From a retail and fashion apparel perspective, summer can be an anxious time. For many companies, the back-to-school season is peaking right about now. The season is a chance to boost the top-line with more full-price assortments, which means better margins. Craig R. Johnson, president of Customer Growth Partners, has the season pegged to grow more than 5 percent year-over-year — with online sales rising by more than 10 percent.
And it’s the online execution that can cause retail anxiety. If you’re a brand or retailer without a solid, well-oiled omnichannel strategy that delivers products that are in stock and at the right price point — and when and where shoppers desire it — your business is in trouble. Even the best online execution, though, does not guarantee success. Because looming overhead, blocking out the summer sun, is Amazon.
Retailers, consultants and business analysts often refer to the impact of the online giant on the market as “the Amazon effect.” It’s ongoing growth and hunger for market share have reconditioned how traditional retail is done. But there’s another dimension to the Amazon effect, and it is not about the company’s megasize or its megamarket share. It’s about the consumer, and the emotional connection and intimacy created by Amazon that transcends the traditional retail transaction.
First, let’s take a look at the numbers to put Amazon in better context.
In the National Retail Federation’s recent list of the top retailers, Amazon took the number-three spot with U.S. retail sales of $102.96 billion. In 2015, its U.S. sales were half that, and it was number nine on the list. Number one this year, again, was Walmart, with $374.8 billion. In third was Kroger with $115.89 billion. What’s astonishing is that while Walmart has held onto its pole position, it’s been growing at a modest rate — 3.7 percent year-over-year.
Amazon, though, experienced year-over-year sales growth of over 45 percent, according to the NRF report. And it delivered this growth while also taking the bulk of online market share. Analysts estimate that Amazon’s online market share during the 2017 holiday shopping season was more than 50 percent.
What’s also notable about the NRF list is that among the top 10 companies, there’s not one traditional department store to be found. The first one that appears on the list is Macy’s at number 18, with $24.8 billion in sales. By the way, analysts peg Amazon’s apparel sales alone at about $24 billion.
This massive growth of Amazon is fueled by consumers seeking deals, and the online retailer’s “Christmas in July” event is an important driver. Last year, Cowen & Co. analysts estimated Amazon’s Prime Day sales swelled 60 percent year-over-year to $1 billion. This year, deal-hungry shoppers are expected to help Amazon grow even further. The event is now 36 hours long, and is expected to draw in sales of $3.4 billion.
Jennifer Sherman, senior vice president of product and strategy at Kibo, said with Amazon’s Prime Day “rolling into its fourth year, the e-commerce giant is once again training all consumers to look for deals in early-to-mid July.”
“Rather than sinking back and accepting defeat, retailers and manufacturers can optimize this Christmas-in-July-like event by drawing consumers to their sites with their own deals,” Sherman said. “For example, last year, close to half of the sellers on Internet Retailer’s list of top 100 companies offered Prime Day alternatives in the hopes of capturing the attention of the 76 percent of shoppers who told Bazaarvoice [in a survey] they’d check sites other than Amazon in search of deals.”
Sherman said retailers can compete, but need to focus on fulfillment and one-to-one personalization. “Retailers can promote their businesses with techniques like highlighting the customer-centric capabilities of their physical outlets, showcasing the perks that come with their own loyalty programs and dropping the prices of top sellers and trending items while increasing digital advertising for those best-selling products,” she explained. “Implementing these strategies can help make Amazon’s exclusive event less of a threat and more of an opportunity to boost business while consumers are on the hunt for deals.”
Personally, I think the one-to-one personalization tactic is the most critical. Amazon’s most recent e-mail push for Prime Day, for example, was based on the site’s best guess as to what I want. It offered deals on music (my most recent purchases have been CDs — yes, they are still made) and mattresses (I bought two last fall after I moved). And headphones, too (I listen to CDs, therefore I must need headphones, right?). The algorithm was trying to piece together an assortment that would be appealing.
Moreover, it’s the other dimension of the Amazon effect that will likely make me return to the site and shop: how it fosters a deeply personal and emotional connection — not with Amazon itself, but with other people in my life.
In a report by IDC released on Thursday, the firm surveyed more than 2,000 consumers to gauge sentiment for this year’s holiday shopping season. It found that “Amazon’s hold on shoppers’ wallets and shopping carts runs deep, supported by unexpected advantages in being the leader in satisfying 2017 holiday gift givers’ emotional needs — engendering joy in finding the right gift and confidence in being treated fairly and squarely.”
Greg Girard, program director of IDC Retail Insights’ Worldwide Retail Intelligent Product Merchandising and Marketing Strategies Service, said this “singular finding is more profound than what our search reveals about Amazon’s unsurpassed reach.”
For my part, the “engendering joy” aspect comes into play when my 13-year-old daughter, Marina, spent a weekend over and I learned that she likes the band the Imagine Dragons. On Sunday night, after she left, I went straight to Amazon.com and ordered a T-shirt touting the band’s latest tour, and had it sent to my ex-wife’s house — a gift for Marina to arrive on Tuesday.
Later that day, on the train ride home, I got a text from Marina thanking me for the shirt. “It’s awesome!!!” she wrote. Later that night, I got another text from her. “Does Amazon sell posters too? Can you get an Imagine Dragons poster for my room?”
Yes, they do. And yes I will. And that’s the real secret sauce of Amazon’s growth and success.