‘Digital transformation is like an arrival of the railways in the Victorian era, but it’s going to happen much faster.’

Doug Gurr, Amazon UK Country Manager UK, 2018⁴⁵

The big question is, of the experiments currently brewing, which will be the ones to stick and transform the industry once again? Amazon has already been a phenomenal catalyst for change in areas like delivery, checkout and voice technology, and is almost singlehandedly shaping the future of retailing in the Western world. Here are our predictions:

• Amazon’s move into bricks and mortar will be the final nail in the coffin for pure-play e-commerce. As technology breaks down the barriers between physical and digital, those retailers without a bricks and mortar presence – already under pressure to offset shipping and customer acquisition costs – will be severely disadvantaged. More digitally native e-commerce brands will make the leap into the physical realm primarily via flagships, pop-ups, concessions and as acquisition targets by legacy retailers.
• There will be a greater divergence between functional and fun shopping. In the future, consumers will spend significantly less time buying the essentials. Our homes, powered by Amazon, will do all the mundane reordering so shoppers will never have to go into a supermarket to buy bleach or toilet paper again. Instead, these products will be automatically replenished – the ultimate test of brand loyalty. Amazon’s quest to take the chore out of food shopping and facilitate a frictionless experience creates an opportunity for competitors to focus on WACD: What Amazon Can’t Do.
• Winning in retail today means excelling where Amazon cannot, and therefore focusing less on product and more on experience, services, community and expertise. The store of the future will go from transactional to ‘experiential as competitors look to distance themselves from the utilitarian aspect of buying online. Amazon is great for purchasing, not so compelling for shopping. We believe the design, layout and broader purpose of the physical store will evolve to better reflect shifting consumer priorities. It won’t just be a place to buy, but also a place to eat, work, play, discover, learn and even borrow.
• Amazon will democratize online grocery, as technology dismantles the barriers traditionally associated with grocery e-commerce in the US. More anti-Amazon alliances will form with the likes of Google and Ocado particularly benefiting from Amazon’s grocery ambitions. Once Amazon convinces shoppers that they’re a credible alternative to the supermarkets, then they’ve cleared that final hurdle to becoming the Everything Store. Capturing that high-frequency purchase makes it easier to cross-sell and bait shoppers into their broader ecosystem, making Amazon the default shopping option. And that’s when things get ugly, not just for the supermarkets but for all of retail: Amazon shoppers tend to be loyal, lifelong customers.
• As Prime transitions to a bricks and mortar setting, retailers will have to drastically rethink their own loyalty schemes. The notion of swiping a plastic card at the till in exchange for points is dated. The next evolution of loyalty will see retailers ditch the ‘more you shop, more you earn’ concept. Points-based schemes will become a thing of the past as the loyalty battleground shifts from saving customers money to saving them time, energy and effort. Hyper-personalization through real-time mobile rewards will become the norm. There is an urgency to go beyond the transaction, developing a deep, emotional bond with shoppers.
• One-hour delivery will become the norm in urban areas, as legacy retailers reconfigure their best assets – their stores – to act as mini warehouses. Retailers must also utilize their physical locations to appease today’s ‘on my terms’ shopper with instore collection and to address the Achilles heel of online retail – product returns. Expect to see more collaboration, even with Amazon itself, in this area as retailers join forces to better serve the customer. The store of the future won’t just become a hub for experience but also for fulfilment.
• Amazon will continue to relentlessly innovate on behalf of the customer, wowing shoppers and disrupting more sectors in the process. In the future, the notion of skipping the checkout will feel natural (and not like we’re shoplifting); in-home or in-car delivery will be an acceptable alternative to traditional unattended delivery; and the barriers to buying clothes online – sizing and returns – will be largely eliminated. Meanwhile, the combination of more sophisticated AI and penetration of Alexa into the home and on our phones could lead to the era of the truly personalized shopping assistant.
• By 2021, Amazon will have transitioned into a predominantly service-based company. Retail, as a percentage of overall sales, continues to decline (from 72 per cent in 2015 to 64 per cent in 2017). We believe the tipping point, when the majority of Amazon’s sales come from services rather than first-party goods, will be in 2021. Although there is still plenty of opportunity to grow its core retail offering internationally, Amazon is building out a portfolio of wide-ranging services for suppliers and other businesses (advertising, Marketplace, AWS); for consumers (core Prime membership, music/video streaming, home security installation, grocery subscriptions, the list goes on); and even for other retailers. What is more, as third-party sales continue to grow as a percentage of total paid units, Amazon’s stated sales become less reflective of the gross merchandise volume moving through Amazon (because this only accounts for their take of the third-party vendor’s sale, not the full order value). Amazon is moving from retail merchant to indispensable infrastructure.
• In the future, more retailers will run on Amazon’s rails. Retailers themselves are increasingly content to overlook the huge competitive threat posed by Amazon to take advantage of their physical and digital infrastructure. Some may consider it playing with fire – certainly retailers like Toys R Us, Borders and Circuit City would. They were among Amazon’s very first ‘frenemies’ in the early noughties when they outsourced their e-commerce businesses to the giant – all three have since gone bankrupt. But we believe more retailers will cozy up to Amazon if it helps them to achieve greater reach (Marketplace), drive traffic to stores (Amazon pop-ups, click & collect, instore returns) or improve the customer experience (same-day delivery, voice-activated shopping). The unique dual role of competitor and service provider is becoming more apparent by the day. ‘Co-opetition’ is a key theme for the future.

In summary, Amazon is not your average retailer because it’s not actually a retailer. It’s a tech company whose sole purpose is perpetual innovation on behalf of their customers. And it happen to sell a lot of stuff in the process.

Notes

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