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January 14, 2025
Amazon Retail CEO Champions Risk-Taking
At a session at the 2025 NRF Big Show held in New York City, Doug Herrington, CEO Worldwide Amazon Stores, said Amazon survived the dot.com implosion at the turn of the 20th century due to a decision by founder Jeff Bezos — to shift the platform’s strategy to focus on low prices, adding selection and improving customer convenience. Herrington said Amazon has flourished in subsequent decades by not being afraid to innovate around such principles.
“There was no master plan besides focusing on those basic inputs,” said Herrington. “Jeff said, ‘Let’s focus on those because we know those sources of customer value are not going to change.’ Customers are not going to wake up one day and say, ‘I want higher prices! I want less selection! I want slower delivery!’ And so, if we focus on those, one, it’s very simple, which has some benefits. And two, it gives us the confidence to make some big, bold changes if they promised to move those levers.”
He noted that many felt Amazon was going under toward the tail end of the 20th century, citing a Barron’s cover story from May 1999 titled “Amazon.bomb.” He admits Amazon benefited from a “very strong” balance sheet as well as some “luck and timing,” but also credited its repositioned strategy that has guided the platform’s reinvention.
Amazon Goes Beyond Books, Strikes it Big
Among the “big, bold changes” supported by the new positioning: to become a multi-category retailer. Amazon at the time was still primarily a bookseller with a vision of becoming the “Earth’s largest bookseller.” The company only expanded beyond books, to sell music and DVDs, in 1998.
Expanding beyond its core competencies was seen as “very controversial,” with many e-commerce companies at the time going out of business, according to Herrington. He added, “As it turns out, customers loved it, and it took us from a bookseller, to a seasonal gift giving store, to the everyday essential and everything store you know today.”
A second controversial move adding sellers in order to more quickly add greater selection to the Amazon platform. Amazon initially attempted to add sellers by adding an auction similar to eBay and also tried setting up “zShops,” or virtual storefronts operating separately from the Amazon search bar. Both options failed to attract shoppers.
Amazon Incorporates Third-Party Sellers to Much Success
Amazon decided to invite sellers to sell directly through the search bar on the Amazon platform, despite Amazon’s internal retail team being “very nervous” about the direct competition.
Herrington said, “It turned out to be great because of the selection addition that they brought, which has been amazing. Sellers now represent more than 60% of units sold.”
Amazon Prime an Undeniable Revenue Generator
Finally, a third “bold” move was Prime’s launch in 2005. At the time, paid membership programs in retail were “very rare” and “unheard of” within e-commerce. The program initially cost $79 a year for two-day shipping on 1 million available items.
“I remember thinking, ‘That sounds like a really dumb program,’” said Herrington.
“I had never bought two-day shipping. And why would I want to buy a year’s worth of two-day shipping in advance? Being a good corporate citizen, I was one of the first people to buy Prime. And lo and behold, within the first week or two, my wife and I started experiencing what every new Prime member experiences — which is, not only was that so convenient, but then you start to think on your next thing that you have to buy, maybe they’ll have it on Amazon.”
With additional selection from Amazon and more sellers, Prime now supports 300 million items on two-day shipping. With investments in bringing warehouses closer to consumers, Amazon then delivered its fastest Prime delivery speeds in 2023. The delivery rate improved further in 2024, while related costs were reduced for the second straight year, and worker safety improved.
Amazon CEO Believes AI Retail Revolution Could Be ‘Really Exciting’
Herrington believes the pace of innovation is increasing, as he sees AI driving changes similar to those seen after the internet arrived.
“It’s going to touch all of us, all of our businesses,” said Herrington. “It’s going to lower costs, improve quality. It’s going to help us develop new customer experiences. And it may even spawn new retail formats. It should be really exciting.”
However, he believes another reason behind Amazon’s success is that beyond a commitment to innovation, the company has a “willingness to fail” that’s long been a core tenet held by Bezos.
Said Herrington, “[Jeff Bezos] used to have this lesson, which was in the history of business, more value had been destroyed by companies that failed to try something new that they should have, than by people who tried things that failed. And that advice always stuck with me. I think it sticks with me, especially right now during this AI transformation that we’re going through.”
Discussion Questions
What do Doug Herrington’s insights into the origins of Amazon reveal about the drivers of the retailer’s success?
What’s missing from Amazon’s current business model, if anything?
Poll
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Jeff Sward
Founding Partner, Merchandising Metrics
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Neil Saunders
Managing Director, GlobalData
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Amazon is a company built on challenging the status quo, and you can only do that if you’re willing to take risks on things that may be unproven. The culture is one of the reasons why Amazon is always trying new things, even if some of those bets don’t pay off. Yes, the mistakes come with a cost, but it’s a far lower cost than fossilizing due to inaction. However, what Amazon promotes is thoughtful risk-taking, which means having done the work and put in the hard thinking before making a move. This is entirely different from making gambles on random things.
“…fossilizing due to inaction.” A perfect summation of way too much of the retail market for the past couple of decades.
The first class of every semester I teach, no matter what the subject is, is about failure and the importance of failure. I will incorporate Bezos’s comment. “[He] used to have this lesson, which was in the history of business, more value had been destroyed by companies that failed to try, but look what they tried and worked. That is something new that they should have, than by people who tried things that failed.”
A book should be written about the things Amazon tried and didn’t work and how it got them to where they are today.
I often use “Risk is a brand’s best friend” as a headline. Risk is a differentiator. Creating and managing risk is part of managing the vision of a brand. So I think “bold” oversimplifies Amazon’s approach. To me, it’s more like they were ‘strategically hungry’ for risk. It’s a willingness to Explore + Experiment while KNOWING that some experiments will fail. It’s not just being willing to fail…it’s KNOWING that failure is inevitable along the way that helps build in some safe guards, and the appropriate benchmarks to measure success and failure along the way. Amazon has been brilliant about creating and managing risk. And yes, it’s been very helpful that AWS provided the profit cushion that made so many of Amazon’s retail risks possible.
While I agree with the risk taking ethos promoted by Mr. Herrington, I find myself thinking “be bold” is precisely the type of bon mot that the CEO of a firm as large as Amazon would say.
The bigger reveal would be how to infuse a company with risk taking DNA. THAT would be a talk worth listening to!
Doug Herrington’s insights reveal how Amazon’s success is driven by its love of risk, problem solving prowess and customer obsession.
Amazon is the R&D department for Western retail. Approaching retail from an engineering perspective rather than a traditional merchant’s perspective makes it distinct and fearlessly experimental by nature. At its core, Amazon invents technology to make the customer experience more convenient.
What’s missing from Amazon’s current business model is a pervasive store presence. For now.
Somebody has to come up with the ideas that are moving the needle for Amazon. But that’s nothing new for them. They have always prioritized innovation, and it’s paid off well. It takes an entrepreneurial mindset—even if it’s in a large company—to come up with unique ideas and bring them to fruition. This is one reason Amazon continues to be successful.
It’s easier to take greater risks when you have had limitless access to cheap capital. Retailers operating model and thin margins make it much harder to invest in loss leading big bets that could fail for years before emerging as the next big thing. Retailers need to find a way to break out of the short-term paralysis, and not just when immediate revenue or cost-reduction is on the line like retail media, supply chain optimization, private label, etc. As XRC’s MD Pano said at The Lead conference, “the pace of innovation is so much faster than the paste of adoption,” and it’s choking retail growth and retail technology ecosystems.