The Amazon Retail Domination Strategy

I have been thinking a lot about Amazon and the future impact that online retailers will have on commercial real estate — an industry that I work in for my “day job.” More specifically, I’ve been thinking about whether or not Amazon is going to hamper the ability to refill vacancies in commercial shopping centers.

With each passing month, I fall more on the pessimistic side that Amazon is indeed already slowing the commercial real estate recovery. We can see this not only with consumer electronics stores and bookstores, but I think we will begin to see this more and more with any type of store that you would normally “pop” into — meaning a store that you don’t seek out, but rather a store that you stop by because it was on your way. Amazon is the reason I have been shopping in stores less often, I mean the UPS driver knows me.

The funny thing is, Amazon isn’t really competing on price with traditional stores. If you look at the cost of goods on Amazon and then in a store, Amazon’s prices may look cheaper, but once shipping is added, (yes, a Prime membership changes this aspect) they usually wash out to be the same — often you barely save much buying on Amazon. 1

Amazon is not trying to sell consumers on the idea of shopping with Amazon. Instead, Amazon is attempting to make shopping with them a better experience than in a store, and they are doing this by changing your habits.

Amazon has done this, as best I can tell, by focusing on three key areas:

  1. Impossibly cheap shipping (no periods on a non-sentence list)
  2. Impossibly fast shipping
  3. Consumer trust

These three things are paramount to the success that Amazon is seeing right now, and that Amazon will see in the future.

Cheap Shipping

If Amazon shipping wasn’t cheap, people wouldn’t buy from them; it’s that simple. By making shipping inexpensive, Amazon is showing value to consumers who have purchased from any other online retailer and paid for shipping that is either twice the cost, and four times slower.

By giving “pro” level users the ability to pay a cheap, annual fee for free two-day shipping, and low-priced one-day (and sometimes same-day) shipping, Amazon is compelling users to shop more on their site. Think of it this way: if I am a Prime member and see something cool for $10 on Amazon, there is a high probability I will just buy it right then and there. It is too easy and shipping is “free,” so why not? Whereas, if I don’t shop at Amazon and I see something (or hear about something) cool and I want to buy it, it is rare that I would get in my car and go straight to the store.

That’s a powerful change in habits: buying right away online because it is easy and fast, versus the hassle of going to a physical place to buy something. Amazon is saving users time, energy, and aggravation — and both Amazon and consumers know it. Of course this is not limited to Amazon, but we’ll get to why Amazon excels at this when others don’t in just a bit.

Fast Shipping

Amazon doesn’t just use fast shipping services, they fulfill items lightening-fast, using the closest warehouse to ship the item to you. Add to all of this the fact that in certain areas (and Amazon is adding more warehouses in more locations) you can get same-day delivery if you order early enough in the day, and you can see that Amazon is removing any reason a person has to get in his car and hassle with going to a “real” store.

Again, powerful stuff. Amazon is making everything an easy, impulse purchase — a dangerous thing for everyone’s wallet.

Consumer Trust

Of the three strengths that I listed for Amazon, I personally think that consumer trust is the most interesting aspect.

Remembering back to my early days on the Internet, I remember how I desperately wanted to sign up for AOL. My mom was actually OK with me doing so, and her paying for it, but she didn’t want to use a credit card. She didn’t trust AOL with her credit card information. I actually had to call my dad, who had an MSN account, and have him convince my mom that it was safe to give AOL her credit card information.

Fast forward to today and I have three credit cards stored with Amazon, all of my shipping addresses stored, and all that data can be used to purchase just about anything if you know my password.

I’ve never once felt insecure about that.

The sheer size and volume that Amazon sells everyday shows that I am not alone in blindly trusting Amazon — everyone I know does. And yet this is only one part of the trust that Amazon has earned with consumers.

The second facet of trust is ever more fascinating: I trust Amazon to do right by me. I know that I can return something to Amazon and it won’t be a hassle. I trust that the quality of the item is vaguely well-represented in the reviews by other users. But more than all of that, I trust that Amazon has a comparable price for that item, so I don’t need to comparison shop elsewhere.

As a consumer, as a geek, as a person, I just trust Amazon. How many other retailers can you say that about — physical or otherwise? I can only say that about a handful of other retailers, and that makes Amazon a powerful force — even more powerful than cheaper pricing would be.

Amazon’s Death Blow

I think all of this trust and shipping Kung Fu is leading to a massive shift in retailing over the next ten years. I don’t think there will be much of a reason for most general purpose stores. Your Best Buy, Fry’s, Gamestop, Radio Shack, etc., aren’t going to make it. They can’t compete with the convenience of Amazon, and they can’t house the items Amazon can. Plus, in my opinion, their employees are annoying — which only further encourages people to avoid shopping in person.

I don’t think it is all doom and gloom for retailing though — I think we are about to see significant shift to two types of retail stores:

  1. “I need it right now” stores (7Eleven)
  2. “I need to touch it, or be educated about it” stores (Apple Stores)

Essentially, I think Amazon is going to wipe out everyone that isn’t a niche player, or a store that sells goods that are of the need-it-now variety. What’s interesting is that I don’t think this is necessarily a bad thing on the surface for retailers, but I worry about consumers if Amazon is allotted this kind of power.

If Amazon is successful in killing retailing, as we know it today (and they are hell-bent on doing so), who is to keep them in check when they are the only big online retailer?

What we need is an Amazon competitor. If for nothing else, so that we can keep Amazon as awesome as it is today.

  1. Yes, there are always exceptions.
Originally posted for members on: August 27, 2012
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