In the last few months two events have sparked heated debate across the business world. The first is, the news that online giant Amazon will be opening a store in New York by Christmas. The second is, Alibaba, the Chinese e-commerce leader, has floated on the New York stock exchange.
For those of you who are not familiar with Alibaba, it is best described as a Chinese version of Amazon and Ebay rolled into one. Alibaba’s vast e-commerce empire encompasses wholesale, retail, group buying, and payments.
It seems finally Amazon has been presented with a viable competitor as Alibaba has already eclipsed it as the most valuable e-commerce company in the world. It has been billed as the global ‘e-commerce war’ and has prompted many to make predictions about how it will play out and who will win.
While this is certainly going to be a battle to keep an eye on, my attention has been focused on the reasons why Amazon would make a move to Bricks ‘n’ Mortar.
At first it was thought that Amazon’s move towards physical sites was as an adjunct to its online presence. This seems completely illogical given Amazon’s turnover last year was $75bn and if you were to generate that volume through an average sized physical store they would number in excess of 15,000! The more credible explanation for this store opening can be found in twokey points that go right to the heart of what Amazon is about.
The first function of this store, is to be a “click ‘n’ collect” and returns hub. The second, is as a showroom for Amazon’s own branded products. Products such as the Kindle Fire, Fire smartphone and Fire TV set top box.
My view remains that continuing to keep physical sites to deal in commodities is not a viable strategy for the future. Trends in the market continue to point to the conclusion that shops are now there for either a leisure experience or service. The rest is superfluous. Retailers need to recognise these indicators and migrate away from physical sites quickly.
Sounds like the end of retailers? Well not necessarily. I believe retailers are set to become ‘brand owners’ and traditional sales channels will be replaced by the likes of Amazon and Alibaba. Both Amazon and Alibaba currently have a big influence over these channels and in the long term only the strongest brands will have enough weight to negotiate and tame these online beasts.