What's Amazon's Game Plan Against the Increasing Encroachment by Retailers in the E-commerce Space?

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Nov 23, 2014

Long back the best way to shop was to go to a store, hold the item in your hand, get a feeling of the product and if you are satisfied then you pay for it. But the online megastore Amazon (AMZN, Financial) revolutionized the way people shop. In the world of standardization, Amazon gave the buyers the opportunity to shop from the convenience of their homes and this has taken the company far. Today the company is counted among the most successful e-commerce companies of the world. But now the traditional retailers are understanding the benefits of e-commerce and are gradually encroaching on Amazon’s territory. As more and more players come in, Amazon’s market share will be diluted. So, what’s Amazon’s game plan for continuing to grow? Let’s take a look.

What’s going on with the traditional retailers?
Big-box retailers such as Wal-Mart (WMT, Financial), Target (TGT, Financial), Best Buy (BBY, Financial) and several others have slowly understood how crucial it is for them to become a part of the internet culture and to offer products to their customers over the internet. As a result, these retailers have started investing heavily in their e-commerce platforms. Recently Wal-Mart reported its fiscal 2015 third quarter earnings, and in that the company highlighted its 21% online sales growth. In the past two quarters the company had reported 27% and 24% growths. So, over all the Arkansas based retailer is witnessing some noteworthy success in its endeavors. Wal-Mart also recently started matching prices with Amazon’s so that it can attract more and more buyers.

Similar is the situation with Target. The retailer has been relying on its online platform to change its fortune, and that seems to be happening. Surely the convenience of shopping from home is tempting, but what’s more tempting are the smart offers that the retailers come up with. Earlier Target used to provide free shipment for all items costing more than $50. But during the holiday season the retailer is going to offer free shipments on all items. This is something that has worked in favor of the company.

The retailers are investing to put up an easy to use, consumer friendly website with focus on easy check out processes that functions in ways that makes the life of the buyer very easy. They are also investing in building distribution centers spread across strategic locations. On top of all this, the retailers are generously using their physical stores as pick-up spots for items ordered online, and thus benefiting from a wider distribution network.

The euphoria surrounding e-commerce
Anyone who is someone in the retailing business is integrating e-commerce in the business model, and why shouldn’t one? According to a recent research report by Forrester Research published on Internet Retailer, U.S. e-retail space is going to see some good jump in the near future. The expectation is that online sales will account for 11% of total retail sales, up from 8% in 2013. In terms of dollar growth, the surge is expected to be 57.4% to $414 billion by 2018. Statista is even more optimistic about the upside potential of the space and believes U.S. retail sales will grow to $491.5 billion by 2018. That’s a pretty nice growth trajectory I would say.

What’s Amazon’s game plan for growth and sustenance?
For Amazon the situation is definitely not desirable. After all who wishes for more competition! The big-box retailers are gradually trying to integrate in-store shopping with online shopping to serve their customers better. Amazon functions through a little more than 60 distribution centers in the US. Compared to that the traditional retailers are building distribution centers, as well as using their existing physical stores as pick up centers from items bought online. So, one can clearly understand the trouble that’s headed Amazon’s way.

However, the point to note is this isn’t the end of line for Amazon. In fact this was the beginning. The company has a wide portfolio of business and e-commerce is just one of them. Amazon has presence in the consumer electronic market through its tablets and smartphone. But the one business that analysts and industry experts a banking on is cloud computing. Amazon Web Services is gaining traction very fast and presently it’s the top cloud computing offering in the market. International Data Corporation (IDC) believes that global spending on public IT cloud should hit $107 billion by 2017. Amazon is on its toes and its eagerly adding more services to its cloud offering, leading to a broader category and more number of customers. The Seattle based company wants to become the one stop shop for all cloud related solutions.