefer.
domestic players is likely to increase, as has been seen
already in the case of India. Mexico
▪ As discussed earlier in this report, Amazon generally
introduces new products, services and features in the ▪ When Amazon.com.mx had its full launch in 2015,
US first, before gradually expanding them to other it accepted only debit and credit card payments,
markets. As more sophisticated and innovative despite the fact that 50% of the country was
services are rolled out to new markets, the company unbanked in 2015. Non-card-based payments
will face fresh challenges to make its offerings relevant would not be added until the launch of Amazon
Cash two years later.
and functional for consumers in different places.
Amazon will need to learn from prior international
missteps particularly in emerging markets, and listen
to local employees on the ground in international
markets to set itself up for success, as it looks to
continue to gain ground outside North America.

Selling on Amazon has pros and cons for brands

▪ Amazon is the largest marketplace in the US

and one of the largest e-commerce players Advantages of selling on Amazon
globally. According to Jumpshot, more than
half of product searches took place on ▪ Low customer acquisition costs and high levels of traffic
Amazon in 2018, making Amazon an ▪ Can reach international markets more easily
important source of product information for ▪ Social proof in the form of customer reviews
shoppers. ▪ The Amazon customer may be different from the customer
▪ Not only do US shoppers increasingly turn to on the brand’s site, benefiting underperforming SKUs and
smoothing seasonal sales drops
Amazon when beginning their search, but
customers convert at exceptionally high
rates on Amazon, particularly for Prime Disadvantages of selling on Amazon
members. Millward Brown Digital estimated
in 2015 that Prime members have a ▪ Amazon, not the brand, owns the customer relationship
conversion rate of 74%. ▪ Competition from legitimate sellers, counterfeiters and
listing hijackers
▪ Amazon’s marketplace platform can be a
▪ Risk of cannibalising sales from other, more profitable
powerful tool for brands looking to grow channels
their sales and increase their reach - but ▪ Risk that Amazon may launch competing private label
selling on Amazon and on marketplaces in products
general comes with trade-offs. Brands and ▪ Commissions and fees
retailers that participate on marketplaces ▪ Selling policies change frequently
must be aware of these disadvantages as
Source: Adapted from IRCE @ RetailX 2019 presentations “Why Are Big, Profitable
well, and should develop strategies to avoid Retailers Working with Amazon?” by Fahim Naim of eShopportunity and “Selling on
or mitigate these factors. Marketplaces: Why and How” by Peter Marlenga of Tech Armor

AMAZON FOR BRANDS

Ways brands can utilise Amazon besides short-term sales

Gain social proof Test new products

▪ It can be challenging for new brands and products to ▪ Due to the ease of listing items for sale on Amazon’s
stand out among the masses of items on offer online. marketplace, the large amount of traffic Amazon
Amazon’s user-submitted reviews offer a way for receives, and the Amazon reviews, the platform
new items to quickly gain credibility with shoppers provides a good way to quickly get feedback on new
and for excellent products to distinguish themselves. products, flavours, scents and packaging. Brands can
While there have been some hiccups in recent years effectively launch low-cost pilots to identify any
due to a rise in reviews in exchange for products, problems before making large inventory investments
Amazon reviews in aggregate are generally viewed or agreeing to large contracts with other distribution
as reliable by shoppers. channels.

Drive traffic to other sites Easily expand internationally

▪ Particularly - though not exclusively - for new or ▪ Amazon provides a comprehensive suite of services
small brands, listing products on Amazon can be an for merchants looking to sell their products outside
effective way to drive traffic to brands’ social media their home market, ranging from VAT Services on
sites or online stores. One way to achieve this is Amazon, international Fulfillment by Amazon, a Build
through listing a limited selection of SKUs on International Listings tool, and translation tools.
Amazon, with the full product range only available on These services can lower the effort and resources
the brand’s site. Companies can tell their brand required for companies looking to sell internationally
stories via the Amazon listings and gain some sales without committing to a full, boots-on-the-ground
via Amazon, while funneling traffic centrally. expansion.

Amazon’s sales surged in early 2020

▪ The retail industry globally saw immense disruption Amazon.com Inc’s Net Sales Growth by
to operations, supply chain and consumer behaviour Quarter: Q1 2019-Q1 2020
in the first half of 2020 due to the outbreak of 30%
coronavirus (COVID-19). Generally speaking, as
cases grew in a given country, many brick-and-
mortar stores were required to close and consumers 25%
increasingly turned to e-commerce.
▪ While Amazon has minor presence in China and was
20%
thus relatively unaffected during the January-
February outbreak there, the company saw

Y-o-y growth
substantial impacts from subsequent outbreaks in 15%
Europe, Australia and North America. In key markets,
most notably the US, Amazon saw its sales surge
beginning in March as consumers shifted their 10%
spending online due to closed physical stores, a
desire to avoid visiting stores that had been allowed
to remain open out of health concerns, and to 5%
purchase items that were sold out locally.
▪ In January 2020, Amazon projected first quarter
0%
sales growth of between 16% and 22%. The actual Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020
sales growth was 26% annually, due to these shifts. Source: Amazon.com Inc

COVID-19 AND AMAZON

While sales grew, so did Amazon’s challenges

▪The initial surge in demand for e-commerce was so great that even Amazon, one of the largest e-commerce
companies in the world and renowned for its reliable operations and logistics, faced obstacles meeting this
demand. Three challenges that Amazon faced were insufficient capacity to handle shipping and fulfilment for all
items, difficulty protecting warehouse and delivery workers, and the need to close some Whole Foods stores to
support grocery orders.
Demand overwhelmed shipping Worker protection became a Grocery delivery surged
and fulfilment flashpoint
▪ Due to enormous shopper demand, ▪ Tensions between Amazon and its ▪ Demand for Amazon Fresh and
Amazon prioritised essential items - warehouse and delivery workers Whole Foods delivery increased
such as groceries, pet supplies and increased sharply during the dramatically in North America. In
health products - in a variety of pandemic. Whether to keep April, the company temporarily
ways. In March, Amazon warehouses open as the pandemic limited access to its grocery delivery
temporarily stopped shipping any advanced and how to get frontline services to existing customers, and
items that did not meet these employees access to personal expanded access to additional
criteria in Italy and France. protective equipment were specific shoppers gradually.
▪ Also in March, Amazon temporarily problems. ▪ Amazon also took steps to shore up
restricted access to its popular ▪ In France, Amazon was forced to close its Whole Foods capabilities.
Fulfillment by Amazon programme its warehouse by the government. In Amazon doubled the number of
in the US to merchants selling the US, workers at some locations Whole Foods stores permitting pick-
essential items. This has the effect of participated in strikes demanding up, and converted several Whole
significantly delaying the shipping safer working conditions. Amazon Foods locations to dark stores
times for many non-essential items. temporarily increased worker pay, focused entirely on online order
partially in response to these concerns. fulfilment.

COVID-19 AND AMAZON

Amazon is likely to emerge from the pandemic even stronger

Expected Duration of Consumer ▪ Amazon appears poised to emerge from the pandemic as an even
Behaviour Change: Increased more powerful player in the sector. First, across consumer-facing
Online Shopping, Globally categories, the majority of respondents expect e-commerce to have
received a permanent boost due to pandemic-induced channel
Apparel and Footwear
shifts. Even as brick-and-mortar stores are allowed to reopen, they
remain at risk of seeing severely disrupted operations or being
Beauty and Personal Care
required to close once more should cases spike locally again.
▪ Second, the value of Amazon from the perspective of brands has
Consumer Electronics and never been more acutely displayed than it was during the early
Appliances
weeks of the pandemic. As non-essential stores were closed in
Food and Drinks many markets and as consumers sought to limit the time they spent
in essential retailers, many brands found e-commerce to be one of
Household Goods few channels even available to shoppers. Even as some brands
experienced the pitfalls of being wholly dependent on a third party
Retailing - such as brands with products declared non-essential by Amazon
and thus temporarily ineligible for Fulfillment by Amazon - many
0% 50% 100% others turned to Amazon and other e-commerce players to salvage
Share of B2B respondents sales lost through brick-and-mortar channels as quickly as possible.
Permanent Change
While Amazon sees some churn of merchants, most brands will stay
Mid-Term Change but Will Revert
on the platform once they create an account. As always, thanks to
Short-Term Change Only
Amazon’s flywheel, more sellers should yield more shoppers, and
vice versa.
Source: Euromonitor International COVID-19 Voice of the
Industry Survey, April 2020

FOR FURTHER INSIGHT, PLEASE CONTACT
Amanda Bourlier
Head of Retailing, Euromonitor International
[email protected]
https://www.linkedin.com/in/amandabourlier/
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