The Amazon Effect
Love it or leave it, the company’s impact is undeniable
The move to online retailing, led by Jeff Bezos’s behemoth Amazon, is changing how Americans shop and how retailers sell to them, and that is altering the retail landscape.
While online sales are still less than 10 percent of all retail sales — 8.5 percent in the first quarter of 2017, according to the Census Bureau — those sales continue to grow fairly steadily. Online’s share grew from 5.1 percent in 2011 to 8.3 percent this past year, and continues to increase. Certain segments of retailing have been hit particularly hard. Two-thirds of books, music, and films are bought online, according to financial services firm Cowen and Company.
Much of online shopping’s growth is coming from younger shoppers and the shifting preferences of older shoppers. According to BigCommerce.com, a privately held technology company that researches and develops e-commerce software:
• 51 percent of all Americans prefer to shop online
• 67 percent of millennials (those born between 1982 and 2004) prefer to shop online rather than in a store
• 56 percent of Gen Xers (those born from 1965 to 1984) prefer online
• Millennials and Gen Xers spend nearly 50 percent more time shopping online each week (six hours) than their older counterparts (four hours).
Most of them shop at Amazon. Fortune magazine, quoting from a report by Wall Street firm Needham, reports, “The online retailer, which accounts for about 34 percent of all U.S. online sales, is expected to see its market share grow to about 50 percent by 2021.”
Millennial Jenny-Gray Tatum confesses somewhat reluctantly that she gets pretty much everything for her family through Amazon. The 31-year-old Forest Acres, stay-at-home mom of two (ages 2 and 4) says she buys essentials like diapers, wipes, cleaning supplies, as well as gifts and items for her children. “It is very random. If you look at my past orders it is very, very random.”
She does not, however, buy clothes on Amazon. “There are just other places to shop for clothes,” says Jenny-Gray, and a big part of that is wanting to touch and feel the clothing and to try them on.
She used Amazon a little bit before her children were born; however, activity accelerated when she signed up for Amazon Prime, the $99-a-year premium service that guarantees free two-day shipping on millions of items. “I’m also a big bargain shopper, and I always find better deals on Amazon, but the free shipping is what did it for me. When the second child came along, then it became almost 100 percent,” says Jenny-Gray.
Price and convenience really drives her Amazon use, as it does for other area millennials, like Anne Cheatham and Joanna Stayer.
Also married and with a small child, Anne, 30, leads a very busy life working full time as a nurse practitioner. Like Jenny-Gray, once Anne’s son was born, using Amazon became an essential part of her shopping life. She now shops on Amazon about every two weeks, using an Amazon Prime account for items such as diapers, which she claims is definitely the cheapest option, and many other random purchases. However, Anne says she probably spends more on Amazon for e-books than anything else. “Whenever it’s cheapest on Amazon, we purchase it there. And I would say nine times out of 10, things are cheapest on Amazon. It has definitely been a great service for when we’ve needed it.”
Joanna, 22, does not have children, but Amazon is still an important part of her shopping matrix. Like Jenny-Gray and Anne, Joanna uses Amazon Prime with its free shipping for a whole range of items. She and Jeffrey, her husband, recently decided to get a cat, whose litter box, water bowl, leash, and travel case all came via Amazon.
Before their marriage, she and Jeffrey used the Amazon Wedding Registry. As big outdoor enthusiasts, they received gifts such as a tent. Joanna says, “I do not order more than once a week, but I don’t go out shopping for those types of items more that once a week either. For something like a hammock or tent, I typically look on Amazon first.” Her Amazon purchases have included several gifts, lots of appliances, and outdoor items, such as tents, animal supplies, and shoes. “Anything that I think I will have the best deal,” she says.
None of the three young women have used Amazon much for clothing, still preferring to go into a store where they can touch, feel, and try things on. The three millennials also like other Amazon Prime features, such as the unlimited streaming of movies and TV shows. Jenny-Gray says, “We download the videos for my 4-year-old a lot. The good thing is, you don’t have to get on Wi-Fi once they are downloaded, so we can watch them in the car.”
Joanna says she and Jeffrey switched everything to Prime. “We had Netflix, but got rid of that. It wasn’t worth paying two bills.”
Still, they do not confine their online shopping to Amazon. Both Jenny-Gray and Anne use the Shipt app to order groceries online and have them delivered through Publix. The app-based grocery delivery service, which launched this past summer and partners with local stores, now serves 43 metropolitan areas across the country. “It’s awesome,” Anne says.
Jenny-Gray explains, “You scroll through and see what you want, put in what time you want your groceries delivered, and they bring them to your door. It is super, super convenient.” Like Amazon Prime, a yearly Shipt membership is $99. Delivery is free on orders more than $35 and $7 for smaller orders. Jenny-Gray likes Shipt for the convenience and also because it inhibits the impulse buy.
Joanna also uses Etsy, the online marketplace for handcrafted items. In addition to buying on Etsy, she also sells on it. An exercise physiologist by profession, she took up leather craft as a hobby in college and sells the hand-made items on Etsy through her own brand, Corious Handcrafted Leather.
Price and convenience seems to be the biggest factors driving millennials to shop online, especially on Amazon. That is what has given Amazon its competitive edge, according to Dr. Joseph “Joey” Von Nessen, research economist at the Darla Moore School of Business at the University of South Carolina. “Amazon has been extremely good at satisfying the market demand for the tangible product — getting it to the customer quickly and getting them exactly what they want,” he says.
Amazon has taken much criticism for the latest shakeout in the retail industry. Retailers are closing at a rate not seen since the Great Recession, and thousands of people have lost their jobs. But both Joey and Marianne Bickle, chair of the Department of Retailing at USC’s College of Hospitality, Retail and Sport Management, say that is unfair. The shakeout is largely just a result of the shifting of the economy and the ever-evolving nature of retail. “There is always a natural evolution in business. There is a reason that we see most small businesses fail within a reasonably short period of time, and that is because businesses constantly have to meet consumer demands, and those are constantly changing. That is the reflection of an ever-changing market environment,” Joey says.
“Amazon is being featured simply because they are so big. Any company that is big is going to be showcased as the end of small businesses. For a while it was Walmart. Back in the ‘80s it was Kmart, and then it was Sears. So that is why Amazon is being targeted,” Marianne adds. “It is important to know that 80 percent of retailers are small and medium size, so they are vital to our nation’s economy. According to this statistic, clearly Amazon is not overtaking our retailers, especially considering that less than 10 percent of sales are online. That means more than 90 percent are still in the store. So online sales are not cannibalizing brick and mortar retail stores.”
What is happening is that brick and mortar stores, especially some of the big box chains, are being faced with a shift in consumer demand and habits, and they are learning to adapt by looking at their target markets and product offerings. “Most people do not buy online,” Marianne says, “but what they do is they will browse online and then go into a store to make a final decision and buy. They love touch and feel. People are very tactile. So if you are not changing your product merchandising frequently to meet your specific target market, that is when your business will suffer.”
Retailers also need to keep an eye on the competition and learn from them. “I’m not saying the small ʻmom and popʼ shops should look at Amazon and ask themselves if this is something they should be doing,” Marianne continues. “But I think Jeff Bezos and his team are smart and that the small shops should analyze them and ask, ‘Is there something I can learn from them?’ Not only is there something to be learned from what they are doing that is good, but there are things to be studied that they are not doing well.”
One of the reasons for Amazon’s massive growth has been its own ability to adapt, including moving into bricks and mortar retailing. The company, which started out as an online book retailer, opened its seventh U.S. store in New York City in May. It opened its first bookshop in Seattle in 2015, and by the end of the year it plans to have 13 U.S. stores. Amazon has also expanded its physical footprint on university campuses and is experimenting with grocery and convenience shops. Plus, Amazon recently launched a new WeddingShop for handcrafted items, including gifts. The offshoot of its Handmade at Amazon initiative is taking direct aim at Etsy.
While Amazon also gets a bad rap as a job killer, that is certainly not true in South Carolina and the Midlands. Amazon, which employs about 15,000 at its Cayce Fulfillment Center, has had a positive impact, certainly for Columbia. “In addition, now they are paying sales tax as well,” maintains Joey. “It has been a definite gain for Columbia and the Midlands region, so I think locally it has definitely done a lot of good.”
Trends in South Carolina show retail employment is still growing. “It is growing in line with the average growth rates in South Carolina. We have not seen any major downward trends in recent years in South Carolina. So I think right now retail activity in terms of employment growth tends to be paralleling what the state is doing overall,” Joey explains.
Marianne points out that retail is the second largest generator of jobs in South Carolina. She insists that despite the claims of naysayers, Amazon is not killing jobs, but creating opportunities.