A battle with Shopify, further expansion or a drop in revenue? – What’s next for Amazon?
Amazon’s growth over the past couple of years has been nothing short of monumental. But with Covid restrictions winding down across the world, and competitors seeking to gain from any potential losses made by the company, there is plenty of intrigue when guessing what the eCommerce mammoth’s next steps might be. So, to find out where Amazon could go next, Business Leader spoke to a number of retail experts on the subject.
Will Amazon and Shopify go head-to-head this year?
In a recent guest article, Derek O’Carroll, the CEO at Brightpearl, outlined that Amazon is beginning to lose ground to Canadian eCommerce giant Shopify because of the latter’s focus on merchants as its only customers. O’Carroll also said their behind-the-scenes battle is something online merchants should be wary of for several reasons. But will their battle for eCommerce superiority intensify this year?
Dr. Sarah Montano, Deputy Director of Education (Digital) and Senior Lecturer in Marketing at Birmingham Business School, is not convinced a direct battle between the two is on the cards.
She comments: “Not head-to-head as such, as I see Shopify as a bit different to Amazon in the eyes of the consumer. Shopify are similar to The Hut Group (THG), who power and facilitate brands rather than create a “one-stop shop.” So, for consumers, Amazon is a bit more of a habit and very easy to use (for example, one-click ordering/all the brands in one place) and the Amazon brand is visible to consumers.
“Shopify is not in the same. Shopify needs the retailer to want to set up their own shop so they are the power behind the retailer and so the consumer will need to shop at each brand (and know about the brand!).”
Dr. Gordon Fletcher, retail expert at the University of Salford Business School, also thinks the two companies are on different trajectories.
He says: “Amazon and Shopify represent two different eras in the development of eCommerce. Amazon’s perspective was translating the experience of shopping into a web-based environment. Shopify is more focused on integrating shopping into the online experience – such as linking to social media channels. This means the two companies are on somewhat different journeys.
“Amazon is increasing a data company and an entire ecosystem, whereas many of Shopify’s actions are about linking into the rest of the world. For example, in its deal with Alipay. This still means there is some healthy competition for customers but not at a scale that damages the fortunes of either company severely.”
However, Dr. Montano says there are potential gains for Shopify in a tech space where Amazon does not really operate.
She says: “Where I think Shopify could be very successful is that they offer the ability to retailers to unite both their physical stores and online sales – with the move to how consumers are shopping. A key trend currently is boomerooming (consumers browsing online/looking at the product in-store/buying online and vice versa) and how consumers are wanting a seamless experience between all of the brand’s platforms. Also, “phygital” is another key trend – this is consumers wanting to blend the physical and digital (e.g. using apps in store) and Shopify could do well here. What is also significant is that apart from Just Walk Out tech, Amazon are not really in this tech space. So, these could be good opportunities for Shopify.”
So could Amazon expand its physical retail offering this year?
Amazon’s Just Walk Out technology allows shoppers to enter a store, grab what they like and leave. This tech is utilised in Amazon’s chain of convenience stores, known in the US as Amazon Go and Amazon Go Grocery, whilst in the UK, they are branded as Amazon Fresh.
Currently, there are 25 stores in the US and 17 in London. In November 2021, Sainsbury’s also became the first international third-party customer to use the technology when they opened a Just Walk Out-enabled shop in London.
Whilst these numbers are not small by any means, they are tiny compared to the company’s reach in the online sphere. Shopify POS, Shopify’s point-of-sale app, also allows any Shopify store owner to sell in physical locations, so the Canadian platform certainly appears to have the edge over its US counterpart when it comes to blending physical and digital retail for now.
However, Dr. Montano believes the physical space could be important for Amazon in 2022.
She says: “Mostly we are seeing Amazon expand into physical retail, which is interesting. If we look at London, we are seeing many Amazon Fresh (Amazon Go in the US) stores opening that seem to be going well and are highly convenient. They also opened a hair salon in Spitalfields. I think that we may see many more of these convenience stores open. Also, it is not just about B2C here – Amazon are selling their “just walk out” tech to other retailers.”
Montano believes there will be further online growth for the company this year too.
“In the online world, Amazon obviously have Alexa and Prime – I see these as two areas of growth,” continues Montano. “As more devices have the ability to connect with Alexa’s, we could foresee Alexa etc. being more of a need when you consider the Internet of things (physical objects that connect and exchange data with other devices and systems over the Internet or an alternative communications network). There is a bit of a way to go here for consumers to increase and expand their interactions with Alexa.
“As media consumption has changed, particularly amongst young consumers, on demand TV also becomes more of a need, and Amazon have been smart here to build Prime as a package (Prime reading/delivery, etc.) so if you have to cut back on streaming platforms, consumers may be more likely to choose Amazon than say BritBox.”
Gordon Fletcher also believes Amazon’s streaming services will have a key role to play in 2022.
He comments: “Building an enveloping ecosystem will take Amazon towards greater diversity of its properties. Like many of the ‘big tech’, it tends to buy existing companies to compete in new sectors. So, recent purchases are always a hint of current priorities. Two key areas to watch are further focus on streaming services with the purchase of MGM and an interest in transport/logistics with the purchase of Zoox and various autonomous vehicle technologies.
“The focus on vehicles brings multiple new opportunities and the potential to be at the forefront of autonomous delivery systems, when they become legal, would be one way of addressing much of the criticism directed at the company’s relationship with its current drivers.”
Will Amazon lose some of the gains made in 2020 and 2021 now covid restrictions have ended?
Amazon was one of the biggest beneficiaries of the pandemic, specifically the closure of physical stores, which saw a huge shift in the number of people buying online. In 2020, Amazon’s year-over-year net sales revenue growth went up 38%, whilst their annual revenue went up a further 22% in 2021. But now Covid restrictions have come to an end in the UK and eased elsewhere, will we start to see a shift back to physical stores and a move away from Amazon?
Gordon Fletcher has a mixed view on this.
He comments: “There will be some who actively step back from Amazon and look to support local businesses. But for many, despite its nearly 25-year history in the UK, using Amazon was a new experience during the pandemic and not all of these new customers will be going back to the High Street.
“For some, the High Street is not an option post-Covid with the closure of some retailers. Expanding the ways that continuing customers can spend money in the Amazon ecosystem will more than compensate for those who decide to return to the High Street or try alternative options.”
Montano also looks to physical retail sales as a sign that 2022 could be a good one for Amazon.
“As I mentioned earlier, 2022 looks like a year where Amazon will expand its physical retail offering,” continues Montano. “I think Amazon have been quite smart with what they have done and created a little Amazon-connected world. There may be some traction, but consumers are quite in favour of Amazon at the moment, and we have not seen physical store sales drop back to pre-pandemic levels (they have dropped but not to 2019 levels).
“Also, we often talk of the issue of “last mile delivery” and trying to get our parcels, but now we are working from home more, this is less of an issue and Amazon lockers/their own delivery vans and drivers etc., shows Amazon are focussed on trying to find a solution.
“During the pandemic, consumers will have found new habits and so are likely to continue with these (and importantly, consumers who did not shop online will have had to do so and will keep these habits). Currently, with consumers there really isn’t a main competitor for Amazon (obviously that may change in the future as Shopify, etc. rise) and it is very easy to use, so Amazon becomes a default option for consumers.”
Amazon’s offering is so large and diverse that whether 2022 spells losses or further gains for the company, the overall picture will be extremely nuanced. But whatever happens next in this regard, it looks like 2022 is shaping up to be another big year for the company.