Ask any UK retail exec or investor what keeps them awake at night and sooner or later they will mention Amazon. 

Amazon Pantry launches in the UK

With the holiday season well underway, it’s interesting to look to the US to examine the continued success of Amazon in its home market and how other retailers are learning to compete.

Marketplaces are gaining momentum. In 2020, third-party marketplaces made up more than one-third of total US ecommerce sales and grew more than one-and-a-half times as fast as first-party sales. 

The two primary models are multicategory marketplaces, such as Amazon and eBay, and category-specialist marketplaces, including Etsy or Goat, that offer deep assortments and personalised experiences across a focused set of categories. 

The role of the bolt-on marketplace

Traditional retailers are also increasingly using marketplaces to complement their existing ecommerce offerings. Today, 21 of the top 100 US retailers have added bolt-on marketplaces, up from nine in 2016.

Amazon Go Grocery_2

Amazon is the exemplar of scale multicategory marketplaces. The internet giant continues to lead the race in ecommerce, grabbing a 44% share of US online sales in the first half of 2021. 

Its marketplace business has outgrown its first-party sales for several years, with third-party sales making up about 60% of its 2020 gross merchandise value (GMV).

A staggering 89% of US online shoppers say they plan to buy from Amazon this season, and most expect to spend the same – if not more – than last year. For customers who already know what they want to buy and are seeking efficiency, Amazon remains top of mind.

Amazon shoppers plan to spend more because they feel confident the retailer will have the items they’re looking for and will deliver them in time for the holidays. 

Amazon’s third-party marketplace has long supported its extensive product selection, and this source of additional inventory will be especially critical this year. 

Amazon One is unveiled

Amazon One

The retailer has continued to invest in its fulfilment operations. The internet titan is expected to use its own fleet to deliver three out of four packages in the US in 2021, and the ‘Fulfilled by Amazon’ service extends the strength of its logistics to third-party sellers: an estimated 69% of third-party products sold through Amazon in the US were fulfilled by the retailer last year, up from 63% in 2017.

Our research shows that 47% of shoppers are concerned about delivery delays this holiday. While Amazon won’t be immune to labour shortages, which could affect service levels, this level of control over fulfilment may help the retailer meet holiday shoppers’ expectations. 

Beyond meeting expectations for product availability and reliable delivery, Amazon continues to find new ways to spread joy, especially for its most loyal customers. 

Consumer Intelligence Research Partners estimates US Prime memberships reached 147 million in the first quarter of 2021, a 25% increase from last year. 

PlayStation 5

PlayStation 5

This holiday, Amazon is offering several new Prime benefits. One is exclusive inventory access. In September the retailer piloted granting Prime-only access to the PlayStation 5 restock. Units moved so fast the item never made it on sale to non-Prime members. For customers seeking coveted holiday items, Prime-exclusivity could help limit competition with other shoppers. 

Another new benefit is mobile gifting. Delivery delays notwithstanding, a new Prime-only feature will help ensure gifts arrive on time this holiday – at least virtually. 

In October, Amazon announced that in-app shoppers can now send gifts via email or text. Recipients can choose to provide a delivery address for the item or exchange it for store credit, without alerting the gift-giver.

Beyond Prime, Amazon continues to build customer loyalty with new subscription offerings. The new ‘Alexa Together’ service, for example, aims to bring additional comfort to caregivers. The $20-per-month (£15-per-month) service will give ageing family members, who may be living independently, remote assistance services and 24/7 access to an urgent response team.

Our research found that five categories contributed to most of Amazon’s holiday growth last year: toys, apparel, entertainment, home, and electronics. 

And its marketplace business accounted for 60% to 70% of GMV in all these categories except entertainment, where it made up about 25% of sales. Given the continued growth of the marketplace, as well as potential stockouts of key gift items in first-party inventory, third-party sales are likely to play an even bigger role this season.

Amazon is, yet again, throwing its weight behind these gifting categories with a variety of first-party-focused initiatives. 

The rise of the home robot

The retailer unveiled its 2021 holiday gift guides in October, featuring curated selections in home, toys, and fashion, among others, along with its annual print holiday catalogue for toys. 

Amazon Echo

It is also betting big on the smart-home market, unveiling several new owned-brand products, from smart thermostats to home robots to security devices. 

While it remains a formidable competitor, Amazon is not invincible. Research we’ve conducted with ROI Rocket suggests that the retailer has lost ground in customer advocacy. 

Although Amazon’s net promoter score still ranks highly across nine core categories, its relative ranking has declined in seven of those categories since 2017 while category specialists, such as Sephora, Torrid, and Chewy, have claimed top spots.

“Category-specific marketplaces can excel when consumers want inspiration for the perfect holiday gift”

What are these players doing to win the hearts — and dollars — of consumers? While Amazon shines when shoppers already know what they want, category-specific marketplaces can excel when consumers want inspiration for the perfect holiday gift. 

They are poised for a strong holiday in their respective categories because they offer product selection and experiences that Amazon does not.

Among the factors driving their success are unique assortments, more personalised shopping experiences that favour product discovery, robust authentication processes to build trust and reassure customers that products are genuine, and socially conscious shopping when customers feel like they are supporting purpose-driven brands or small independent businesses.

The success of category-specialist marketplaces indicates there is still room to not only survive but thrive in an Amazon-dominated world. 

Retailers - marketplaces or otherwise - have opportunities to gain share by nailing the basics of the customer experience. 

Instead of trying to compete head to head with Amazon’s broad assortment, top retailers will build distinctive product selections, enable inspiring product discovery journeys, and invest in building trust and loyalty programs that captivate their most valuable customers.