Twenty years ago, the retail world was up in arms over the growth of a great conqueror called Walmart. As the mighty W opened stores and put local businesses out of business, it seemed that the world of retail would never be the same. And so it was not.
But not for the expected reasons. A little startup company called Amazon, “Earth’s Biggest Bookstore,” was about to change the game, and the rules…and the entire playing field. Walmart is still enormous by any measure, and remains the world’s largest company. But Amazon has become one of Earth’s Biggest Companies, with a goal of being number one, and a willingness to invest heavily to drive growth.
With size comes power; the power to make the rules, and the power to control every aspect of the customer relationship. Amazon expects to capture nearly half, or 47 percent, of all online sales in 2019. That equates to 5 percent of all U.S. retail sales. Amazon ships more than 1.5 million packages every day, launching its own shipping arm while cutting ties with UPS. Amazon learned well, and is using that knowledge to compete with a former partner.
Now Amazon is taking over brands that use its site to sell products. Using Amazon makes sense for brands: the potential for huge traffic; access to lucrative Prime members; and shopping on the go is easy with Amazon’s mobile app. Amazon even handles product fulfillment, so why not go there?
Here’s why you may want to rethink that strategy: Amazon tracks all the data about every product it sells. For the most popular products, Amazon creates its own branded version and promotes it first on the site, becoming a direct competitor to the original brand. This isn’t a new idea: store brands have been around for generations, and Costco made the Kirkland brand both famous and highly sought after. But in the new paradigm, the more successful your brand is, the more likely it is that Amazon will copy it and compete with you.
Because of Amazon’s power with its site, the ability to change any prices at will, and its use of brand data in a way not previously possible, the field of play has changed again. In fact, Walmart is conducting its own battle with Amazon; all of Walmart’s experience and past success have only allowed it to stay in the battle, where any other competitor would have been summarily crushed. Smaller players have to submit to Amazon’s rules, or die. More often in the new model, it’s both.
For brands and retailers alike, the challenge is greater than it ever was with Walmart. From our current vantage point it’s not possible to say how this will turn out. Amazon will continue to grow until something else disrupts its current business model. There is no question that disruption will come – the only questions are when and what form they will take.