It’s time to rethink retail’s relationship with Amazon
Discussions about how retailers can compete with Amazon seem to be popping up left and right, but asking how retailers can compete isn’t the right question.
I recently led a panel discussion on “The Amazon Effect” featuring Web Smith, Director of eCommerce at Gear Patrol, Ryan Slyper, VP of eCommerce at Kenneth Cole Productions, and Stefan Pepe, a former Amazon executive, and the consensus was clear — retailers are in such a defensive mode with Amazon that they are missing the opportunity to grow their business by partnering with the online giant. Here’s what our panelists had to say.
What Does it Mean to Embrace Amazon as a Distribution Channel?
The bottom line is, Amazon doesn’t have to be the enemy. In fact, retailers and Amazon can coexist, it just requires the right approach.
Anyone who ever took a marketing class is likely familiar with the four Ps — product, promotion, place and price. Digital teams have focused mainly on promotion and price. This focus means that when things aren’t going well, the team can issue markdowns and increase revenue as a result, but this is only a band-aid fix. And, more importantly, it’s an area where Amazon has the upperhand.
So what’s a retailer to do? It’s time to shift the focus to the other two P’s — product and place. With this mindset, Amazon becomes as much a distribution strategy question as it does a competition and price question. For example, if you’re focusing on product and place, you might ask questions like: Is there an ideal product assortment we can give to Amazon that will help our brand? And that mindset frames the relationship between your brand and Amazon in a much different, much more manageable light.
Amazon Provides a Wealth of Options for Partnership
It definitely takes a mindshift to think of Amazon as a distribution partner, but it’s a strategy retailers need to start considering. Notably, this relationship between retailers and Amazon isn’t unique — the hotel industry has been dealing with a similar situation since the introduction of sites like Expedia and Kayak.
So how exactly do you think of Amazon as a distribution partner? It will depend in large part on your business as well as the approach you take to working with Amazon. For example, there are currently three different ways retailers can sell goods on Amazon:
- Wholesale: In this case, Amazon buys the goods from you and then sets the price and sells the products to consumers directly.
- Fulfilled by Amazon (FBA): With the FBA program, you still own the goods, but Amazon handles the product listing and fulfills the orders.
- Amazon Marketplace: Finally, if you list on the Amazon Marketplace, you handle everything yourself, including listing and shipping.
Each of these options gives you varying degrees of control over the process as well as varying degrees of competition with other products sold on Amazon. For instance, the wholesale option provides the least control, but might deliver better placement within Amazon in comparison to similar items. On the other hand, if you have an exclusive product that no one else sells, FBA or the Amazon Marketplace might be the better option because it costs less and offers more control.
On top of these sales approaches, there are also options to advertise on Amazon, which is something that many luxury retailers who don’t actually sell on Amazon have started to explore. Consider the case of Burberry, which prohibits its products from being sold on Amazon, but does advertise through Amazon in order to capture the millions of consumers who visit the site daily.
— Natalie Dollinger (@nat_dollinger) May 24, 2017
Success on Amazon Takes Patience
As it stands currently, success on Amazon is all about the long game. Retailers have found that it takes significant time and money to get products to the first page of Amazon search results, but the silver lining is that once they do get there, it becomes easier to retain that spot.
In addition to having patience, retailers also need to have the right product strategy to achieve success on Amazon. Specifically, because it’s a long term initiative, if you’re switching out products on a weekly basis, you’re not going to see any success. Instead, you need to target products that are more evergreen, which is hard to do for many retailers, particularly those in the apparel space where new products come in every six to eight weeks.
— dana flynn (@danajflynn) May 24, 2017
Changing How You Think About — And Work With — Amazon
While you do need start thinking of Amazon as a distribution partner, it’s important to note that Amazon is not another Macy’s. The relationship works entirely differently and requires a different type of expertise to manage. Essentially, it requires someone from the wholesale side of the business that also understands eCommerce.
For some retailers, the key to putting all of this together is to rethink the entire model of how they work with Amazon. For example, one retailer who attended the panel is exploring how it can turn Amazon into another eCommerce channel similar to its own website. As part of this effort, the retailer is considering creating a team dedicated entirely to doing business on Amazon, and this team would likely be comprised of wholesale, merchandising and marketing roles. Some of the top goals for this team would be to manage the relationship and optimize product mix to drive results. And given the rate of innovation at Amazon, having a team that focuses entirely on the channel sounds like it could be just the right approach.
Regardless of what approach you end up taking, it’s essential to remember that even though Amazon can be a competitor, it can also be an enabler that connects consumers with the products they want to buy and, ultimately, your brand.