The Amazon effect on retail is the phenomena where shoppers are increasingly turning away from traditional brick and mortar retail and adopting online shopping.
Smartphone technology and (cheap) fast internet has exploded the growth of online shopping and the convenience of shopping from a phone anywhere and anytime is a true paradigm shift.
Amazon has been at the forefront of online shopping and is by far the biggest online ‘shop’.
In 2020, 47% of all online shopping was done on Amazon.com.
When Steve Bezos started this small obscure online book shop nobody would have ever imagined it would turn into the giant that Amazon is today.
Amazon has continued to innovate and its vision and bold moves has given it the edge that nobody seems to be able to catch up with.
While many Amazon sellers and ecommerce competitors despise Amazon’s ruthless and sometimes dubious business practices, customers love Amazon.
Customers vote with their credit cards and if the trends continue, Amazon and online shopping will soon become the new normal.
What Is The Amazon Effect
The Amazon Effect refers to the disruption caused by online shopping to traditional brick and mortar retail stores.
As the biggest online store, Amazon has been the driver of many changes in the way we shop and what we expect from our shopping experience.
As online shopping grew in popularity and with the convenience of shopping from your phone it has driven droves of people away from traditional shops and malls and caused people to opt for the convenience of shopping online – mostly from Amazon.
With a 50% share in the online shopping pie, Amazon has real buying power. This allows them to push down prices, offer more choices and increase shipping speed.
It has been the perfect cocktail for Amazon to grow at breakneck speed.
When COVID-19 hit, Amazon was to be the main beneficiary of a pandemic that would hurt almost every other sector of the economy.
With much of the world in lockdown and the dangers of crowded malls and shops looming, most people turned to online shopping.
Many people who have never bought anything online were forced to do so. Many of the items that regular online shoppers would still buy in shops were now being bought online.
COVID-19 certainly did exasperate the problems that retail already faced with their inability to compete with online shopping.
The result is that many traditional brick and mortar shops did not and will not survive the amazon effect on retail.
What Has The Amazon Effect Done To Retail
The first knee jerk reaction from the Amazon effect is for retail stores to throw in the towel and admit defeat. Competing with online shopping and Amazon is futile.
Many saw that the sky was falling and predicted that online shopping will take over retail completely.
There certainly are arguments for making that dire prediction but like all disruptions in any industry it causes forced changes.
Sometimes these changes kill off an industry and sometimes it simply shifts an industry into a new direction.
With brick and mortar retail stores, I believe the latter to be the case.
The Amazon effect will not kill retail. It is simply forcing a stale old idea to reinvent itself. In many ways retail should be thankful to the Amazon effect.
1. Cut the fat
Brick and mortar retail stores had it too easy for too long. With so many redundant overheads, wasteful spending and poor management they got away with it.
The amazon effect on retail forced many to take a closer look at themselves to really see how they can cut the fat and optimize their business models.
Streamlining payments, improving supply chains, reducing stock and store sizes and cutting on staff all stemmed from this new competitive environment where online shopping will always have the price advantage.
2. Keep up with the times
If you can’t beat them, joining them, right? Online shopping has forced many late adopters to start offering their own online shopping.
Today, very few shops in your shopping mall do not have online shopping options.
The hybrid model of click-and-collect is one great step in the right direction and allows retailers to benefit physically from online sales.
Having a physical presence as well as an online presence allows many retailers to benefit from both worlds.
This in itself gives them an edge over many online stores that have no physical presence.
3. Fully use and utilize its advantages
Retail stores never really took notice of the real advantage they have with having face-to-face contact with customers. Selling in-person is a vastly different experience to selling online.
The ability to see, feel and try products first hand is the one thing that online shopping can not offer.
This not only informs buying decisions but often leads to impulse purchases. Making stores visually appealing and attractive to visit has become more important than ever.
4. Speciality stores
The days of department stores seem to be numbered. It’s too close a match to Amazon and trying to do what Amazon does as a brick and mortar version simply does not make much sense.
One of the Amazon effects on retail is that it forced retail to become more specialized again.
Having smaller shops that are more specialized offers customers something unique and highly targeted to their needs.
Smaller shops with knowledgeable staff where you can really find expert help and guidance brings a new dimensions to real world shopping.
In many ways this brings back what was killed off by department stores – the days when speciality stores lined the high streets and where you can go to a specific shop to find something specific.
5. Shopping experience
While many see the Amazon effect on retail as something negative it is actually quite the opposite.
One great positive to come out of the shift to online shopping is that it has made retail shopping understand its own strengths and really focus on that.
The physical shopping experience has taken on a new life. Shopping malls now offer more entertainment than ever before.
Drawing people into malls and shops is more important than ever before with some malls have full-on entertainment parks, aquariums and even roller coasters.
Offering play centers, creches and a massive selection of restaurants and coffee shops makes it really attractive to actually go shopping – not because it is convenient or cheaper but because it is fun and it becomes a destination.
6. The Social Experience
If there’s one big positive to arise from COVID-19 and the isolation that it brought about is that it underlines our need for human interaction.
There is a social component to shopping that will never go away.
This differs from one industry to another but interacting with shop assistants, getting advice, information and recommendations accounts for more than just making buying decisions.
Shopping for a party dress in your local mall is a very different experience to shopping for a party dress online.
Shopping with someone can be both fun and be a bonding experience.
What Has The Amazon Effect Done To eCommerce
This massive shift to online shopping has lead to many changes in technology, behaviour and expectations.
While Amazon has been the main beneficiary it is by no means the only one.
Ecommerce has presented many opportunities to entrepreneurs. With Shopify starting an online store has become so simple that virtually anyone can be up and running with an online store in a few hours.
How has the Amazon effect changed eCommerce? Here are some of key changes…
1. Rock bottom prices
Online shopping has removed most of the overheads that most retail stores have to grapple with. With (almost) no staff, no rent to pay and decentralized stock an online store can run on fumes.
This allows them to really push down prices. While an online store can do well with 30% margins, a brick and mortar store will fold at margins below 50%.
Amazon themselves has turned up the heat and they force their own sellers to offer the best prices possible.
This has made it nearly impossible to compete with Amazon on price alone.
2. Taking Over The Internet
Because online shopping has become so lucrative it is slowly starting to ‘pollute’ the internet. Affiliate marketing is an easy way for anyone to get a piece of the pie.
Finding legitimate product reviews and product information with no ulterior motives to sell you has become nearly impossible.
Getting traffic to a blog or website has become a commodity and SEO is big business. Earning commissions from other people’s products is risk-free and drives most of the ‘information’ we now find on products online.
Amazon masterminded their takeover of online shopping through their affiliate program.
It allowed them to get a massive cut of all internet traffic without them having to do any of the work themselves.
With generous commissions it made it highly lucrative but when Amazon started cutting their commissions it really did cross a moral line – they knew their position and they knew that they now leave affiliates with very few options.
3. Shipping and Logistics
One of the biggest disadvantages to online shopping remains with logistics. The speed of delivery and the ability to quickly exchange items is largely what has driven Amazon to the top.
With Amazon Prime they offer super fast delivery and while having to wait 5 days puts most people off ordering something online, having to wait 24 to 48 hours often seals the deal.
Amazon has also started exploring numerous alternatives to standard deliveries and their delivery drones are set to become a major component of online shopping.
All this has driven ecommerce forwards. While most online shops can not compete with Amazon’s speed and affordability of deliveries, everyone is benefiting.
Amazon raised the bar. They also raised the expectation. This has left many dropshippers who drop shipped from China looking for alternatives just to keep up with this new expectation of ‘instant’ delivery.
With this surge in online shopping, the demand for shipping and deliveries has driven prices down. In the end everyone benefits from this.
4. Choices and Expectations
Online shopping gives us many more options. Retail stores remain limited in the stock they can realistically carry.
With online shops it is very different. The ability to source and ship from different locations means you can give customers many more options when they shop online.
The ability to quickly and easily jump between different online stores means you can easily shoparound for exactly what you want.
The online shopping experience is becoming more sophisticated. We have more options than ever before and with more choices shoppers feel more in control.
While too many choices leads to buyer fatigue, the overall effect is that people tend to buy more and spend more when shopping online.
5. Machine Learning and Understanding Customers
With millions of customers, hundreds of millions of transactions and billions of data points, Amazon has the data to really understand its customers and shopping behaviours.
Their algorithms and machine learning has driven their understanding of customers to a new level.
It seems like Amazon knows you better than you know yourself. Its product recommendations have become so smart and so accurate that you do not have to look far for what you want on Amazon.
6. Online Shopping ‘Standards’
Handling half of all online purchases in the USA means you not only get to notice online shopping behaviour but you get to create it.
Much of online shopping behaviour is driven by the standards set on Amazon. Store layouts, product descriptions, images and the checkout process has become fairly standard.
What Amazon does becomes what people expect because it is so familiar to most.
The way Amazon collects, uses and displays customer reviews has changed the face of ecommerce and many online stores are desperately trying to mimic Amazon’s reviews and recommendations.
Is Amazon Hurting eCommerce?
When shopping malls started springing up all over the world in the 1980’s it was all the rage.
The idea that you can have all the shops you may ever need under one roof with the convenience of parking, restaurants, cinemas and even restaurants was a breakthrough for the shopping experience.
The start of shopping malls was also the death of high streets – at least in many cities. In Europe many high streets survived but this was more a function of the fabric of the cities and a lack of space (or the desire) to build big bland blobs of buildings.
In many ways, Amazon is doing to Ecommerce what shopping malls did to high street retail.
You can buy anything you can think of from Amazon and they make it as attractive as possible for you to never leave the comfort of your Amazon app.
Amazon most certainly is heading into the territory of running a monopoly.
With them squeezing their sellers from every angle for every dollar, them cutting commissions on affiliates and edging out sellers with the own ‘Amazon essentials’ they will only continue to grow.
If Amazon keeps getting a bigger piece of the ecommerce pie, where does it leave us as small eCommerce businesses?
Will Amazon eventually eat us all alive?
I doubt it.
Smaller and more specialized online stores that offer a personalized service and/or unique products will always have a place.
Not everyone is price shopping. Those who look for the cheapest will always look for the cheapest. That will never change.
Amazon is advancing online shopping for the benefit of us all. While their cut of the pie keeps growing, so does the cut of the entire eCommerce pie.