Amazon More Friend Than Foe for Small E-Tailers

Accusations of anticompetitive land-grabbing oftenbefall category leaders like Microsoft (Nasdaq: MSFT)and Wal-Mart. But e-tail juggernaut Amazon.com(Nasdaq: AMZN) is no bully, according to analysts.

In fact, Amazon has earned a reputation as a strongcollaborator rather than an opportunistic adversary.

“Amazon has been more of a partner than a competitor,”Giga Information Group analyst Andrew Bartels told theE-Commerce Times. “Other retailers are nestling underthe jaw of Amazon, and Amazon is picking up [productcategories] that it couldn’t [otherwise] go after.”

While Amazon may make competitive e-tailers sweat, itdoes not deserve the everything-for-everybody discountthug reputation that Wal-Mart has garnered, analysts said.

You’ve Got a Friend

By forging affiliate relationships with other retailers,Amazon has entered into mutually beneficial deals that boost other players rather than bullying them out of contention.

“Amazon can bring its huge customer base and efficientonline operations to strategic partnerships,” YankeeGroup analyst Paul Ritter told the E-Commerce Times.”It leverages its core competencies to offsetdeficiencies in its partners.”

For instance, Ritter said, Circuit City uses its partnership with Amazon to offer a highly visible online sales channel while preserving its indispensable in-store fulfillment model.

Amazon’s partnerships with Toys”R”Us and Borders offersimilar symbiotic upsides, he added.

Price Not Right

In addition, while Amazon’s prices are competitive, they are notconsistently the lowest available. Unlike Wal-Mart,Amazon cannot always use high-volume wholesalepurchasing power to offer bargain-basement prices toconsumers, Bartels suggested.

Instead, the e-tail giant aims to create added value — through content,personalization and reliable fulfillment — for whichcustomers will be willing to pay.

“Amazon may charge 1 to 3 percent more, but [with realvalue] they don’t have to be the lowest priced onlinestore,” Bartels added.

Periodic Pressure

That said, the e-tailer’s latest bid to cut prices byoffering freeshipping on orders of more than US$99 may make it hard for smaller e-tailers to compete.

“The bigger you are, the more you can spend onpromotions,” Gartner research director GeriSpieler told the E-Commerce Times.

It is unclear how long Amazon’s free shipping offer will last. But competitors in key productcategories like music and books surely are keeping a close eye on the e-tail giant’s moves.

Even before the free shipping offer, Bartels said Amazon’s clout had an adverse impact on sales at CDNow andBarnesandNoble.com (Nasdaq: BNBN).

Marginal Failures

Despite its influence, Amazon cannot be blamed for the droves of recente-tail failures, analysts said.

Internal miscues, such as faulty product strategies andmisspent marketing dollars, did more to bring aboutdot-com downfalls than did disproportionate competitivepressures, Ritter suggested in a recent report.

Indeed, product strategies centered on negative orslim profit margins undercut many e-tailers’hopes for endurance.

For example, Pets.com met its end in 2000 in part because of minus 3percent gross margins, Ritter said.

Mindful Marketing

The bottom line is that retailers that overspend on marketing andadvertising without significant customer conversionrates will struggle, according to Ritter’s report.

“Most online retailers that spend in excess of $20to $40 for each paying customer, or that spend 50percent or more of revenues on sales and marketingexpenses, are likely to have a difficult timesustaining their business,” the report said.

By those metrics, Amazon/Toys”R”Us competitor SmarterKids.com– with per-customer acquisition costs of $111 — may face an uncertain future, Ritter said.

Limited Goods

Despite Amazon’s hefty chunk of customer mindshare,there is ample room for other online retailers toprosper, especially if those retailers utilize multiple sales channels, analysts noted.

“The pure e-tail model has limited customer appeal,”Bartels said. “People buy certain categories of goodsonline, but there’s a much wider list of goods thatpeople may research online and buy through otherchannels.”

In fact, Amazon will never be Wal-Mart’s onlinecounterpart because many products, ranging from dogfood to toilet paper, do not provide enough value perpound to be sold online and shipped economically,he added.

1 Comment

  • A comparison of Amazon to Wal-Mart is pointless. Yes the perception of Wal-Mart as a thug is not doubt very true. On the other hand, Amazon does not need to try to price match them. The product lines that the two retailers offer do not even overlap. Wal-Mart sells rock bottom cheap crap for the most part. You cannot get yourself a Hitachi 3HP 1/2 inch router at Wal-Mart. While at Amazon, you can order one of those from the Tool Crib of the North. If you choose to order music from Wal-Mart, be sure it is not on their “banned” list of recordings. I AM sure the Amazon hosted Borders will surely be able to accommodate you. Try to buy brand name clothing from Wal-Mart, or a high quality watch. Nix that. I have watched the gradual disappearance of almost every other retail option *except* Wal-Mart from the area where I live, only aggravating my freedom of choice, and I’m only 55 miles outside of New York City.

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