What Impact Does Amazon Have on Sales and Revenues for Retailers?
By Udayan Bose, CEO, NetElixir.
Boarding planes, taking trains and hitting the road to sandy destinations. This is what we find ourselves doing in August as the dog days of summer compel us to unwind and relax before the frenzy of Fall kicks in. Before we fully succumb to the summer breeze, we must remind ourselves the holidays are just a few short months away.
For many retailers, the holiday season is a make-it-or-break-it time. Having worked closely with retailers for over a decade, I can say with certainty that each holiday season is bringing new challenges for retailers at a pace that is unprecedented.
The biggest drivers of change are the growing use of mobile devices for shopping and Amazon. At NetElixir, we have been keeping track of holiday ecommerce sales for the past 9 years. Each year, we are seeing more dollars shift to mobile and Amazon. For example, last year we saw over 30% of ecommece sales going to mobile and 38% going to Amazon.
This year will be no exception. In fact, it may even be exceptional, given the kind of attention that Amazon has been receiving lately. Following its Q2 earnings call, Amazon’s stock shot up at such a rate that for a short while Amazon’s CEO Jeff Bezos was the world’s richest man.
To help understand what Amazon’s growing dominance means for retailers, we engaged in a study examining the experience that small-to-mid size retailers are having with Amazon. This past May, we surveyed 503 retailers with fewer than 100 employees about their revenues, sales and marketing efforts on Amazon. The results were extremely interesting. One of the most compelling findings was that over 60% attribute half or more of their ecommerce sales to Amazon and other online marketplaces.
When asked about the main reason why they choose to sell on Amazon:
- 52% noted increased sales volume potential
- 6% noted increased brand exposure
- 3% noted solid infrastructure
When asked about the downside of selling on Amazon:
- 45% noted lower margins
- 29% noted not owning the end customer
- 5% noted commoditization of their brand
- 2% noted lack of access to data
The last figure was of particular interest. We are finding that aligning marketing efforts to customer journeys is one of the most effective ways to increase revenue. Data is central to this marketing effort. If only 8% of retailers acknowledge lack of access to data as a challenge, then they’re likely missing this important element in their overall marketing strategy.
Customer acquisition was cited as the biggest general challenge faced. To meet this challenge, most retailers said they plan to invest in paid search within the next five years. Other tactics include marketing on Amazon and improving website user experience. Interestingly, of those who already run ads on Amazon, 40% said they’re ineffective.
It’s a little puzzling that a little less than half would report Amazon ads as ineffective given that the majority of retailers are doing the majority of their sales on the platform. Of those who said Amazon ads are ineffective, 23.7% cited the reason for why as lack of know-how, 23.5% cited lack of budget and 20.7% cited Amazon as not being the right channel for their business.
The lessons from our survey are important to keep in mind when planning for the holiday season. Amazon is going to play a big role in consumer spend. Yet, since marketing on the platform is still relatively new, retailers may consider investing more into analyzing their own data and applying findings to their marketing efforts rather than simply spending on Amazon in hopes of connecting with consumers.
Before finalizing holiday campaigns, there is still a little time to enjoy the last few moments of summer. So we sit back and sip our fruity beverages. Soon it will be time to head inside. The tide is coming in.
Udayan Bose is the founder and CEO of NetElixir, a search marketing agency with over 12 years of experience working with retailers on their search marketing needs. Prior to starting NetElixir, Udayan was Director of Business Development for PartyGaming, the world’s largest online gaming company. In this role, he was responsible for building a new business unit from scratch, PartyBingo that went on to become a major revenue generator for the company. Udayan regularly lectures the MBA classes at the Johnson Graduate School of Management, Cornell University; Zicklin School of Business, Baruch, NY and the Indian School of Business, Hyderabad. Udayan holds a Bachelor’s Degree in Chemical Engineering from the Indian Institute of Technology, Delhi and an M.B.A. from Mumbai University, India.