In our industry, this has caused a stir comparable to the one you would get using a trampoline to get into your bathtub, and before Amazon.se is even live, the media is brimming with statements from those with an opinion. That is - everyone. And of course, opinions are exactly what this article is made of as well. But at least we have tried to stop and listen to others before we join the chorus.
There are many wise people out there and many are certainly right, at least to varying degrees. And our opinion is by no means unique. But we do feel that the debate has become a bit too polarized. Either one joins team "The world is going under" or the people that in a (often unconvincing way) claims that "We’re not afraid, bring it on". But of course, the reality is more nuanced than that. It is not a question of e-commerce being fundamentally rewritten as a business concept. Even though there will be cases that belong to one of the two extremes, there will also be a whole bunch landing somewhere "in the middle". In fact, we would argue that for most businesses, Amazon is a great opportunity, not a threat.
The United States 1994...
1994 was a great year for Sweden being third in the football world cup. But also for Amazon, which then was in their start-up cradle. In e-commerce terms, 1994 roughly corresponds to the Stone Age. And to address the "threat angle", we can thus begin to state that Amazon has had 26 years to create the position currently held in the American market. And why this matters is clear. The insanely strong position Amazon has conquered on the other side of the Atlantic is largely a result of the time you need to be present in order to change an entire market's shopping behavior.
At the time Amazon was established, it was not just a matter of being the biggest - it was also a matter of being first. Not the first e-commerce as such, but the first with the radical goal to become a complete marketplace for everything the consumer may need, based on (for the time) unique ideas such as drop-shipping and independent subcontractors. In the beginning Amazon mainly sold books. But over time, the company developed into a kind of a digital one-stop-shop, where you could buy everything from hair curlers to flat screen TVs in one place and at a reduced price. It was not just a matter of being a few pennies cheaper on a single product category, but also about establishing a behavior in the early e-commerce customer stating that "Amazon is the home page when you need something". In the same way you would take the family station wagon to a physical one-stop-shop and fill up the trunk, you would enter "amazon.com" in the address field when you need to buy anything at a really good price. If Google is "where the Internet begins" then Amazon is "where the shopping begins". At least if you live in the United States.
...vs Sweden 2020
If you take a look at Northern Europe 2020, the situation is very different. Sweden is today a highly digitalized country. Of course, we do not claim that the digital revolution is in any way over, we are hardly the Jetson family in their flying cars (yet). An enormous amount of digital innovation is still to be done. However, we claim that the Swedes by now have acquired solid shopping habits online as well, where 89% of us already shop online according to the Swedish report “The Swedes and the Internet” released last year. With that comes not only "starting points" in the customer journey such as "Elgiganten is a good site when you want a TV" or "at revolutionrace.se I’ll find really good outdoor pants", but there are also completely different options. Popular price-comparison sites such as Prisjakt (Pricespy) and Pricerunner along with Google Shopping are services that have delved deep into Swedish customer behavior, and have probably earned a stronger position on our market than they would on markets that have long lived with dominants such as Amazon and eBay.
However, if Amazon manages to position themselves at these starting points as well (which is most likely the case with low prices and a high advertising budget), the giant will definitely gain large market shares. To a large extent, they will (at least in the beginning) compete on equal terms with other, already established e-retailers who in turn know their customer and their market. We are not saying that Amazon can not change our customer behavior - it has been shown time and time again (examples from other countries later in the article) - only that it is much more difficult when you are a newcomer who has not been involved since the market was established. This is definitely a fact competitors can - and should - take advantage of.
Is the success global or local?
So, we can establish that Amazon has conquered and are now dominating the American market, this is nothing new to anyone. Worth remembering, however, is that Amazon's level of dominance differs from market to market internationally. It's been hard for the eCom giant to replicate its success in some markets - while the success has been greater in others. If we, for example, were to look at Germany (which in many ways is a market similar to ours in Sweden), Amazon has entered and gained large market shares. Amazon today accounts for a staggering 27% of all purchases in the German e-commerce market. In 2019, Amazon.de had a turnover of 10.25 billion Euros. No matter how you look at it, it’s an incredible market share. But it’s also worth mentioning that, in view of what the market's expectations were, that Amazon has actually underperformed.
In fact, several German e-commerce experts estimated that Amazon's turnover in the country by 2019 would amount to 18-20 billion Euros, i.e. almost double what has actually been achieved. But sure, the fact is still that Amazon has had an obviously successful trend when it entered many other markets in Western Europe, being especially strong in France, Italy and England (more detailed data can be found at this link.
But there are also examples of markets where things didn't go as well after launching, primarily in Asia and Oceania. The e-commerce giant decided to launch in China as early as 2004, but nevertheless failed to adapt to the Chinese e-commerce culture and finally gave up in 2019 after fighting for many years against local rivals such as Alibaba and JD.com. In fact, in Australia Amazon is yet to be profitable, despite launching there as early as 2017. Pondering these weak results, Amazon has not made any further attempts to launch in other countries in Southeast Asia, where local companies such as Shopee and Gojek dominate the market. The closest exception in the region is India, which is the most prioritized market for Amazon right now. With a rapidly growing e-commerce culture, many experts predict that India in the future may account for as much as 13% of Amazon's international sales, corresponding to about 30-40% of India's total e-commerce market.
Who are the losers?
Our belief is that it is the "middlemen" (i.e. retailers, department stores and other marketplaces) in the countries where Amazon makes its entry that suffer the most. If we, again, use Germany as an example, Amazon.de generated 10.25 billion euros in sales in 2019. This is about four times as much as the two largest German chains of department stores, Karstadt and Kaufhof, combined. This is a pattern that is recognizable in many of the markets where Amazon has succeeded in establishing itself, with a few exceptions such as Asos and Zalando.
One explanation for “the middlemen” suffering the worst from Amazon's entry can be found in a very interesting market study from Köln-based IFH, which firmly claims that what is happening now in Germany is that the market as a whole is undergoing an "Amazonization of consumption". IFH's board member Eva Stüber was, for example, quoted saying that Amazon has become so entrenched in customers' consciousness and consumption habits that the path to the customer has practically been cut off for other e-retailers. Even in Germany, Amazon is well on its way to becoming "where shopping begins".
And who are the winners?
So, are we saying that the general theme here is "death to all"? Not at all. Instead, we definitely see an upside for many of the market’s actors with the entry of Amazon, where 1 + 1 could become 3. Because, as we mentioned earlier, Amazon must after all be able to sell everything to everyone - like a digital one-stop-shop. And not all consumers like that way to shop. We believe this to be true to both digital and physical commerce. If you are a specialized niche store, with a really solid branding as a foundation, you probably have an ace up your sleeve when the competition begins. And after all, being a marketplace, Amazon can offer an exciting new distribution funnel for your products if you do it right. The old proverb “If you can’t beat ‘em, join ‘em” rings true.
Let’s do it!
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