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Amazon’s Christmas in July industry event

Posted by: Will Dawson

With Christmas planning already well underway, Amazon showcased their prediction of future trends in their “Christmas wish list” event earlier. While normally a press focused event, Amazon invited leading industry experts, consultants and analysts to demonstrate the wider UK offering.

They shared some interesting Amazon facts:

  • 250m unique products (SKUs) listed on amazon.co.uk
  • 100m new business specific products lines (Office Depot competition)
  • 150,000 grocery lines
  • 50% of inventory is vendor owned (‘fulfilled by Amazon’)
  • Customers who use a range of services (Video, Music) have a significantly higher attachment rate for renewal

Amazon Prime

While the core focus of the event was to promote the latest and greatest gadgets, the real star was Amazon Prime. With unconfirmed reports that 33% of households are subscribed to Prime (£79 annually), it’s hardly surprising that Amazon was pushing the benefits of its complete ecosystem. It’s an envious position to be in with other retailers trailing, but still unable to compete with this offer – except of course for the supermarkets with their delivery pass.

Grocery

Grocery delivery is a competitive market, with low (to negative) margins but Amazon have slowly been ramping up their offer. Launched in 2016 with the USP of same-day delivery, Amazon Fresh was market leading but limited to highly populated areas. During the event, Amazon highlighted that the number of postcode areas it can now reach has expanded to 302, and they are serious about competing with the established supermarkets…it still isn’t a given that they will win however…Tesco have recently announced their same-day nationwide offer, beating amazon to UK wide coverage.

Marketplace

One of the main insights from the day was that 50% of the stock in Amazon’s warehouse is not owned by Amazon. The ‘fulfilled by Amazon’ offer allows sellers to put stock in an Amazon warehouse and allows it to flow through Amazon’s own fulfilment channels. This puts all the stock risk on the vendors (not Amazon), while Amazon charges them a storage and fulfilment fee. It’s an attractive position to be in as a retailer, something that only a company the size of Amazon could achieve.


Fashion

A key focus segment Amazon want to own is fashion. With new services like Wardrobe and Look, they are trying hard to innovate in an already highly competitive market. Sentiment in the industry suggests that where Amazon falls down is the curated content that other online retail destinations offer such as matching outfits and suggested accessories chosen by an expert, not an algorithm. Additionally, some brands maintain that they won’t allow their products to be sold on the Amazon platform which could limit the Amazon range.

EU wide offer

Due to its scale, Amazon can use it’s existing supply chain to offer significant economies of scale to smaller businesses that would otherwise not been accessible. The example Amazon used was their European shipping program, where vendor’ stock in an Amazon Warehouse can be picked, packed and shipped to the EU all from the existing stock pool – no need to duplicate stock across countries. Products are slower to market, but it enables smaller vendors’ scalability that would normally present a high barrier to entry.

Wider impact

Amazon has become a retail giant through its discounted prices, huge range, and convenient delivery propositions - existing retailers simply struggle to keep up. While Amazon is aiming to be all things to all people, existing retailers can compete on customer centric offerings, with more curated content. A customer doesn’t need 1,011,345 different iPhone 7 phone cases to choose from, a more concise offer of 55 (Carphone Warehouse) would be more appealing. This is Amazon’s main challenge when moving more focus into the fashion market.

Retailers need to focus on the customers’ needs and wants, not what the competition is doing. Our research at LCP confirms that same day (or next day) delivery isn’t needed for much of the market. If it’s ‘fast enough’, convenient (home/locker/selected day) enough and with good communications, customer will be just as happy. Assessing the customer journey is key for most retailers; a focus Amazon may itself do well to emulate.

 

Will Dawson is a Manager with extensive experience in the areas of supply chain strategy, business operating models and logistics. Will attended the Amazon Wish List breakfast on Wednesday 19 July 2016, with Doug Gurr, who leads Amazon in the UK as the Country Manager, and other senior executives from Amazon in the UK. The breakfast was held in conjunction with the annual Amazon Wish List event in London, a preview of the must-have products for the upcoming festive season. The breakfast was an opportunity to discuss current retail trends, learn more about Amazon’s activities.

PHOTO CREDIT, © WILL DAWSON 2017

 

 

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