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February 7, 2018 • Volume 2


Amazon: Jack of all trades, master of … all?   

Amazon logo

In preparing for a conference presentation in Nashville later this week, I’ve been thinking about the pace of change in the U.S. consumer economy and core competencies [also, country music and hot chicken]. Perhaps it’s my puritanical New England upbringing, but I am naturally wired to believe that greatness requires focus, and that focus means getting really, really good at a small number of things.

In this line of thinking, Deion Sanders would’ve been a far better football player if he hadn’t wasted his time playing baseball. Led Zeppelin was a great rock band, in part, because they didn’t try to play professional baseball. Imagine Robert Plant playing outfield at Yankee Stadium, hobbled by impossibly tight jeans, trying in vain to track down a line drive to deep center.

Amazon has vexed me from nearly the beginning. As an analyst back in the late 90’s I warned that when Amazon expanded from books to add music to its merchandise selection, Barnes & Noble would crush a too-stretched Amazon.      As Amazon then entered, and dominated virtually every other category it entered, I rationalized it as such: Amazon’s core competency isn’t selling books, it’s selling anything online. 

Fast forward to 2006 and Amazon launched the current form of Amazon Web Services [AWS], its cloud computing business only a year after making its biggest retail bet to date by launching Amazon Prime. This, I was certain, was a step too far and even Amazon wouldn’t be able to sufficiently focus on both businesses.       Evidenced by Amazon’s recent blockbuster Q4 2017 earnings, it seems that I was wrong again. This leads to three questions: How is Amazon able to do this? Is Amazon different, or should all companies be thinking about violating whichever swim lanes suit its fancy?  What are the implications for Amazon competitors? 

Amazon’s ability to win in such diverse fields is driven by four things:

  • plentiful, inexpensive capital
  • strong customer relationship
  • differentiated technical capabilities [logistics and technology]
  • an organization wired to innovate, fail, bounce back, willing to cannibalize an already strong business to stay ahead of competitors

Many companies can point to strengths on one or two of these attributes. Only [possibly] Google is set up as well on all four dimensions.

Brands find themselves in a really tough spot because they cannot replicate Amazon’s capital model and their customers [retailers] are also competitors. However, it is incumbent upon brands, at the very least, to up their technical and organizational competencies to a new reality. Consumers are adopting new technologies faster than ever.

A recent analysis by CB Insights found that the average age of companies on the S&P 500 in 1958 was 61 years, compared to just 17 by 2015. Market dominance is ephemeral as never before. Your position in the market is only as strong as your ability to win in the next evolution of your category, which might be very different than the category as constituted today.    

Assume that your industry business model can change 180 degrees in a few years (music, video), that a new competitor could emerge from little more than a funny viral video (shaving), or that a big competitor might be scooped up by one of these digital colossuses (grocery).

Today’s business environment is increasingly looking like either a Darwinian nightmare or a golden age of innovation – all depending on where you sit. The only sustainable defense is to go on the offense by shoring up as many of these pillars as quickly and effectively as possible. 

Target flexes its same-day delivery muscle  

Target announced last week that it was offering same-day delivery to 57 stores in Birmingham, Alabama and south Florida to Shipt subscribers, with plans to roll it out to most Target stores nationwide by holiday 2018. For those who missed it, Target acquired the Birmingham, Alabama based delivery company in December for $550 million. Shipt charges consumers a $99 annual fee to have Shipt drivers pick their order from one of a variety of participating retailers and deliver it the same day, using a pool of contract picker/drivers.  

Target’s intent is to continue to allow Shipt’s current retail partners (including Kroger, Publix, H-E-B, and Harris Teeter) to work with Shipt in order to keep the consumer value proposition high. But these partners are undoubtedly evaluating whether this partnership makes sense, considering that Target collects their customers’ data.   

Our bet is that as long as Target is a relatively weak player in the fresh grocery space, those grocery partners won’t feel that they need to go. Success, though, is going to come through Target’s ability to drive consumers to use the service for Target purchases, adding more momentum to an online business that is growing nicely (Slice Intelligence had Target’s US online holiday sales up 54 percent). 

With a $99 fee to join, Target has effectively countered Amazon’s Prime loyalty program with significantly faster delivery. Remember, the Amazon Prime guarantee is for two-day shipping after Amazon gets the item out of its fulfillment center, which takes about a day on average – so Prime is really a three-day program compared with Shipt’s one-day shipment offer. 

The other thing that we find really interesting about the Shipt/Target tie-up is that it should work uniquely well for Target, which says that over the 2017 holiday period, 70 percent of digital order volume was picked from local store shelves and shipped to consumers. IF Target can do this well [from my own click & carry experience across a variety of retailers this is a capital, boldcase IF] and scale Shipt’s delivery footprint [Shipt plans to expand its delivery force from 20,000 to 120,000 during 2018 – no small feat], it could suddenly become a relevant player in e-commerce, at long last. 

So, this leaves two key questions:  Will consumers value same-day delivery? And will the economics work? I am dubious on the first based upon relatively anemic growth that we’ve seen from Amazon Prime Now, but see hope on the second question based upon a very interesting article that GeekWire published back in December, where a reporter delivered for Prime Now for two days. 

One day he delivered just three packages in a shift [those economics can’t possibly work]. The next, though, he worked a three-hour shift and delivered to 35 houses. Maybe it’s possible to scale contractor courier volume to a highly profitable level.  And perhaps I’m too bearish on consumer demand for same day delivery, having been permanently, irreparably biased by the initial forays into same delivery from the likes of Kozmo and Urban Fetch back in the late 90’s and early aughties [yes, that’s a word, according to Webster]. 

What do you think? Send me your comments—I’d love to hear and share your thoughts, if you’re game.  

About Ken

Ken Cassar is vice president, principal analyst at Slice Intelligence, where he looks at trends in the e-commerce industry armed with Slice’s robust set of online sales data.

Ken brings a rich online retail background to Slice Intelligence. Most recently, Ken was SVP, Media Analytic Solutions at Nielsen, where he developed several innovative digital commerce measurement and advertising effectiveness solutions. Prior to Nielsen, Ken was an analyst at Jupiter Research, where he was an early thought leader, trusted adviser, and media source on e-commerce. His prescient outlook on fledgling e-commerce industry was a key contributor to Jupiter’s dominance as a digital media zeitgeist at the dawn of the Internet. 

Ken has an MBA and Bachelors Degree in Political Science from the University of Connecticut. Ken aspires to stay technologically ahead of his teenage children, as evidenced by his ‘Gadget Geek’ Slice profile. He also has the appropriate jacket for every occasion.