Case Study Amazon. Entry into stationary retail?

Table of contents

1. Introduction
1.1. Central question

2. Starting situation
2.1. Facts and Figures
2.2. Competitors in online retail

3. Amazon Go
3.1. Industry structure analysis by Porter
3.1.1. Customer bargaining power
3.1.2. Rivalry between companies in the same industry
3.1.3. Danger from new competitors
3.1.4. Danger from substitutes
3.2. SWOT Analysis Amazon Go
3.3. The strategy

4. Expansion of Amazon Elements and opening of "Pick up Stores"

Bibliography

Internet sources:

1. Introduction

Headquartered in Seattle (USA), Amazon.com Inc. is one of the four largest digital companies in the world alongside Google, Apple Inc. and Facebook Inc. Amazon is an international listed company that cannot rest on its laurels. Amazon, as well as other international companies, are constantly under pressure: They need growth stories and always have to find new stories for their investors.

1.1. Central question

This case study on the company Amazon deals with the central question of whether the company manages to use its popularity and large number of customers as the largest e-commerce platform in order to gain a foothold in the stationary retail segment, the offline retail segment.

The case study includes several analyses and solutions. The central question is to be clarified as to whether it makes sense to enter brick-and-mortar retail and what important details and steps must be taken by founder Jeff Bezos to make it another success story for Amazon.

2. Starting situation

"For me, Amazon is the story of a brilliant founder who personally drove the vision forward" said the chairman of Google Erich Schmidt, big competitor of Amazon (Stone 2013, p. 13).

The company Amazon.com Inc. is one of the largest online retailers and most innovative companies worldwide. The company started modestly as an online bookstore in 1994. In the following years, a global expansion took place and the range was constantly expanded with music, films, electronics, software, clothing, car parts, toys etc. Amazon is a large technology company that serves several business areas and has made its supply chain management very efficient in recent years.

Amazon Fresh also launched grocery shipping in a few select cities. In December 2016, the first Amazon Go store opened in Seattle. This is a concept for cashless supermarkets and can therefore be described as the first entry into stationary retail. At the beginning of May 2016, Amazon launched Amazon Elements online to sell private labels, such as food and other household goods. Amazon Elements products are also available in Amazon Go stores.

2.1. Facts and Figures

Amazon employs a total of 268,900 people (as of February 2017) and has slipped into the profit zone since 2001. Amazon ranks fourth in the ranking of the world's most valuable brands (www.de.statista.com ) and achieved an annual result of 2,371 million US dollars in 2016. In 2012 and 2014, the company achieved a negative annual result.

Table 1 gives an overview of figures, data and facts of the company over the last five years.

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table 1 Amazon's Financial Results¹

2.2. Competitors in online retail

In the ranking of online retail, the company Amazon clearly occupies the first place, followed by Walmart, Apple and Macy's. The biggest competitor is certainly the company Wal-Mart Stores Inc. (Walmart), which ousted Amazon from first place in the ranking in 2015.

Table two lists the online sales of retail companies in millions of US dollars.

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table 2 Online sales worldwide of retail companies in millions of US dollars²

3. Amazon Go

"What could shopping look like if you just go to a store, grab what you want and then... are you just going?" With this slogan, the company Amazon advertises its new supermarket Amazon Go (www.zeit.de).

Amazon Go is a new store concept with over 160 square meters, in which every potential customer logs in with an account with Amazon and downloads the corresponding app. Every product that the customer buys is virtually recorded with the help of a sensor. When you leave the shop, the final amount is automatically debited from your personal Amazon account and thus purchased cashless.

"Branded products are more important in e-commerce than in offline retail," Amazon founder Jeff Bezos once said (case study, p. 4). For this reason, in addition to the online business, the new own brand line Amazon Elements is also offered in all Amazon Go. Amazon Elements are private labels for food and household goods. With these own brands, the company expects higher margins.

3.1. Industry structure analysis by Porter

In the industry structure analysis, the new Amazon Go store concept is examined more closely. In addition to Amazon Go, Amazon Elements is also included in this analysis.

3.1.1. Customer bargaining power

Since Amazon Go is a new store concept and the Amazon brand is one of the world's best-known brands, Amazon Go will attract a lot of new customers. They will be very curious about the innovative concept or the supermarket of the future. Customers will find a new shopping experience that no other supermarket can offer. Queues at the cash desk are a thing of the past and the purchases can therefore be made faster and less complicated. Amazon Elements offers products that cannot be bought anywhere else and is therefore not comparable to other food chains. Private labels are in vogue worldwide and for many customers, the low price is a big plus for visiting Amazon Go. With this customer base, Amazon can achieve higher margins, especially by offering private labels.

But there will also be a customer base that will avoid these stores because of privacy through the records of purchases and because of concerns about the destruction of future jobs. This customer class prefers to shop at the traditional supermarkets. Even the older generation is not as IT-savvy as the younger people and, even if some want to try it, will probably avoid these stores. In addition, the quality of the products, the high density of competitors in the food sector and the lack of personal contact will play a major role in the decision to visit Amazon Go. The customer's bargaining power will vary in several countries. The locations are of great importance here. In the medium term, one can assume a medium to high bargaining power of the customer due to the above-mentioned factors.

3.1.1 Bargaining power of suppliers

Amazon has a very large number of suppliers due to its strong position in the market and its efficient supply chain management. These have to comply with a number of conditions and are bound to the company by tough contracts. Thus, the suppliers have no influence on Amazon's pricing policy. Forward integration must also be ruled out. Should a supplier nevertheless be omitted, many companies are waiting to be listed on Amazon. The bargaining power of suppliers is very low.

3.1.2. Rivalry between companies in the same industry

The food sector is a highly competitive industry. The competition is very strong and there is a high number of market participants. The food industry is characterized by low product differentiation and a high degree of innovation in products. One can assume a very high rivalry.

3.1.3. Danger from new competitors

The new store concept, as practiced by Amazon Go, is not feasible for many companies. The barrier to market entry is therefore very high. Infrastructure and technological know-how are essential for the implementation of such a concept. Even a large corporation like Amazon had great difficulty in implementing the technological system when it opened its first store. Furthermore, high acquisition costs and investments are required for these highly sophisticated systems. Due to its pioneering strategy, which Amazon has pursued, the folgers will have a hard time implementing an even better store concept. Due to the efficient supply chain management, the awareness of the brand, the network effects and the resources that Amazon has, the risk of new competitors can be considered low.

3.1.4. Danger from substitutes

In the beginning, Amazon Go is certainly visited out of curiosity. But how will the concept develop then? Is the time already ripe for such a concept? The danger posed by substitutes goes hand in hand with the acceptance of the new store concept. Consumers are often loyal to their supermarkets and do not want to change anything. The risk of substitution can therefore be classified as moderate.

In summary, it can be said that there is a market for Amazon Go. However, it should be noted that the food industry is very competitive. The negotiating power of the customer and the danger from substitutes are very high. Factors such as acceptance, quality of the products, willingness to share his data, as well as the price will certainly be decisive for the further success of Amazon Go.

3.2. SWOT Analysis Amazon Go

With the help of the SWOT analysis, the strengths, weaknesses, as well as the opportunities and risks of Amazon Go are analyzed.

For the strengths-weaknesses profile³ (Figure 1) Amazon Go was joined by its largest competitor, Walt-Mart Stores Inc. (Walmart). Walmart is the world's largest offline and second largest online retailer in the United States of America, with over 11,700 stores (as of 2018).

For the company Amazon Go the color red and for the company Walmart the color green was chosen. The rating is carried out by a scale rating 0-5. Zero is the worst and the number five the best.

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¹ cf. Case Study Amazon Go: Venturing into traditional retail, p.9.

² cf. Case Study Amazon Go: Venturing into traditional retail, p.9

³ Strengths-weaknesses profile according to Mag. Dr. Petra Martinek-Kuchinka , p.44.