The Salford Viewpoint: Welcome Amazon on to the High Street

Thursday 15 October 2015

Speculation that Amazon may soon open a bricks and mortar store in Seattle should not come as a surprise, writes Acting Dean of Salford Business School, Dr Gordon Fletcher.

 

When the online giant open its first web page for business twenty years ago the retail analysts who only knew the economics of supermarkets and shopping malls all predicted an early demise for this innovative company. The claims of impending doom were all built upon traditional retail analysis regarding profitability and its ratio to sales. In many respects the negative outlook of the analysts were correct then and still remain valid. Amazon was six years old before it first reported a quarterly profit and the company still shows only very modest profits against increasingly huge sales of over $USD 88 billion. A profit of less than ½% against income appears to be very marginal business but Amazon is also a technology company and business to consumer sales are only part of the full picture. Although Amazon Web Services (or AWS) income is comparatively small with less the $USD 2 billion revenue it is an increasingly profitable aspect of the businessand in recognizing the centrality of data to all business the company is constantly prospecting for new developments in all aspects of retail.

The launch of Handmade this month drives Amazon into the complicated world of selling individually crafted items with varying quality and pricing strategies. More importantly it pushes Amazon directly into a realm that is already occupied by retail aggregators such as Etsy and Folksy. Amazon's presence in any market niche is by no means a foregone conclusion of success. However, being the first to occupy a niche retail market is also not enough to sustain Etsy as the Amazon offer features two compelling prospects. The magnetic power of a very large user base will draw in craftspeople to exhibit their wares with Amazon in preference to other locations. Couple the scale of audience with the attraction of a global delivery infrastructure that is increasingly configured around Amazon's worldview and Handmade will soon dent the viability of other smaller aggregators.

The development of Handmade also offers early hints at what an Amazon shop will look like. There are three good reasons why - after 20 years being exclusively online - Amazon would consider opening a physical store.

Handmade picks up on the global trend towards handcrafted items as well as bespoke services. Craft items still benefit from the advantage of browsing and a increasing preference related to the handmade trend of locally sourcing items including ciderand fruit and vegetables. Experienced ecommerce shoppers have developed recognizable tactics to deal with the variable sizes of clothing and shoes by first ordering multiple items and then using the offer of free returns. The Royal Mail even acknowledges this approach to ecommerce as a trend and a potential competitive advantage for small businesses. But with delicate and one-off items that would suffer from unnecessary freighting the retailing of crafts decidedly benefits from presence in a physical environment. Handmade items also contribute to the rising effect of encouraging consumers to participate in discovery shopping on the high street.

The second reason for Amazon to contemplate the high street is that it is now larger than Walmart. Although this comparison is when its "size" is measured by market capitalization making it a somewhat remote proxy for other forms of retail performance. But competing with Walmart on any measure is significant when Walmart is still the world's largest company by revenue. The message from recognition of this scale is that the high street itself has already been changed by Amazon's presence and influence. In 1995 any online presence was seen as secondary to a high street shop. Now ecommerce is an important part of retail but the shifting patterns of preference away from the desktop to mobile commerce (mcommerce) means that this activity can once again be occurring in the high street as an integral part of social activities including discovery shopping for one-off pieces and price comparison for the more common day-to-day items. Being online already means that Amazon does not have to grow physically to the scale of Tesco but rather can be paced in its development with a need for perhaps only a single store in the largest cities. Being a recognizable brand also means that Amazon can take its cue for creating a physical presence from the prestige and soft-sell approach of Apple Stores.

The final factor for Amazon going offline is its current inability to access the market for high volume, low priced items. The problem for Amazon is primarily one of creating an ever more efficient physical supply chain. The use of drones throughAmazon Prime Air is one solution to the problem, Amazon Lockers provides another potential solution and in the short-term future so does driverless car technology. Amazon has proven itself as a company willing to experiment. The company is already working with an app that will enable us all to work as couriers for the company. The app encourages consumers to visit a bricks and mortar location to accept parcels for onward transport and delivery. Amazon is also company that also expects some of these experiments to fail. The long forgotten Askville and Grapvine are both evidence of this attitude.

So what will a "real" Amazon shop look like? It is not difficult to imagine a chic courier delivery hub with free wifi and a surplus of mobile charging points where everyone will want to hang out surrounded by decorated handcrafted items and lots of ever changing quick snacks and off-the-shelf items that change prices dynamically to undercut local rivals. Entering an Amazon store will be like visiting a simultaneously grungier but upmarket Costa Coffee shop with bike racks, drone landing pads and knitting all decoratively mismatched to create a magnet for hipsters. Suddenly Amazon is cool but you probably don't know about it.

This article was originally published on The Huffington Post, read the original article here.