Further Analysis of Amazon

Given that they key for Amazon’s growth is expansion of offering while maintaining a competitive price, the question must be addressed as to Amazon’s reach and what cap ex will be required to realize their max potential.

The first thing we need to think about is how many regions (continents) Amazon can legitimately tackle. Part of the convenience that I address in my article would be offset if the shipping time was too long. Meaning that the CapEx Amazon has spent on regional storehouses, mostly in America, to delver goods within one-two days for Prime members pays off in the convenience department. If customers overseas need to wait a week or more then the value of convenience drops, even with a lower price, vs. going to the store and getting what you need.

I have strong doubts that Amazon has any real shot in China. Namely because Jack Ma founder of AliBaba has created a consortium and is investing just over 16 billion dollars to create a service to get any good to any part of China in less than 24 hours. So if China is out, that leaves the rest of the world.

Amazon is obviously highly focused on America. As they should be given the consumer centric nature of American consumers. With the potentially infinite ceiling of the lifetime value of a US customer for Amazon, it makes sense that the US be a “prime” sector for Amazon to focus on. Amazon still has quite a bit of growth ahead in just the US only let alone the rest of the world. Staying on the US, I am confident that at some point in time Amazon will offer either same day or less than 24 hour shipping to US prime customers. This increases the validity of the point of a non-reduction in CapEx as a profit switch strategy.

Other smaller countries in the EU will be interesting for Amazon to focus on as well to deliver similar solutions to the US. But the size of the United States will continue to make it one of the biggest grounds for Amazon.

On thing that is key to address is what happens to physical retail. I don’t believe Amazon will bankrupt every retailer customer but I do believe they stand a chance to bankrupt most of the ones they choose to compete with. Particularly those who offer non-time sensitive items. Electronics retailers will likely fall first. Perhaps clothing retailers go next as the shift to online spending becomes the norm.

That being said, I don’t think physical space goes away. Perhaps retailer figure out how to sustain by capitalizing on showrooming as a business model. Or perhaps retailers can target customers when they are in store to offer more competitive pricing than even Amazon. Either way physical space must evolve if it wants to stay relevant. Competing on price and selection with Amazon is likely not the winning strategy. To compete with Amazon retailers must focus on what they have that Amazon does not. A location in physical space. Furthermore, they need to focus on what they can do with that physical space that is not trying to compete with Amazon on price or selection. Specifically, I feel retailers need to focus on the human element and more specifically community.

For example, Radio Shack is beginning to invest in Arduino products that appeal to the emerging maker community. This community is eager to build things yet the value Radio Shack can offer that Amazon can’t in this example is worships, lessons, networking, and more that specifically appeal to these communities. As this tinkering group learns about new ideas they can then buy new parts or kits right there in Radio Shack and go home and work on them. In this model, there is a value to getting what you need and going home to work on it while the lesson is fresh rather than waiting.

Similarly cooking stores do this now. Many cooking stores offer classes, which are a decent source of revenue, that showcase certain items carried in the store and used to make specific recipes being taught. This pairs the communal experience with the commerce experience and together adds value back to items carried on shelves but is not solely dependent on just the sale of goods as a revenue stream. This is the kind of thinking retailers need to begin engaging in if they want to survive in the future.