amazon inc: Amazon is ubiquitous. But it's no longer invincible

Inflation-pressed shoppers are more cautious about what they do with their wallets and less willing to spend on novelties like $20 for an avocado chopper or $25 for a few chopsticks that remove histamine from a glass of wine. Instead of impulse purchases, people are spending more on groceries and other necessities – Walmart’s sweet spot. Amazon’s prices are still generally cheaper than Walmart’s, but Walmart matches prices year-round, and its $99 Walmart+ annual membership compares to Prime’s $139. With some back of the napkin math, a pack of toilet paper may end up being cheaper to buy at Walmart than Amazon.

The dramatic change in sentiment associated with more aggressive online competition has seen Amazon retreat in the battle for consumers’ wallets as Walmart leverages its advantage as the nation’s largest grocery store. As long as we’re in an inflationary environment, Walmart’s lead in groceries and rising Prime costs are putting Amazon on its feet, according to DA Davidson senior research analyst Tom Forte. Research firm Insider Intelligence estimates the brick-and-mortar giant will generate around $39 billion in online grocery sales this year and expand its lead over Amazon through 2024.

This is partly because many consumers would rather pick up recurring grocery orders from a store than pay a delivery charge or surcharge – a clear advantage for Walmart with stores a short drive away. of 90% of Americans. Amazon and its Whole Foods unit also have a smaller selection of food and household products available for delivery than Walmart. And despite the fear and optimism in the industry that followed Amazon’s purchase of Whole Foods in 2017, the e-commerce giant has yet to figure out how to run physical stores.

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More broadly, Amazon’s online retail is on the wrong side of consumer behavior. After two years of pandemic restrictions, people are eager to return to physical stores, many of which have radically reconfigured their spaces to better serve customers.

Target Corp. and Walmart have refocused some of their in-store operations toward online fulfillment, turning some areas into packing spaces or order pick-up points. Shoppers on the way out might stop for a tube of toothpaste or something else from Target’s dollar square. Companies ranging from Aldi to Foot Locker Inc. Added self-checkout kiosks and smart phone payments to keep stores hygienic with contactless systems. The more money people spend in stores, the less they spend with Amazon.

That said, Amazon can only grow as much as e-commerce spending, as Juozas Kaziokenas, CEO of e-commerce data intelligence firm Marketplace Pulse, points out. E-commerce sales have hovered around 14% of overall retail sales for the past 18 months, halfway between a pandemic peak and the pre-pandemic level, according to Census Bureau data. Even Amazon’s crown jewel, Prime, is showing signs of stagnation, growing just 5% between 2021 and 2022, according to Consumer Intelligence Research Partners. With around 168 million members in the United States, Amazon has no choice but to seek growth with consumers in China, India and Mexico, where it has come up against a slew of competitors.

In its e-commerce stronghold, Amazon finds itself in the unusual position of chasing innovation. This month it launched Inspire, a TikTok-style service that will let shoppers buy goods from a curated stream of photos and videos, playing catch-up in the social commerce space with Google of Alphabet Inc. and Meta Platforms Inc. Facebook and Instagram. Here, TikTok has the natural advantage, blazing a trail already blazed by sister app Douyin in China.

It’s no secret that Amazon’s competitive advantage is that it’s more of a technology company than a retailer. Its 2021 operating profit from Amazon Web Services, the company’s cloud platform, at $18.5 billion, was more than double its North American retail business at $7.3 billion. of dollars. Amazon has been more successful in “retail” as an advertiser or online owner than selling things itself. More than half of its online sales were made by third-party sellers, which are small businesses that pay to sell on Amazon’s site. Running a marketplace where third-party sellers do the heavy lifting of selling goods online, Amazon primarily collects fees to advertise, store and deliver their products — a $103 billion business.

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When it comes to the world of pureplay retail, Amazon may well be making the transition from disruptive to disrupted that Bezos has long warned about. Few retailers are lucky enough to avoid this fate for more than a few decades. Iconic names such as Sears, JCPenney, Neiman Marcus Group and Lord & Taylor have all filed for bankruptcy in recent years and appeared in smaller or tattered form. Sears Hometown Stores Inc., a subsidiary of Sears, filed for bankruptcy this week. The retail industry is ruthlessly competitive, and as fickle consumers are offered more options than ever, even giants like Amazon may lose their footing.

Still, it’s hard to imagine what retail would be like without Amazon’s influence. Amazon stands for online shopping. Years after finding success pitting third-party vendors against each other in the marketplace to drive down prices, Walmart and others followed suit. Amazon has reimagined what store membership could look like with Prime. Before Amazon, one or two day delivery was unheard of. Now that’s just a part of internet shopping.

Whether 2022 will go down in Amazon history as a blow or the start of its slide through the ranks of its retail peers is unclear. Brian Oslavsky, Amazon’s chief financial officer, told investors that Amazon’s moderate sales growth was partly due to consumers’ wallets tightening and the company “normalizing” after a period of skyrocketing sales. Either way, Amazon wrote the rules for modern retail. The question now is whether she can continue to win at her own game.