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Lately, Amazon panic has run rampant among mass retailers. It started when the digerati claimed that stores would be replaced by online shopping due to disruption. But exactly how much of a threat is Amazon? Is it an 800-pound gorilla or simply a crafty coyote?
Last year, one of our campaigns drove consumers to both Amazon and a traditional retailer (store and online). Surprisingly, the retailer’s online sales were roughly eight-times the sales of the product on Amazon. Brick & mortar sales were eighty-times Amazon’s.
That got me digging further into Amazon’s numbers. The company implies it is a $107 billion retailer. It’s not. Breaking down its 2015 numbers:
- Selling digital content (for Kindles and other devices): $22.47 billion
- Cloud services (AVS): $8 billion
- Fire and other devices: $9 billion – $20 billion (estimated)
- Miscellaneous other: $5 billion (estimated)
All this adds up to Amazon being a $50 billion to $65 billion worldwide retailer. While its revenue is a big chunk of change, a little 2015 perspective is useful:
- $486 billion: Walmart revenue
- $170 billion: Combined revenue of Sam’s Club and Costco
- $103 billion: Walgreens revenue
- $88 billion: Home Depot revenue
These retailers have been profitable for years. Yet Amazon’s rare profit comes primarily from non-retail services. For example, in Q2 of FY 2016, cloud services accounted for 67 percent of Amazon’s profit despite being less than 10 percent of its revenue.
So is Amazon a coyote or a gorilla? Not even a competition. Walmart is retail’s big gorilla. Amazon is a crafty coyote. Here are a few reasons why:
- Amazon does not dominate retail, except when retailers focus too much on it.
- Like a coyote, Amazon has a positive role to play in the eco-system. One positive is as a combination “shopping search engine” and “shopper Yelp!” Many people look up products and reviews on Amazon, then go buy in a store.
- Amazon scavenges some revenue using an online loophole (not charging state sales tax) to keep their prices low.
- Amazon is chasing a small portion of the market — average digital sales remain below 10 percent of retail — and, like a scavenger, it feeds quite well from it.