Amazon is now almost everywhere (Photo by Smith Collection/Gado/Getty Images)
If you just landed from another planet, next Tuesday and Wednesday, July 12th and 13th, are Prime Day, when Amazon
For Amazon, a lot is riding on Prime Day this year. In its most recent quarterly report, Amazon reported that its online retail sales declined and that it lost money for the first time since 2015.
To satisfy Amazon shareholders who demand ever-increasing revenue and earnings, the pressure is on.
It’s not just investors. Like so many tech companies, Amazon employees’ compensation is also driven in part from increases in the value of their stock. With Amazon stock down over 40% in the last year, it makes sense for the employees that Amzon needs to consider other opportunities.
Amazon’s growth from Prime Day is also facing more competition. Walmart now has Walmart+, it’s effort to leverage its store advantage against amazon. Last month it hosted its first Walmart+ Weekend for members. Target
What Amazon’s Done So Far
Historically, Amazon overcame these sorts of challenges with growth. But there comes a point where a company is so big that massive growth is no longer possible. With Amazon already reaching so many consumers, it’s tough to increase the pie.
That’s where Amazon’s size is working against it.
One solution is to go into other product categories. Grocery is an obvious choice, it’s a $700 billion sector. But Amazon has been trying for a long time and despite its resources, skills and capital, it has not displaced Walmart, Kroger
It’s not for lack of trying. In 2017, Amazon bought Whole Foods and then it created Amazon Fresh grocery. According to Coresight, “Amazon’s grocery ambitions have helped shape the focus of Prime Day 2022.” And yet, being a top player is still elusive.
What Happens Now
In the past is that when retailers got big and growth slowed, they continued to see their vendors making a lot of money. They say, “we’re struggling with growth and our vendors are prospering. We should get more of what they’re getting.”
That’s when retailers figure out ways to extract more value from their vendors.
The vendors who are most vulnerable are those who depend on the retailer for a majority of sales and Amazon probably has more vendors (and sellers) dependent on it than any retailer in history. Entire industries have grown up that sell only on Amazon. Amazon-only sellers, including the consolidators who have bought up hundreds of smaller Amazon sellers, are highly vulnerable to what Amazon does now.
It’s not new. Those vendors have been feeling increased pressure on margins, fees and expenses they pay to Amazon for years. That will intensify.
When I talk to those vendors, they tell me Amazon needs them and won’t harm them or give them cause to sell more on Walmart or other marketplaces. Maybe but that’s not how we’ve seen retailers act in the past. We’ve seen othe retailers act against their long-term interests to maximize short-term profits when times are tough.
Amazon is under pressure to perform and Prime Day 2022 is one example. Now it is likely to bear down on profitability, redouble category expansion efforts and move into countries where it hasn’t been successful before. Amazon has to do everything it can to hold its shareholders, stock price, employees, vendors and customers in place.
Retail is erratic and volatile. It’s tempting to believe that what’s strong today will remain that way but that isn’t retail reality. If it was, Sears would have remained the largest retailer, become a powerhouse in e-tailing and Amazon would never have existed.
Amazon is one of the most amazing companies in history, with incredible resources, skills and technology no other company has been able to put together and that’s gotten Amazon where it is. But now scale works against it in important ways and the tests it faces may be more challenging than ever.
Source: https://www.forbes.com/sites/richardkestenbaum/2022/07/05/amazon-prime-day-shows-the-drawbacks-of-being-big/