The Economist has an article up talking about what a behemoth Amazon has and will continue to become. Here are some interesting stats for you to think about:
More than half of every dollar spent online in America now goes to Amazon
Amazon’s share price has increased 173% since the beginning of 2015 (12x faster than the S&P 500)
With a market capitalization > $400 billion, it is the 5th most valuable company in the world
92% of its value is supposedly being derived from profits expected after 2020 – they are playing the long game
Investors believe that revenue will go from $136 billion (2016) to half a trillion over the next decade
If I can buy something online, instead of in person, I will do it. And that very often leads me to Amazon. In fact, I bought my new camera lens from them last week. Many others seem to be doing the same.
When I go to a store now it’s because I need something immediately or because I’m looking for a new experience. I want novelty and I want to feel something special when I walk in. That, or I just need groceries.
Given the option, I will buy online as opposed to offline. About the only thing I consistently buy in-person is groceries. Food shopping remains a persistently in-store activity for most of the market. Though some European countries seem to have much higher online food shopping rates.
It is for reasons like this that Amazon opened a new small-format grocery store this past Monday called Amazon Go. The big game changer – which is currently making the rounds on the internet – is the fact that there are no check out counters. You simply check-in with their app when you walk into the store and then leave with whatever you want. Your phone will automatically charge you for whatever you picked up.
Finally! Grocery store check outs suck. (The store is currently in beta and will not open to the general public until 2017.)
But perhaps even more meaningful is all the data that Amazon will be collecting about our grocery shopping habits. This will scare some of you, I’m sure. But I can tell you that there are a slew of things that I buy regularly. And I bet that if you analyzed the data, the purchases would happen at fairly regular intervals: bananas every x days, orange juice every y days, etc.
So once Amazon Go learns what I like to buy, I am sure that it will then start to try and sell it to me online, along with some sort of subscription. If it can assure me that the produce is fresh and the expiry dates are far out (if they’re not, I want to be able to take a picture and get a refund), then there’s probably a good chance that I, as well as others, could be converted to online food shoppers.
Today I was surprised to learn from Charlie Gardner’s blog that groceries now represent 56% of Walmart’s sales. This is a huge number that I frankly wouldn’t have expected.
Groceries have relatively low online penetration, which makes them great for brick-and-mortar retailers. I’ve written about this topic before in the context of big box stores and online shopping. But I clearly didn’t realize that it had become such a big segment for Walmart.
What’s also noteworthy about grocery shopping though, is that customers appear to be less likely to travel far distances for it, even for lower prices. This means that the radial impact of Walmart the supermarket is less significant and far tighter (~2 miles) than Walmart the discount store. Click here for that study.
This is important because a big catchment area has been central to the Walmart model. They consume cheap land on the outskirts of cities and then offload the transportation costs (indirect costs) to consumers in exchange for everyday low prices (direct costs). Studies show that we, consumers, typically undervalue indirect costs.
Charlie argues in his post that this does not mean that we should write off big box retailing. And I would agree. The Walmart Express concept may have failed, but they are clearly looking for ways to rethink their model. Urban stores will need to form part of that.