Why It Makes Sense for Small Retailers to Embrace the Amazon Platform

In the retail world, if you can’t beat ‘em, join ‘em. That’s the takeaway from a new report from Bluecore, a data-research company. Bluecore, with help from NAPCO Research, surveyed more than 250 retail executives in May and found it makes sense for small retailers to work the  Amazon e-commerce platform: Amazon’s scale and cash hoard are simply too big to try to compete with. The upside of exploiting the e-commerce giant’s platform reach is too attractive for small retailers to reject and go for it on their own. However, the study also suggests many retailers are reluctant to accept that view and relatively few have embraced the idea of working with Amazon. Read on to learn more about Amazon’s impact on retailing and how smaller companies are responding to the e-commerce giant’s dominance.

To understand Amazon’s impact, one must understand what’s happening in the brick-and-mortar retail industry. According to Bluecore, there could be as many as 7,000 retail store closings across the U.S. this year, due in large part to lower patronage at “B- and C-level malls.” Retailers need to make up that revenue loss in some way.

There may be problems in the brick-and-mortar space, but the e-commerce space appears to be doing well for most retailers. According to the report, 36 percent of companies have seen their e-commerce sales jump by at least 10 percent in the last two years. In total, 86 percent of companies have seen e-commerce sales either rise or remain flat. Just 16 percent have experienced declining sales.

There are many reasons for Amazon’s success, but 63 percent of respondents believe it’s due mainly to the free shipping offered through its Amazon Prime program. Additionally, 44 percent of respondents said Amazon Prime’s expedited shipping offers are also attracting customers.

According to Bluecore, retailers think there are many other reasons for Amazon’s success, including one-click checkouts, its support for user reviews and its distribution center supply management. Additionally, Amazon’s recommendations engage buyers, who also can order products through Amazon Alexa, the retailers say.

Retailers were asked how they view Amazon’s market penetration since 2015. Nearly 4 in 10 respondents said the company has “significantly increased its position in the marketplace,” while 27 percent of respondents said Amazon’s market power has only risen “somewhat.” Just 3 percent of retailers believe Amazon has lost some of its impact on the retail market.

The retail executives interviewed in the report, who represent retailers big and small, also rated how they view Amazon. Nearly 29 percent said they see Amazon as a “direct competitor” to their operations, while another 29 percent believe Amazon can be both a partner and a competitor through its marketplace, where smaller companies can sell goods. Surprisingly, 42.5 percent of retailers don’t see Amazon as a competitor at all.

Retailers have responded to Amazon’s success with their own data strategies. Nearly a quarter of companies have increased the number of data points they collect to understand trends and buying behavior. But just 14 percent have recorded and used observed customer activity data, and only 6 percent have started overlaying third-party data on their own information. Bluecore argues most retailers don’t have a clear data strategy for counteracting Amazon competition.

It’s a similar story with technology where just 10 percent of retailers have “significantly increased” investment in technology to better compete against Amazon. More than a quarter have increased technology investments “somewhat.” But 53 percent haven’t boosted tech investment at all.

Despite understanding the impact of Amazon’s customer-facing features, many retailers aren’t following suit. Just 18 percent have added customer recommendations to their e-commerce sites and only 16 percent offer free or expedited shipping. Worse yet, 44 percent of retail executives admit they “don’t know” what kinds of things have been done to improve consumer engagement.

Ultimately, the Bluecore report suggests retailers should offer products through Amazon and make the company a partner rather than a competitor. The study revealed Amazon accounted for more than half of e-commerce revenue for 9 percent of companies and a sizable, but minority, chunk for 21 percent of companies. Still, 68 percent of retailers don’t sell products on Amazon at all.