It’s hard to escape the news about digital transformation and how it impacts on traditional retail. In the US, there are daily reports of store closures and half-empty shopping malls grasping for tenants.
Amazon remains the undisputed market leader among e-commerce retailers hell- bent on using price to seize market share from traditional retailers.
However, what is less apparent to consumers are the technologies that online retailers like Amazon employ that make it nearly impossible for other retailers to complete.
The emergence of artificial intelligence (AI) technologies has turned what was once a battle of price into a ‘battle of the bots’, and small retailers are trying to compete in this technology war with the digital equivalent of a pocketknife.
All of this begs the question, “Is Amazon invincible?”
Greater than the sum
Amazon is an incredible innovator. The shopping giant has the best e-commerce platform the world has ever seen and it has built this by focusing on infrastructure and the long-term.
This culture of innovation is increasing revenue at such a pace that the company is now in $2 trillion-dollar territory and has been referred to as “the world’s most valuable brand”.
What is it that gives Amazon such an incredible advantage?
Amazon’s whole is greater than the sum of its parts.
Consumers know the brand for its values of convenience, same-day or overnight delivery through Amazon Prime, and gold-standard service – but they don’t see what’s going on behind the scenes.
Amazon’s individual components are well-known and widely discussed, particularly the use of robotics in the company’s distribution centres. As a result, these components can be replicated by competitors.
But copying Amazon’s entire ecosystem, including all physical and digital strategies, is a task so large that that it creates a huge barrier of entry for retailers without Amazon’s spending power and logistical depth.
Below are some examples that collectively represent formidable barriers for traditional retailers, especially those with a bricks-and-mortar heritage.
Bringing in the bots
As the name implies, ‘bots’ involves the use of technology to perform automated functions at incredible speed and accuracy.
This is robotics, but it’s not always physical or mechanical. A web-crawler is a type
of bot that scans the prices of individual items online.
Web-crawlers can process thousands of SKUs to help a retailer like Amazon ensure its pricing remains best-in-show. Online pricing is extremely competitive and the difference of 50 cents over a million units can make or break profitability.
According to an article in Fortune titled, “How Bots Are Fighting E-Commerce Wars,” Walmart was using bots to check Amazon prices several million times a day until Amazon found a way to block the technology, shutting Walmart out for months.
Like something out of a sci-fi movie, this is a battle fought between retail Goliaths in cyberspace and the importance cannot be overstated for traditional retailers.
Amazon’s mastery of the complex, behind- the-scenes technologies that power modern e-commerce is vitally important to its success.
Exterity with bots allows Amazon to not only see what rivals are doing but also keep those rivals in the dark when Amazon undercuts them on price or quietly goes on to charge more.
Pricing bots are just one example of the integrated ecosystem of technology and systems that Amazon and Walmart have in their omnichannel arsenal.
Smaller retailers simply do not have the resources to recreate this strategic infrastructure.
Applying AI effectively
If a retailer does not know the acronym IFTTT then they are falling behind in digital retailing. IFTTT stands for “If this then that” and it is AI applied at the simplest level to automate choices and actions.
IFTTTs can create algorithms that enable consumers to make a purchase based on a predefined set of criteria, like price point, quantity left in stock, or even the weather conditions.
Amazon deploys a host of IFTTTs online and engages customers through its dashboard buttons.
Of course, Amazon is not the only retailer deploying IFTTTs in retail and supply-chain automation. Supermarkets such as the UK’s Tesco began adopting the technology as far back as 2013.
Tom Furphy, CEO Consumer Equity Partners, explained the technology to retail news site Morning News Beat at the time:, saying, “Their applets can automatically order products if they meet a certain price, they can add burgers to a shopping basket based on the weather or they can set a reminder to add certain items to a basket at a certain time.
“They are also using IFTTT to allow customers to use Google Home to add items to their basket,” he added.
Traditional retailers might scoff and say that their consumers don’t need or want IFTTTs, but consumers expect all retailers to match the convenience and services levels provided by Amazon or a Tesco in today’s omnichannel world.
IFTTTs create convenience and place even more pressure on competitive pricing driven by real-time criteria, which is controlled by empowered customers.
E-tailer fulfilment
Amazon’s genius is using its own Amazon Marketplace to recruit retailers and brands to sell products through its ecosystem. As part of Amazon’s ‘turn key’ solution, the Marketplace products are “Fulfilled by Amazon” (FBA).
Amazon’s own fulfilment costs for its membership program Prime run into the billions. By incorporating its Marketplace sellers into FBA, Amazon gains logistical volume, efficiencies and resources to continue to build state-of-the-art systems.
Amazon is taking FBA to new levels by picking up products at manufacturing locations and delivering them directly to the consumer’s home.
This process cuts out the role of distributors and most of the traditional supply chain.
World domination or bust
There are many more components of Amazon’s ecosystem but the ones mentioned here already create a huge strategic advantage that leaves even US retail behemoth Walmart struggling
to compete.
There are only a handful of retailers with deep-enough pockets to be able to invest billions in this kind of infrastructure, again giving Amazon a huge competitive advantage.
At the same time, there is little profit to be made in e-commerce today without efficiencies and massive scale.
Amazon didn’t turn a profit for years and the cost of replicating the many components of its ecosystem is virtually insurmountable for retailers.
In addressing the question of whether Amazon can become the world’s most dominant retailer, many are betting on when, rather than if.
What now?
Forget trying to be Amazon. The first thing smaller traditional retailers need to do
is shed the historical baggage of selling products at a price.
The future lies in creating engagement and relationships with customers. To do that, retailers must leverage the one thing Amazon does not have yet, outside the US: stores with talented front-line sales staff.
Even within the US, Amazon’s bricks- and-mortar stores are not widespread or particularly well-known, and have been criticised for their initial smartphone-only payment system.
Traditional retailers already have close relationships with customers and beautiful local stores with helpful and welcoming staff; they just need strategies to leverage those elements for maximum profit.The mantra of Amazon CEO Jeff Bezos is, “Tomorrow is day one,” but he is always focused several years ahead.
Driverless cars and delivery are likely to be a reality by around 2024, so think about what this will mean for consumers. Will they still go to stores?
Chances are most retailers haven’t even thought about what driverless means to store design and parking, for example, but one can bet with certainty that Amazon is already planning a holistic ecosystem to leverage it.
It is the job of retailers to think ahead, keep informed and do what they can to keep up.