Fluid Concepts & Creative Analogies

Is online retail a business or a distribution channel?

First movers often have a market advantage that lasts for a long time: Procter and Gambles’ disposal nappies, Pampers, spring to mind, and The Body Shop, and also Amazon, the first online bookstore and now multiple retailer too. These days though everyone in retail is taking a position of one sort or another online and often they find themselves in competition with Amazon as it now sells a mesmerizingly wide array of things online. Amazon has become a specialist in just being an online retailer, or broker, as some of its detractors like to label it; it competes with retail brands, category specialists, that see selling stuff online as just a distribution channel.

Walmart has just decided to tell the world that its online business, with annual sales of $9Bn (only 2% of its total sales) would benefit from a few more upmarket customers. It seems to think that its traditional low income market positioning only applies to those who walk through its doors. It says that even the rich want to buy “well” so it thinks it can win more business online from higher income folk who may never enter its stores. This raises many fundamental questions about how Walmart sees its business and its brand, but it also made me think about the battle for our online dollar between Walmart, other competing specialist retailers, and Amazon the dominant first-mover-energised king of online retail. (I recently saw a picture of Jeff Bezos on a sort of throne and it seemed right somehow!)

I’m inclined to think that Walmart doesn’t understand that, in the realm of online retailer and its related distribution at least, scale matters, and Amazon may only be a “broker” of “commodity” purchases but these days many things are retailing commodities; those things that require no retail input apart from the sales transaction itself. For these sales Amazon has the potential to be, and probably is already, the cost leader: online retail is a great example of where you can win on price, if and only if you can win on cost too: in other words, if you are Amazon!

If you just put to one side the whole issue of brand loyalty and the emotional elements of buying from a brand like Walmart that are, to my mind at least, far less tangible for an online purchase, I’d say that Amazon is a distinctive and novel business not a glorified distribution channel: it is a completely different business that is likely to continue to dominate online retail for decades. Amazon has come a long way since it made its first sale, in July 1995, of a book by Douglas Hofstadter, with a short title of Fluid Concepts and Creative Analogies.

Of course Walmart have lost the plot somewhat even talking about serving a different customer segment in such a loose way. It is the dominate player in a certain socio-economic segment in many countries, not least in the US, and it should keep focussed on that. (Isn’t $491Bn of sales enough guys? If that means online distribution too so be it, but forget diluting your brand by trying to sell to the rich.)  Like many other retailers it is just going to have to get used to the idea that Amazon are unbeatable for the new online commodity product category and they will, over time perhaps, undoubtedly have to focus on more perishable and more strongly own-branded products. Walmart’s public comments on all this just show a lack of strategic understanding of the business it is in.

Retail these days has become a rather fluid concept, analogous to the weather: it is changing, but in spite of lots of theories on the subject no one is quite sure how. I’m fairly sure though that the Amazon storm cloud now sitting over most retailers’ heads isn’t going anywhere fast.

Mark

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