aid in their shopping journey that may result in a transaction elsewhere.
In many instances Amazon is also a price leader. While it doesn’t always offer the lowest price, it has a strong reputation for good value, and its sophisticated algorithms, as well as its ability to frequently absorb below-average industry gross margins, give it a major competitive edge. Also, as a well-established brand, it has trust advantages over the smaller, unknown, or even potentially fraudulent merchants that may show up in searches for the lowest price.
Arguably, where Amazon has been the most disruptive is redefining the notion of convenience. Much of this stems from ever-shorter product delivery times. For many years a centerpiece of Amazon’s offering has been its Prime program, which has free two-day delivery as a core benefit. With more than 100 million Prime members in the United States alone, many shoppers have come to expect free and fast delivery as the de facto standard. And Amazon keeps raising the stakes, pushing to provide next-day delivery in many major markets, offering two-hour grocery delivery, and experimenting with other convenience-oriented options like placing Amazon pick-up lockers in Whole Foods and Kohl’s stores.
The other aspect of Amazon’s fundamental redefinition of convenience is the shopping experience on the site itself. Supplementing its impressive assortment are powerful features like one-click ordering, subscription replenishment options, and a plethora of preference settings that make purchasing faster and easier.
Any retailers that go head-to-head with Amazon will likely find it very difficult to compete on these dimensions. And even where they can, it is virtually impossible to do so profitably. That creates a major dilemma for many of them. Failure to be at parity with Amazon means ceding market share. Trying to achieve parity means tanking earnings.
Understanding Buying vs. Shopping
As dominant as Amazon has become in many areas, it’s important to understand that it has, as noted retail strategist Liam Neeson might put it, “a very particular set of skills.” This is best shown by examining the difference between “buying” and “shopping.”
In this way of dissecting the retail world, “buying” is more task-driven or mission-focused. It’s mostly functional. The consumer already has a clear idea of what he or she wants and generally wants it quickly and at a decent price. Buying is more commodity-oriented and search typically plays a key role. Amazon—and e-commerce more broadly—does especially well here.
“Shopping,” on the other hand, is more nuanced and complex, typically involving more exploration and browsing. Generally speaking, browsing on Amazon can be a frustrating experience. When shopping, rather than looking for a specific item, the consumer may be seeking a more complete solution or inspiration and often requires some form of advice. Shopping also tends to be more emotional, with a greater emphasis on the full experience rather than merely checking an item off a to-do list. The role of physical stores is dramatically more important in shopping than buying, and as a consequence Amazon and other sites that are dominantly or entirely e-commerce have a disproportionately lower share.
So when we talk about Amazon’s retail dominance (and in general much of the hyper-growth in online retail), we need to remember that the vast majority of it is occurring in buying, not shopping.
The De-Schlepping of Retail
Within “buying” lies an important sub-sector where Amazon is very strong. At a 2018 industry conference, former J.Crew CEO Mickey Drexler asked the crowd, “Why schlep paper towels . . . why schlep dog food . . . why schlep a lot of things?”16 When we know exactly what we want sight unseen—and especially when that item is big, bulky, or frequently purchased—having somebody else deliver it is so much easier. This is particularly true if one is already a Prime member and the price of getting it shipped is zero.
While Amazon is a big beneficiary of this phenomenon, newer brands, from Chewy.com (pet supplies) to Boxed to subscription razor services like Harry’s, Dollar Shave Club, and Billie are leaning into this opportunity. They either emphasize bulk delivery of products and bundles or seek to enroll customers in scheduled replenishment of frequently used products. They zoom in on a particular set of points in the buying process and eliminate the friction. Afraid of running out of essential items? No problem! Just subscribe to our service and that fear is gone. No room to lug large and unwieldy items in your car or on the bus? No worries! We’ll deliver it to your home or apartment.
Let’s Get Physical
Some experts believe that Amazon’s ability to sustain hyper-growth over the long term will be increasingly driven by a more aggressive investment in physical retail. What is becoming clear is that e-commerce growth, while still very robust, is beginning to slow, and Amazon’s stock price is strongly influenced by its growth story. Some leveling-off in Amazon’s online growth is inevitable, stemming from the fact that the product categories that are maturing most rapidly are among Amazon’s most highly penetrated segments, such as books, consumer electronics, and more commodity-like household items.
As alluded to earlier, Amazon already has a substantial physical retail presence by virtue of its 2017 Whole Foods acquisition. But it continues to experiment aggressively with various brick-and-mortar concepts, including Amazon Books, Amazon Go, and Amazon 4-star stores. Amazon is rumored to be considering opening thousands of Amazon Go locations in the new few years, in addition to reported plans to become bigger in physical grocery store retailing by launching its own mass-market concept.
Amazon has also been experimenting with and expanding various “click and collect” operations. At the end of 2019 it had more than 2,800 Amazon Lockers across 900 US cities. Many Whole Foods stores now have prominent Amazon pick-up and return areas. And most significant (so far) is its partnership with Kohl’s, where all roughly 1,150 stores now accept Amazon returns, even if the customer no longer has the shipping box.
These initiatives are addressing important friction points in buying from an online retailer. They also serve to partially counteract an edge major competitors like Walmart and Target have with those consumers who lack a good way to receive packages at their home or workplace, or who find returning a product through the mail a major hassle or a costly alternative.
While such services will help serve some needs, they are unlikely to help Amazon compete when it comes to growing significant sources of incremental revenue currently held by predominantly brick-and-mortar retailers. Physical store market share remains quite high in many substantial retail sectors like home improvement, furniture, and groceries, largely owing to how critical the in-store experience is for most of these purchases. Undoubtedly both evolving consumer preferences and technological advances will continue to help digital chip away at even the greatest strongholds of brick-and-mortar shopping. But many of these gains will come slowly, and Amazon, particularly given its sheer size, will need to unlock major new sources of growth to sustain its present trajectory. It’s hard to imagine how it will do that over the long term without a much greater physical retail presence.
The Amazon Stranglehold?
Although Amazon clearly has some challenges in achieving greater profitability while sustaining hyper-growth, the naysayers must keep certain aspects of the future impact of the Amazon effect in mind:
• First stop Amazon: The fact that a large percentage of consumers engaged in online product discovery reflexively make their first stop Amazon gives it a huge strategic advantage.
• Massive customer insight: While Amazon is fundamentally a logistics or supply-chain company, it is a customer data company and a consumer insight machine as well. It’s
