It’s almost impossible to remember life without Amazon. Consumers of a certain age won’t even be blessed with the years to do so.
The US etail titan has become ingrained within the shopper psyche, having almost single-handedly transformed the retail landscape since its inception almost 25 years ago.
Jeff Bezos’ ever-burgeoning brainchild has, quite simply, set so many of the standards that consumers have now come to expect across retail.
Amazon’s introduction of a marketplace model, commitment to low prices, use of customer ratings and reviews, and unrelenting drive to offer convenient delivery options have left its traditional rivals scratching their heads – and scrambling to compete in the best way they can.
Retailers have shaped their strategies and restructured their operations in a bid to either follow in Amazon’s footsteps – often at the expense of margins and, ultimately, the bottom line – or to enhance their uniqueness by focusing on the things Amazon can’t do.
One retail chief executive goes so far as to label Amazon as “an ongoing and self-fuelling inferno that will consume many more retailers before it begins to abate”.
But just how would the retail landscape look if Amazon didn’t exist? How much differently would companies operate? And would the sector be healthier without its presence?
“If Amazon didn’t exist, consumers would be more tolerant of mediocre service,” says Natalie Berg, NBK Retail founder and co-author of ‘Amazon: How the world’s most relentless retailer will continue to revolutionize commerce’.
“The customer experience would be grotesquely inferior – that sums it up in a nutshell.”
Flocking to online
The biggest impact has been accelerating the shift to online shopping in general, taking trade away from the high street at a faster pace than perhaps would have happened in an Amazon-less world.
In the UK, online sales now account for about 17% of Britain’s £370bn a year retail industry. One retail chairman suggests that proportion would have been “much closer to 10%” if Amazon hadn’t led the way in transforming shopper habits.
By making it quick and easy for consumers to buy online, Amazon “democratised ecommerce and dismantled the barriers to online shopping”, says Berg.
“Amazon has dominated that ease and accessibility side of things and cut out friction,” she explains. “There would have been some natural progression but we wouldn’t see the penetration rates we do today without Amazon.”
The Entertainer boss Gary Grant agrees. “Amazon has been a pioneer,” he says. “It has given people the confidence to shop online. I remember when we started doing internet selling over 20 years ago, there were people saying: ‘I’m not sure, is my credit card going to be secure?’
“Amazon has allayed all of those fears. People now confidently put their details into a computer without expecting any issues, and they know they can return things.”
As a result, retailers have had to react. Amazon has emerged as one of top five players in the UK toy market, threatening the market share of The Entertainer and playing a part in the demise of other high-street toy sellers including Toys R Us.
“Amazon has spurred us all on to become better etailers,” Grant says.
“We have upgraded our own website in the last three months – navigation is easier, we have introduced Collect+, we have 30-minute click and collect in stores, you can pre-order new items or scarce items coming back into stock.
“The internet is our biggest shop by miles and miles and miles by turnover. Therefore, it needs investment. Amazon is spurring that on and inspiring us to be better.”
“We have diverted capital away from opening more stores into digital and technology. If you didn’t have someone breathing down your neck, retailers would have certainly done that on a more leisurely basis”
Pets at Home chief executive Peter Pritchard
The Entertainer isn’t the only business to have beefed up its ecommerce investment as a result of the Amazon effect.
Pets at Home chief executive Peter Pritchard admits the business has “without question” accelerated its digital capabilities quicker than it would have done without competition from Amazon.
“I would suspect that, because Amazon has been such a formidable force, if you spoke to any retail CEO, they would say they have had to accelerate digital plans,” Pritchard suggests.
“At Pets at Home, we have diverted capital away from opening more stores into digital and technology. If you didn’t have someone breathing down your neck, retailers would have certainly done that on a more leisurely basis and carried on doing what they were doing – why wouldn’t you?”
High street upheaval
Retailers “doing what they were doing” is almost certain to have included further expansion on the high street.
Pritchard concedes that the diversion of capital away from bricks and mortar and into digital means Pets at Homes has opened fewer stores. It had planned to open 500, but it is now holding firm at 450.
It isn’t the only retailer reassessing its portfolio in light of the online shift Amazon has spurred. Marks & Spencer is closing 100 shops by 2022 and the likes of New Look, Mothercare and Carpetright have all launched CVAs to drastically trim their estates.
While those retailers retrench, others have disappeared altogether. Toys R Us and Maplin are just two national chains to have collapsed since the turn of the year. Nick Carroll, senior retail analyst at Mintel, believes both would still command a place on the high street today if Amazon didn’t exist.
Which retailers might still exist if Amazon didn’t?
Borders The bookstore shuttered its 45 UK stores in November 2009 after tumbling into administration.
Comet The white goods and consumer electronics chain collapsed in November 2012.
BHS The department store chain was unable to rejuvenate its stores and amid online competition and went into administration in April 2016.
Maplin The computing and electricals specialist lost a large chunk of its sales to Amazon, before going bust in February.
Toys R Us The UK arm of the American-owned retailer went into administration on the same day as Maplin.
Away from the high street, Carroll reckons Tesco may not have closed its online general merchandise division Tesco Direct in July, and he suggests Google Shopping would also have “taken on greater prominence” if Amazon had not carved out a position for itself as “the search engine for products”.
Pritchard has little sympathy for those that have collapsed.
“Amazon didn’t put the high street out of business – customers did,” he argues. “Even without Amazon, there would have been cracks and businesses would have died on the high street because that’s what happens in retail, but that was accelerated because of the speed of change driven by Amazon and competitors’ lack of urgency to respond.”
Grant, however, feels Amazon’s presence and the resulting pace of change has sparked the deterioration of towns and cities across the UK.
“High streets would certainly be buzzier than they are,” he says. “In traditional high streets up and down the country, where you have had the butcher, the baker, the candlestick maker for many, many years, people’s buying habits are changing.”
Pulling down prices
Two of the key factors driving shoppers towards online have been lower prices and the speed and convenience of home deliveries – two trends spearheaded by Amazon.
Waterstones managing director James Daunt suggests that, because Amazon does not need to make a profit, it is impossible for high street chains to go toe-to-toe with the etail juggernaut on price.
“Amazon clearly delivers tremendous value to consumers. The question is, to what degree can [others] compete?” Daunt asks.
“Amazon will simply under-cut me on price to the extent it needs to in order to get the business, forever. Therefore, I don’t have a huge incentive to try to compete on price. You try and convince your customers that what you have is fair pricing.”
Instead retailers have focused on what Amazon can’t do. Central to that goal has been the creation of more experiential stores with improved customer service, live events and more attractive visual merchandising.
“We have to justify ourselves to our customers and we do that by giving them all the things Amazon doesn’t give. So for sure Amazon has shaped our strategy in that way,” Daunt explains. “The book brought from us is a better book, simply by the way in which it’s been chosen, selected and bought within our shops.”
Pets at Home has similarly re-imagined the role of its stores to give shoppers reasons for paying more than they would at Amazon. It has started hosting puppy training sessions and children’s parties.
The birth of such in-store events, and the retailer’s heavy investment in price over the past two years, may not have happened without the presence of Amazon, Pritchard admits.
But he believes that, if Amazon hadn’t been driving retail’s value agenda, someone else “would have been the challenger”.
“Rewind back to when Walmart arrived in the UK and how Walmart was going to change the landscape forever. This is what retail has always been about because there is always a challenger,” he says.
“Undoubtedly prices would be a bit higher than they are now, but if it wasn’t Amazon driving them down, it would have been someone else.”
Could the same be said, though, of delivery times? Amazon moved the fulfilment goalposts completely with the introduction of its same-day Prime service and one-hour Prime Now proposition – both to the detriment of its bottom line.
“Nobody really wants to do same-day delivery – it’s a massive headache. But Amazon has done it, it has changed customer expectations and you can’t put that genie back in the bottle”
Natalie Berg, NBK Retail founder
Berg says Bezos’ dream was to turn one and two-day shipping into “an everyday experience instead of an occasional indulgence”. But this was only financially viable because Amazon “plays by its own rules”, says Berg – both in terms of its growth over profit strategy and favourable tax arrangements.
“It was able to start with the customer and work backwards, and competitors have had to react,” Berg says. “Nobody really wants to do same-day delivery – it’s a massive headache. But Amazon has done it, it has changed customer expectations and you can’t put that genie back in the bottle.”
Daunt describes Prime as an “extraordinary customer proposition” and doubts whether any other retailer would have achieved the “gold standard” in fulfilment that Amazon has.
“Amazon is doing things that no one thought possible and everyone has pulled their fingers out to try and imitate them,” he says. “That obsessive attention to logistics excellence marks them out and has driven delivery times and options forward far quicker than would have otherwise happened.”
Carroll, however, believes other retailers, such as Argos, would have stepped up if Amazon was not around to lead that race.
“Even if Amazon hadn’t pushed same-day home deliveries, and other retailers had been reluctant, DPD would have. And the likes of Deliveroo and JustEat have changed those metrics in a wider context, too,” says Carroll.
“Modern life has become a lot quicker, our attention spans and our desire to wait for things has shortened, and so the consumer demand for speedy delivery would have still been there.”
The ever-present threat of Amazon has also inspired strategic partnerships and M&A in the industry.
Over the past year alone, Ocado has penned deals to license its technology to US grocery giant Kroger, French operator Casino and Canadian supermarket chain Sobeys, with its co-founder and boss Tim Steiner citing Amazon’s acquisition of Whole Foods as a catalyst for such tie-ups.
M&S has partnered with Microsoft and, in the US, even the world’s biggest retailer Walmart is taking action, striking a deal with Google to boost its online grocery credentials.
Daunt himself was involved in such a M&A just last month when Waterstones bought rival book chain Foyles. At the time, he cited Amazon as a key reason behind the deal, saying the combined businesses would be “stronger and better positioned to protect and champion the pleasures of real bookshops in the face of Amazon’s siren call”.
“Would Foyles have needed to find a new home if Amazon didn’t exist? Almost certainly not,” Daunt says. “Half of the books bought in the UK are from Amazon and Foyles would be that much more prosperous without it. So would we have bought it? No.”
Carroll believes retailers involved in similar deals would provide similar pictures, concluding that the unprecedented level of consolidation that has shaped the sector over the past few years has been driven by the presence – and aggressive expansion strategy – of Amazon, which last year bought Whole Foods.
“The size of Amazon now is particularly scary,” Carroll says. “If you look at Amazon 10 years ago, it didn’t acquire businesses – or certainly not on the scale it does now. If Amazon is now able to buy a 500-store grocery chain, that sends shockwaves across the market. That means Amazon is very happy and ready to use its capital rather than organically build.
“If you are a CEO of a retailer, that’s scary. For a retailer with a market cap of $1trn, spending $5bn or $6bn is a drop in the ocean. That causes others to look to each other.”
“The size of Amazon on a global scale has spurred on a lot of these partnerships and I don’t think we would have seen half as many without that Amazon impact.”
‘Force for good’
It is somewhat unsurprising then that Pritchard, only partially tongue-in-cheek, describes Amazon as “a pain in the ass” – particularly for listed businesses that cannot take the bigger picture view that the etailer and its shareholders do towards strategic decisions and capital expenditure.
Ultimately though, despite the huge upheaval Amazon has instigated in the UK market, retailers and analysts alike are in agreement that the ecommerce goliath has, as Berg suggests, been “a force for good”.
“So much of the focus goes on the negative connotation of the Amazon effect – putting retailers out of business. What often doesn’t get enough coverage is that the Amazon effect has drastically enhanced the customer experience,” she explains.
“[Amazon has] stamped out complacency. Retailers have to be on their game, you have to stand out from your competitors, you have to make sure you are relevant. Amazon has forced everyone to raise their game.”
Daunt is quick to echo those sentiments. “When life is easy for retailers, they become complacent, they become lazy and they don’t look after their customers as well as they should,” he explains.
“If you have this huge gorilla banging around then you become very nimble to stay out of their way. It has forced many retailers, including ourselves, to step up their game and stay fit. You go to the gym and you do your weights if you’re going to go the rounds with them.”
That trading of blows between established, traditional retailers and Amazon, the ultimate disruptor, has given birth to stronger, leaner businesses, offering a better proposition to shoppers.
For all the headaches and heartaches Amazon has caused numerous businesses, retail would be a poorer, less dynamic industry without it.