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Retailers 'dancing with the devil' by working with Amazon

“If you dance with the devil, you will get burnt”, goes the saying, and it is an analogy that several prominent retail technology commentators have used recently to describe retailers’ relationships with online behemoth Amazon.

Amazon – arguably more of a technology company than retail business – is a huge competitor for many retailers, but the e-tail titan’s marketplace and tech infrastructure model also paves the way for partnership. It means many retailers face what some see as an uneasy balance of building a strategy to combat Amazon’s advances into their sector while simultaneously calculating how to work alongside it.

Brian Kilcourse, a long-time retail CIO in the US turned analyst for Retail Systems Research, suggests there is a growing list of retailers that have teamed up with Amazon in the past, that now probably wish they had not.

Toys R Us and Target – both of which effectively allowed Amazon to operate their websites for lengthy periods at the start of the millennium – are prime examples. The former is no longer an entity following its recent collapse, and the latter is playing catch-up in eCommerce as it continues to build a digital platform under its own terms.

“Target found out that dancing with devil will get you burnt,” Kilcourse says, explaining that the partnership – as was the case with similar deals Amazon secured with Toys R Us and Borders – enabled the online business to learn about rivals’ markets and customers.

“Generally speaking I’d tell retailers to avoid working with Amazon at all costs but to emulate them as much as they can. The strength of Amazon is in the data it collects – the business is a master in understanding consumer demand based on what they can learn in their channels.”

“We’re really concerned about Amazon,”Ken Daly, JML

Ways of working with Amazon include selling via Amazon Marketplace, taking advantage of Amazon Web Services’ hosting and cloud tech capabilities, or tapping into its well-renowned distribution network. WaitroseMorrisons and, most recently, Booths are examples of UK grocers that have installed Amazon lockers in and around their stores to give customers a convenient place to pick up their online orders, for example.

“The notion of using Amazon lockers is a great idea for Amazon but an absolutely foolhardy one for everyone else because it gives Amazon information about who your customers are and where they live,” warns Kilcourse.

“Why would you give them that information?”

Authentic partnerships?

Consumer goods retailer JML, which sells items via digital screens in third-party retailers and is known for its TV shopping presence, is considering how it works with Amazon.

CEO, Ken Daly, says JML aims to put its products in high traffic areas to maximise sales, and that includes placing goods on Amazon. However, he notes, the senior team hold concerns over Amazon copycatting the items it sells, and there are additional worries about counterfeiting.

“We’re really concerned about Amazon,” he says, adding that often companies purporting to be JML will sell goods via the platform, which can impact its brand image.

He adds: “Quite often they will use our artwork taken from the website and we can’t get them removed – that’s one issue.

“[The other issue is] the consumer buys the item and they don’t get a genuine product. I think Amazon will start responding to concerns of vendors when they realise consumers are starting to get frustrated at not necessarily buying genuine products on Amazon.”

Amazon says it prohibits the sale of counterfeit goods on its websites and has a policy to deal with the issue as and when situations of this nature arise, but Daly and JML are among several brands to have voiced their concerns about the problem which has been linked to marketplaces for years.

The Amazon numbers

Amazon regularly points to the small-to-medium sized enterprises (SME) it helps drive revenue for, and it adds multiple partners to its web platforms each year across all territories. It is clearly an attractive partner option for many organisations.

Large companies, too – most notably sportswear brand Nike, which recently started selling shoes directly via the platform for the first time – continue to use Amazon as part of an array of distribution channels.

In March, Amazon said that more than 20,000 SMEs worldwide surpassed $1 million in sales on its marketplace in 2017, and it estimated these companies have created 900,000 jobs between them. It also revealed that it lent more than $1 billion to US-based SMEs through the Amazon Lending Program in 2017.

In the UK, small businesses had a record year on Amazon, with the online marketplace helping British sellers achieve a combined £2.3 billion in 2017. The figure was up from 2016’s record of £1.8 billion.

The ex-managing director for Amazon UK, Brian McBride, spoke at this year’s RBTE – and gave an indication of the company’s approach. As well as describing the business he worked for from 2006-2011 as customer-centric to the core, he said it does not aim to put other retailers out of business.

“They never say they want to get to X% of a category, they don’t work like that,” McBride, who is now chairman of online fashion house Asos and an existing Amazon shareholder, explains.

“I think you’re going to see Amazon – who I think today is the only truly global retailer in 200 countries – pick out 20-25 key categories where they have to be important. They’re already there with books, entertainment products, electronics, sporting goods, jewellery, and fashion.”

He adds: “If you’ve got 20% of [multiple] categories in 200 countries it’s easy to see how you become a truly global business. I think that’s the ambition – it’s not to kill company X or squeeze someone out. This is not the way they tend to think.”

Caution vs opportunity

Retailers are increasingly looking to Amazon and other marketplaces when expanding abroad. They automatically have the scale and presence to help put brands on the map in new territories, and it can be a cost effective international development strategy.

“So many shopping journeys start on Amazon in the US, so we feel going with Amazon is a way to reach a US audience,"

UK lifestyle and fashion retailer Oliver Bonas is currently considering selling on Amazon in the US, as it looks to take what has been a successful model in its home country to North America.

Camilla Tress, eCommerce strategist for Oliver Bonas, gave an indication of the current industry landscape during a panel session at RBTE 2018. She explained how her business is looking to compete with Amazon by opening compelling stores, by merging bricks and clicks, and by empowering staff to provide a high-level, personal-touch service.

But, at the same time, the retailer still sees the tech giant as a potential partner.

“So many shopping journeys start on Amazon in the US, so we feel [going with Amazon] is a way to reach a US audience," she notes, hinting at future plans for international expansion of the brand.

Tread with caution is the message from Mark Lewis, co-founder and deputy CEO at online retail consultancy Practicology, who was part of the same panel debate as Tress.

He uses the “dancing with the devil” analogy in relation to retailers working with Amazon, adding: “You can try and use it to your own advantage."

Lewis says: “You need to have a clear Amazon strategy, but if you allow Amazon to buy your products from you there is a danger of price cannibalism and Amazon’s algorithms are just going to look to lower the price and you have to be very careful about that.”

He suggests retailers may wish to sell older products, or long-tail products they are happy to dispose of quickly, via Amazon, but to keep new products within their own outlets – adding “there are a whole host of strategies” that can be used.

Responding to suggestions that Amazon will sell items from third parties and work out what is popular before making their own version at a lower price, Lewis notes: “You have to accept they are going to do things like that – they are hugely aggressive and hugely ambitious, and they will not be stopped.

“You have to try and be really clever [in your approach to working with Amazon].”