Amazon may soon take away advantage of brick-and-mortar retail

July 17, 2012 in Blog

In a post on the OBI blog last month, we wrote about brick-and-mortar businesses that are attempting to fight back against showrooming by expanding in-store pick-up services for their online side.

Some experts predicted that this move would cause online-only retailers to open up physical stores. We’re still not sure how likely this is to occur, but it seems that there could be another factor working against online retailers and brick-and-mortar stores alike: Amazon.

Amazon CEO Jeff Bezos in 2008, Photo by Mathieu Thouvenin via Flickr

Recently on Tom Ashbrook’s radio show On Point, the topic of the Amazon economy was discussed. Here are some key points from the radio program:

Amazon facts

  • Amazon is a bigger online retailer than Best Buy, Walmart, Netflix, Dell and Apple combined.
  • Amazon has been around for 17 years.
  • It’s changing the way that businesses are built, because it’s making its infrastructure available to other businesses to rent. This infrastructure includes its Website, warehouse and servers.
  • Amazon is making it cheaper to set up a business, but Amazon is also gaining a lot more sway in the economy. Some think that it’s becoming comparable to a utility — like a water or electric company — providing fundamental services.

Controversy

  • Some retail clients selling with Amazon are saying that the company is making it increasingly difficult for them to have access to customer emails and in turn customers themselves.
  • Working with Amazon’s infrastructure also means that a company’s costs become linked to the fees Amazon charges, and the company costs no longer become their’s to control independently.
  • Some businesses working with Amazon believe that if an item sells well for them through Amazon, then Amazon is in turn beginning to stock that item in its own inventory. Because of Amazon’s size, it’s able to negotiate better prices through the manufacturer and sell lower than its client retailer, eventually out competing the company that was using Amazon’s services in the first place.

Amazon’s infrastructure

  • Amazon.com hosts two million different sellers.
  • The number of customers who use Amazon in the U.S. per month is estimated at 85 million.
  • Amazon has 34 warehouses around the U.S. and adding more.
  • Its cloud computing service, which takes its servers and allows other companies to use them, is utilized by the likes of Spotify, Dropbox and Netflix, to name a few.
  • Some worry that as Amazon becomes inextricably linked to a number of retail corporations, a hit on the company could have a domino effect on the economy. Think of the words “too big to fail.”

Why brick-and-mortar retailers should worry

  • Amazon may soon offer same day delivery, which would take away one of the major advantages that stores have over online commerce.
  • As Amazon builds more warehouses across the county this may soon become a possibility where an item can be ordered and delivered within three to four hours.

Fulfillment by Amazon

Amazon CEO Jeff Bezos told Website Edison Nation in April of 2011, “We have these warehouses all over the world where we do our picking, packing and shipping, and we’ve put a significant investment into making those things work extremely well, be able to deliver products very quickly, have the products close to customers so you can get them to customers fast at acceptable cost and that’s a hard piece of infrastructure to build. It took us over a decade to build that infrastructure at a very significant monetary cost and one of the ways that we can leverage that infrastructure is by offering it to others for a fee and that’s what Fulfillment by Amazon is. So from our standpoint it’s just good business.”

Listen to the full program here.

Is fulfillment by Amazon bad for businesses? As a business owner would you use the service? Let us know in the comments.

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