The Amazon Effect and The Future of Retail Business

If you haven’t heard of the Amazon Effect, then you haven’t been paying attention. Amazon is the world’s largest online retailer, as well as a major cloud service provider competing with Microsoft and Google. The so called “Amazon Effect” refers to the impact the digital marketplace has on the traditional business model, specifically in terms of consumer expectations and the new competitive landscape (Read, 2016). Traditionally, marketplace competition involves offering customers a combination of selection, price, service, and convenience. E-commerce changed the game by offering a selection and convenience that is superior by nature. Today’s marketplace is about the customer experience, and physical stores still have the advantage of immediacy and personal experience. Tomorrow’s marketplace will likely require innovation on both sides of the spectrum to keep up with the changing dynamics in technology and modern lifestyles.

Amazon offers a virtually frictionless and immediate buying experience to customers; one which traditional retailers are finding it difficult to compete with. According to the Economist, large chain department store Macy’s intended to close 100 of 728 shops in 2017. Some 10,000 store-fronts belonging to other chains around the U.S. were said to close that same year. Similar to the way Walmart conquered America by saving consumers money, Amazon is now conquering what seems to be the whole world by saving consumers time. Moreover, Amazon is setting the standard for convenience, value characteristics, and extensive networking. A recent study conducted by SOTI found that 92% of shoppers prefer stores that offer mobile experiences opposed to traditional physical-only style stores (Grosman, 2018). Convenience is top priority for customers today, and millennials are twice as likely to adopt new technology and digital trends compared to previous generations (Read, 2016).

Stores which provide e-commerce are not only more convenient for consumers, but often provide a better selection, and makes comparing prices simple. For the retailer, e-commerce has its advantages as well. There is no cost associated with maintaining a physical store for fully online businesses such as Amazon. They can also accept orders 24/7, thus increasing sales volume. It is also easy to advertise and much more accessible to consumers in many ways compared to physical store fronts. Not surprisingly, it is much more difficult to build an e-commerce business on top of a traditional type as it is costly and requires the creation of complex websites and in-depth management for shipping products to individual consumers, rather than bulk shipments to store fronts.

Millennials have specific behaviour and attitudes in the market, however; and while Amazon currently has the advantage of being the largest e-commerce business, it is very much still in competition with other retailers which offer online ordering services. According to a study conducted by Millennial Marketing, the six areas related to brand performance in which millennials place the highest value are: social circle (whether the brand is part of a consumer’s close social circle), self (whether the consumer connects emotionally with the brand), innovation (whether the brand constantly innovates and grows), trust (whether the brand considers consumer’s needs top priority), purposeful (whether the brand adds value to the larger community), and accessible (whether the brand simplifies the lives of consumers). Online retailers such as Amazon perform well within these guidelines; however, they may have some room for improvement.

Some examples of the disadvantages of the online shopping experience for customers include misleading pictures, shipping time/potential damages, security, and lack of social interaction. For the retailer, returns are far too easy for the customer and online ordering is becoming far too common for them to rely on the edge they currently may have over companies starting up their online ordering systems. Traditional retailers are innovating by offering different kinds of services such as “click and collect”, a service which allows customers to place their orders online and simply pick up and pay for their order at the physical store. Certain stores will even deliver the order directly to the customer’s doorstep. Consumers save time, and still know the products are coming from a trusted source with the security of a physical store and human representatives that could assist them in any case.

One possible, and potentially wise way fully online businesses such as Amazon could amend some of the disadvantages would be to open small store-fronts. These stores would not carry any stock but would be a place where customers could receive quality, and in-person service. Returns could be made at these locations, allowing the merchant to have more control over returns. Additionally, having physical stores makes a business somewhat more trustworthy, as there is a physical location a customer could go to speak with a representative. The company becomes much less of a call center or email list in the eyes of the consumer. Customers might also be able to place orders with assistance from staff members, making the website and services much more accessible. There is also an element of personalization, as representatives can speak with customers face-to-face and tailor their services to suit the needs of each individual customer. Making calls to companies can be time consuming and there is always a chance of being put on hold for extended periods. Having a store-front available for this purpose not only serves customers better but shows consumers that the company cares about delivering quality service to its clients.

The disadvantage to opening these store-fronts would be the cost associated (rent, employee wages, store maintenance, etc.); however, the services provided by these locations could potentially boost sales in ways no low price or amount of convenience could replace.

In conclusion, we all know that traditional retailers need to step up their e-commerce game if they want to stay in business. The question is, what will e-commerce companies like Amazon do to innovate their business to compete in this evolving marketplace? Apple for example, sells most of its products in-store, though they are all available online. Customers want the experience of shopping at Apple, speaking with the sales associate, and feeling confident in their buying decision. Customers appreciate having access to expert opinion, connecting with the company representative, and having immediate access to assistance with their purchasing needs.