From fashion shows to drones to groceries, 2016 has been a big year for Amazon. They have diversified their offering and recorded their highest profits yet. So which areas is the company targeting, and how can the retail industry respond?
Amazon has been working to increase its association with the fashion world. It has sponsored fashion shows, launched a daily style show and increased partnerships with higher-end brands such as Kate Spade and Burberry. It might seem an unlikely place for these brands, as it lacks the associated site experience or inspiration. But it has a feature which can’t be rivalled by the brands’ own sites: Amazon Prime. A survey by Cowen & Co found that the biggest lure for clothes shoppers on Amazon is the convenience and free two-day shipping offered through Prime. This convenience, combined with investment in the fashion world, seems to have paid off as Amazon is set to overtake Macy’s to become the biggest clothing retailer in the US in 2017.
Amazon Echo, the voice-controlled speaker with Amazon’s assistant Alexa, launched in the UK this year. Alexa is similar to Apple’s Siri and the Echo offers similar features to Google Home. But again, Prime discounts may lead to Echo being chosen over its competitors. A £50 discount on Echo for Prime members, together with a discount on Amazon Music Unlimited, make it tempting to buy a Prime membership simply for these discounts.
With the UK launch of Amazon Fresh in June, Amazon began offering convenient same-day delivery of fresh food. This is another perk of Prime membership, with the service currently only available to Prime members.
But Fresh isn’t Amazon’s only plan for taking a share of the grocery market. This month’s announcement of Amazon Go (physical grocery stores with no checkouts) is another step towards offering the most convenient grocery shopping experience in the market.
How can retailers respond?
Amazon has a large base of paying subscribers who look to make the most of their Prime subscription by taking advantage of the wide range of Amazon services. So how can retailers respond to a competitor with such a large, loyal customer base?
Competing with Amazon
One option is to compete by offering Prime-style delivery subscriptions, with the aim of gaining similar loyal customers. For example, ASOS’s Premier Delivery gives customers unlimited next-day delivery for £9.95 a year, encouraging customers to return to them throughout the year to avoid long delivery times and charges.
Retailers can also compete by ensuring their online experience is brand-specific and inspirational. Amazon is not designed to inspire or excite customers. So retailers such as Net-a-Porter, whose online shoppable magazine inspires customers to buy, or Eve mattresses, whose image-based site convinces customers of the high quality of their products, are able to compete with Amazon through experience rather than expensive discounts or quick shipping.
Working with Amazon
The answer for retailers may not necessarily be about competing with Amazon, but working with them. Most brands won’t ever be able to offer the same standards of delivery or customer service as Amazon, and their sites will get a tiny percentage of Amazon’s traffic. So selling through Amazon, rather than seeing them as competition, can be an effective way to build up a customer base.
Retailers that prefer to focus on their own site could give customers the option of using Amazon Pay to check out with their Amazon details. This makes the process as easy as using Amazon’s own site, and makes it less likely that customers visit the brand site to check details before returning to Amazon in order to avoid a long registration process.
And Amazon is not all bad news for retailers; there can be a halo effect. Data from Bloomreach shows that on Prime Day in 2015, online traffic increased by an average of 21% across retailers. So by planning ahead to make the most of these spikes in traffic, retailers can benefit from Amazon’s marketing spend.
We don’t yet know Amazon’s plans for 2017, but it is likely they will continue to enter and disrupt new industries, offering Prime benefits to gain market share. For retailers, this doesn’t have to be bad news. Successful retailers will differentiate their own on-site experience and/or recognise the benefits of Amazon as a platform for reaching a huge amount of customers and providing best-in-class fulfilment to customers that will return.