The Pros And Cons Of Amazon For Vendors, Retailers

Vendors and retailers have different strategies to face the competitive threat presented by Amazon.com, Inc. (NASDAQ: AMZN). While some view Amazon as another major point of distribution, others have a limit presence on the platform or have entirely avoided the company’s websites and services, Citi’s Kate McShane said in a report.

Amazon Outpaces Brick-and-Mortar

Traffic trends at US brick-and-mortar outlets have been under pressure over the past couple of years, declining by an average of 4 percent y/y every month since mid-2014. On the other hand, unique visitors to Amazon.com have risen by an average of 16 percent y/y per month over the same period. This ongoing shift is the main reason for heightened interest in Amazon, McShane commented.

Pros Of Partnering With Amazon

McShane enumerated the benefits of partnering with Amazon as:

1. High traffic levels: Allow to expose product to a wider base of potential customers
2. Product referrals: Specific sections drive complementary purchases
3. Lower relative spending requirements: Set up and maintain Amazon store at a significantly lower cost than owned ecommerce site
4. Leveling of price-based playing field: Amazon is no longer undercutting other wholesale accounts on price

Cons Of Partnering With Amazon

The analyst mentioned the advantages of focusing on one’s own direct-to-consumer business as:

1. Control over brand building: Amazon’s branding options are limited
2. Creating a relationship with the customer: Visitors to Amazon sites are largely loyal to Amazon, rather than to a brand
3. Products becoming commoditized on Amazon sites: Competition on Amazon is largely price based, eroding margin and brand equity
4. Retailers following a store-based strategy: Retailers often attract customers with “the treasure-hunt aspect of the instore shopping experience, something that cannot (as of yet) be replicated online.”