In July 1994, Jeff Bezos founded Amazon from the garage of his rented home in Bellevue, Washington.
Nearly 25 years later Amazon has become the most valuable public company in the world and has dramatically changed the way we shop.
In fact the impact has been so great that it has been named “The Amazon Effect” – a term that describes the effect that the entire digital marketplace has had on traditional forms of commerce, like brick-and-mortar retail. Namely, the Amazon effect has introduced consumers to an almost completely frictionless shopping process with near-immediate results (more and more, this refers to delivery, too).
However, the Amazon effect has also spilled over into more traditional spaces. Customers now want the same experience, whether they’re in front of their computers or inside a shopping mall.
Amazon and the retailer
The very real impact of the Amazon effect can be seen all over the world. Every year, more retail locations close down or strive to find a new, modern, digital solution to drive their business forward.
Physical stores are morphing into social spaces – a place to, perhaps, pick up your online shopping from the retailer (click and collect), pick up a coffee, browse the lines available and have a “retail experience” and its in this area that I believe sports retailers have an advantage.
I remember vividly the JJB stores of the early 1990s. Out of town spaces, great parking. And a basketball court in the middle of the store! An interactive space. Somewhere for consumers to “hang”.
Ultimately (probably because these spaces were either being abused or the space became too expensive) these elements disappeared (eventually along with the JJB name). But if we consider the demands of consumers now perhaps we have come full circle and we are looking for these interactive spaces again – somewhere to test a tennis racket, to kick a football, dribble a basketball, swing a cricket bat.
We went through a phase where retailers offering this type of “service” found that the consumer used these sorts of facilities for “testing” and then disappeared only to purchase the same item online.
However, if this approach is integrated with a digital strategy then there is no reason why the sale cannot be captured there and then. Even if the consumer doesn’t actually walk out of the store with the product, but it is delivered later.
Amazon and the supplier
But what effect on the suppliers? On the brands?
On the one hand the brands are driving their own strategy to counteract the amazon effect by driving direct to consumer sales through own stores and a direct digital strategy.
On the other hand many are being tempted by the the fact that Amazon has the most powerful distribution system in the world. It has scale, numbers.
In 2017, Nike announced that it would become an Official First Party Seller on Amazon. It was an attempt to remove third party sellers and to provide better product and brand presentation within the Amazon platform.
It is a move that has been monitored closely by those within (and outside) the trade and early results are beginning to filter through. Nike’s decision to sell directly on Amazon was a control play: The brand wanted direct agency over how its products were displayed and sold on the Amazon platform.
By working with Amazon Nike’s goal was to eliminate third-party sellers and transfer those sales to its own channel, collecting more customer data and ultimately making more money off Amazon’s massive distribution network.
Except, it appears that that’s not what happened. A US-based research company, L2, has found that once Nike began eliminating third-party listings on Amazon, to prioritize its own listings, performance for the brand declined in the third-party marketplace and first-party sales didn’t pick up the slack. Overall, Nike’s L2 ranking on Amazon declined by 15 per cent since August 2017.
Even after Nike began selling on the platform, the “Amazon Choice” product for the brand was an item fulfilled by an outside seller!
The conclusions
So where does this leave us? The landscape is changing so fast that whether you’re a retailer or brand the amazon effect cannot be ignored. Both sides are able to exploit the amazon model listing directly on amazon marketplace, utilising FBA (fulfilled by amazon) or wholesaling to them in the traditional way.
Retailers and brands are reporting strong sales in the sporting goods category on amazon but, as the Nike example underlines, there still appears to be a lack of clarity when it comes to the preferred relationship with amazon.
There is no doubt that the platform can provide some stunning numbers and, if done correctly, can be a huge revenue driver. However, one must consider the development strategy with amazon as part of an overall global distribution strategy.
The ability to access the global consumer through a global distribution platform has huge merit but continues to challenge the strategists as to how to drive such a business model without massively impacting the existing distributions models that these businesses currently have in place.
Anyone up for the challenge?
