Is Amazon.com retail’s 800-pound gorilla or a crafty coyote?
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.
DISCUSSION QUESTIONS: Do you see Amazon.com as one of retail’s 800-pound gorillas or a member of the crafty coyote family? In what ways should retailers be concerned about Amazon? Are there areas where they give Amazon too much credit?