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Amazon Retail Show

Amazon Retail Show

WILL SPALDING [00:00:06] Hello and welcome to Disruptive Live. This time we’re gonna be doing something slightly different this time. We’re actually going to be reviewing a book and it’s actually a book about, well, the title itself is called Amazon. I’m actually joined by the co-authors themselves, Natalie Berg and Miya Knights here. Ladies, thanks for joining me today.

NATALIE BERG [00:00:23] Thanks for having us.

MIYA KNIGHTS [00:00:24] Thank you.

WILL SPALDING [00:00:25] No problem at all. So tell us a little bit more about the book Amazon. Obviously, there’s one clue in the name itself. Tell us about it and what inspired you to actually make the book.

NATALIE BERG [00:00:37] There’s been a lot of change across the sector, as we all know. But over the past few years, we saw real change in Amazon in that we have one of the most disruptive, one of the most influential retailers, online retailers in the world suddenly having a growing appetite for bricks and mortar retail. And and also is very clear that Amazon is starting to express an interest in the grocery category. So we felt that they were reaching an inflection point and we felt it would be a really interesting time to take a step back and look at their strategy, look at why they’re shifting gears and most importantly, look at the impact that they’ve had on the high street.

WILL SPALDING [00:01:13] Yeah. No, I mean, I think everybody knows Amazon. You know, there’s not a soul on the Earth who probably doesn’t know Amazon. What are some of the common misconceptions though, that you believe there are about Amazon in particular. I mean, we all know it as a retailer. But what do you see those misconceptions being?

NATALIE BERG [00:01:29] Well, in the book, we try to dispel three myths. So the first myth is that Amazon is a retailer. They sell a lot of stuff, but they’re not a retailer. They are a tech company at heart. And we think that within the next couple of years, most of Amazon’s sales will actually come from services instead of sales of first party goods. They are spreading their tentacles across into new sectors music, video, home security, health care, banking within retail, grocery, fashion. I mean, every week they seem to be disrupting a new sector. But I think at the end of the day, they are a tech company at heart. And I know Miya can talk on that a bit more.

WILL SPALDING [00:02:08] I was actually going to run onto that because Miya you’ve got more of, I suppose, a technical background, don’t you? So from what Natalie’s just said there, can you give us a little bit more insight?

MIYA KNIGHTS [00:02:17] Well, absolutely I think the first thing to bear in mind is that in Amazon’s 25th year, it started out as an online retailer wanting to sell books, but soon realized there was actually a more powerful business model inherent in making that online store available to other merchants. So when Natalie talks about the distinction between first party goods, that’s goods that they produce, manufacture and ship to you themselves versus those third party merchant goods, they’re sold on its wider marketplace. Amazon’s own retail sales are actually a tiny fraction of their their revenue and their profit. When you look at revenue, it’s mostly third party GMV sales global but by but by global merchandise value. And when you look at their overall ecosystem, the entire business operations, largely their profit comes largely from Amazon Web Services, which is the cloud computing arm that underpins a lot of the the capabilities that allow them to offer merchants that marketplace offering and also the fulfilment capabilities that come with them. Prime and shipped by Amazon. Fulfilled by Amazon. So really, when you think about it, in order to get where it has over the last 25 years, its success has been wholly predicated on being disruptive in technology, innovating, being there first, being a fast, fast mover and a leader in technology in the technology space, not only in the way that it uses technology to support its own business, but also in the way that it’s revolutionizing set standards when it comes to online shopping experiences as well. So I think those are really the two main reasons why we say Amazon is a tech company first, a retailer second. It focuses. It has today focussed more on how it sells, what it sells rather than what it sells, which is everything really.

WILL SPALDING [00:04:20] Yeah, I think we’ve all got an idea of retail, or at least we think we do on a day to day basis. What are some of the things that Amazon does does right. And I suppose allows well, it does correct in retail, generally speaking, but also bring something slightly different to say your other standard retailers online in particular.

NATALIE BERG [00:04:41] Well, they cut out friction, they make online shopping completely and utterly effortless. And I think that’s the main point, is that it’s the convenience that Amazon offers. They’ve recognized that if you put millions of products online, create a completely seamless, frictionless experience for the customer and have those products turn up on your doorstep the next day, the same day. That’s a really, really powerful proposition. And it’s something that not a lot of retailers can match. I’d also say, you know, price has to be pretty good, but it’s Amazon’s not always the cheapest. We all know that. But really, it’s range in convenience and cutting out friction. But I think if you take a step back, I mean, that’s what they offer the customer. And that’s that’s why we say that, you know, you can’t beat Amazon on their terms. There are very few retailers that can do that on that scale. And they’ve also very cleverly created this broader ecosystem where once you become a Prime Prime member, you feel the need to justify that. You know, seventy nine pound fee and you justify that by spending more with Amazon. So it’s this sort of sunk cost fallacy that completely works to Amazon’s advantage.

WILL SPALDING [00:05:50] That Prime catches me out every single time that that free months, you know, you can always get a new email or whatever. But yeah, it’s their it’s their business model. It works so.

NATALIE BERG [00:05:58] And it’s not just about delivery anymore. That’s the other thing. I mean, we go into a lot of detail around Prime, but it’s become this sort of all encompassing beast of a membership scheme where, you know, you become a prime member and you suddenly watch movies through Amazon and you listen to music through Amazon. You have to be a prime member now, if you want to use Alexa for voice shopping, if you want one hour delivery. So they’ve made prime really, really compelling and created this bundle proposition that makes it really difficult to leave when you’re a Prime member.

WILL SPALDING [00:06:30] So that’s really interesting stuff, I mean that’s some of the good parts about Amazon itself, especially within the retail sector. In the book, what do you divulging into in terms of is there any parts of it that we all know as Amazon that really has a knock on effect on the day to day retail market as well? What would you say some of those those negatives are?

MIYA KNIGHTS [00:06:51] Well, I’ll go for this first, but I think Natalie’s probably the better placed to give you  a more fulsome answer. I mean, my from my sort of technological or technology based background, I would say that Amazon’s had to learn it has made its mistakes with technology and using technology to make our shopping lives easier. I mean, going back to first principles, as we do in the book, we rightly identify, I think, what’s changed around the shopper. The shopper wants everything on their terms. We talk about the on my terms shopper and picking back up on that tech point of your last question. They’ve really brought technology to bear to deliver speed, convenience, relevance, choice, transparency with ratings and reviews, one click checkout that Natalie spoke about. But at the same time, the fact that they’ve been able to do so underpinned by a real drive to look at and revolutionize how it sells, what it sells using technology innovation at a time when the entire world is going online has really given the wind to its sales and led to some criticisms that there is an imbalance between the high street and online that we certainly see, that’s part of the reason why we wanted to write this book. When we talk about dwindling footfall on high streets and one of the black and white questions we get asked a lot is, is whether Amazon is is killing the high street. So here I defer to Natalie. But I think in terms of focussing on how it sells, what it sells more than what it actually sells, it really has started to disrupt the ex, the shopping experience. It’s raised our expectations and therefore exposed some of the the the the less fulfilling, less enjoyable parts of the shopping experience that we had been traditionally used to and that we thought that was the only choice we had until Amazon came along. I think the mediocre retail point in terms of exposing middle of the road poor experience based retailers is one of the things that Amazon’s really had to that retailers has really had to learn from in that sense.

NATALIE BERG [00:09:07] Yeah, yeah, absolutely. I mean, just to add to what Miya’s said, we mentioned in the book and we think about the phrase the Amazon effect, it often has a very negative connotation because if you think about store closures, job losses, retail bankruptcies, and yes, there is an element of that. And, you know, as we spend as consumers, as we spend more online, naturally, we’ll need fewer stores. It’s an inevitable shift. It’s it’s not rocket science. I mean, we keep saying it’s about following the customer. So it’s, of course, very sad to see these gaps on our high street. But the fact is that is the way that we’re shopping today and we just don’t need as much space. We have this oversupply of retail space now that needs to be rectified. But I’d also argue that the phrase the Amazon effect also means stamping out complacency. It means it’s, you know, it’s been a positive force for retail. And that I think it’s the very existence of Amazon has forced everyone to raise their game. And the person the one who wins is the customer, because as customers today, we have a much better experience. So I would argue that the phrase the Amazon effect, I mean, it’s Tesco rolling out same day delivery nationwide. It’s Waitrose delivering groceries directly into your fridge. It’s M&S trialling checkout free stores. So lots of innovation, lots of retailers either looking to keep up with or to distance themselves from Amazon.

WILL SPALDING [00:10:30] It’s really interesting the point that you’ve just made though, because Amazon are actually going to be physically creating stores soon as well, aren’t they? I mean, that’s one of the big things that they’re doing at the minute right now in the States. That’s kind of the reverse of they’ve kind of done the reverse opposite of what you’ve just mentioned. Your Waitrose, your Tesco, Sainsbury and whatever, who normally have stores before are now going online. Of course, they’ve been doing that for a number of years now as the biggest retailer in the world, though Amazon. What is the approach behind that? Why do they need to do it?

NATALIE BERG [00:10:57] Well, I think we first have to address the futures fewer but more impactful stores. So, yes, there will be less of them, but the ones left standing will provide a much better customer experience. And Amazon loves a challenge. I think there’s still a lot of friction when we walk into stores and there’s an opportunity to improve the customer experience, you know, strip out checkout so you don’t have to wait in line, help shoppers to find products, offer more personalized, tailored promotions in store. I think there’s lots of things that Amazon will be looking to do with the in-store experience. But we also have to acknowledge that the structural economic advantages of being an online only retailer are gone. So shipping costs have pretty much doubled for Amazon over the past couple of years. And I think the physical space bricks and mortar retail has to evolve to go beyond just offering product and instead it has to be, as we say in the book we think that in the future, stores will be a place to eat, to play, to work, to discover and learn and also maybe even to borrow stuff. As we see the rise of rental retail. So the point is to have a greater purpose than just transaction.

WILL SPALDING [00:12:04] Well, I think checkout free stores is something that they wanted to do as well as that, I think you can tell us a little bit more about that Miya.

MIYA KNIGHTS [00:12:09] Absolutely. We definitely discovered that Amazon doesn’t really go into any area unless they think it’s actually ripe for disruption. And it’s always been a little bit of a bugbear of mine that when you walk into your average grocery store, they only actually know who you are when you swipe your loyalty card and walk out. And in recent years, that could include scanning your own goods and bagging your own goods as well. So there’s a definitely the grocery and convenience market and store experience has been ripe for disruption so it wasn’t a surprise that they bought Whole Foods to move into grocery and Amazon Go in that sense wasn’t a surprise because it builds on the expertise they’ve that they’ve gathered around their bookstores and their full staff stores. As Natalie said, the just walk out technology based on computer vision technology and some really heavy artificial intelligence based algorithms allows you to register on a on the Amazon Go app, register a payment instrument off a card to that app and then scan the app to enter the store and then you put your phone away. You don’t need to check out, you don’t need to visit a checkout. You don’t even need to scan your own goods. You just put them in your bag and you walk out. That’s been really seismic in terms of the fact that they’ve chosen grocery inconvenience in which to do that, we we eat more food, we eat more than we buy anything else. So food is the largest category in the world. I would say perhaps it’s fair to say Amazon has really pushed into all other retail sectors but quite hasn’t hasn’t quite cracked food yet.

WILL SPALDING [00:13:55] Yeah, I think so because I mean, look, as as you mentioned earlier, as we all know, again, the high street is is changing dramatically. People are going out there to socialise a lot more coffee shops, pubs, bars, whatever. That’s becoming more the aspect of the traditional high street. How can Amazon co-exist between, you know, then because they you know, they don’t want to kill off businesses completely as well, do they? That’s the thing. You know, people who work for Amazon, people who want, you know, actually a part of it. They don’t want to see their local stores go under as well. So how do how is it going to go about coexisting?

NATALIE BERG [00:14:31] Yeah, I think your to your point about how we’re seeing more experiences on the high street that’s just reflective of the way that consumer spending is shifting. So, yes, we do often position Amazon as the death knell for retail. But actually, I think we’ve established there are a lot of other factors at play and the rise in experiential spending, the fact that we’re seeing double digit growth in things like going to the pub or going out for a meal, going to the cinema. Whereas if you look at categories like women’s clothing, for example, sales are flat or in decline. So there is a sort of broader shift in consumer values and priorities. And I think the high street is beginning to adapt and reflect that both in the sense that, you know, we’re seeing more restaurants and that sort of thing on the high street, but also in that. How are retail retailers repurposing the physical space? Department stores in particular have their work cut out for them. These are giant stores. They’re most likely tethered to long leases. They can’t just shut stores overnight even if they wanted to. So they have to repurpose the physical space and think of other ways to get shoppers through the door. And I think we’re seeing really sort of weird and wonderful experimentation on both sides of the Atlantic, in the US and here in the UK. And we’re seeing more collaboration as well, more digitally native brands like Amazon are moving into the physical space and that’s creating an opportunity for existing high street retailers. So you’ve got, you know, Birchbox., Boden teaming up with other established retailers and creating something different and unique for for shoppers. So I think there’s a lot that can be done. It’s about going from just transactional to become more experiential.

WILL SPALDING [00:16:10] And just quickly, just because we’re slightly push for time here, actually. So what challenges as well do you reckon Amazon is going to be facing in the next sort of, I suppose, five years, what feature challenges, do you think are going to be a big thing for them? You mentioned food earlier.

MIYA KNIGHTS [00:16:23] Food yeah, I think Amazon, is Amazon going to crack grocery? Is it going to be able to run physical stores? Can it sell us fashion as well to a certain extent. Fashion is an area it’s it’s it’s only slowly making headway in. And I think we need to just as we’ve written the book for retailers to think about what they can learn from Amazon. I think Amazon has just as much to learn and realizes now it has just as much to learn from traditional retailers in terms of how to curate range and merchandise it for a particular catchment area or in a particular city at a particular time of year. It’s all very well and good to be able to put everything you possibly can totally scalable, filtered through filters, offering you thousand versions of the same product that you then, as of the human search engine, have to filter through. The store given its its space constraints really requires the art of retail, I think. And that’s really what it’s it’s it’s looking to master now not to say it doesn’t have huge advantages in doing that. In terms of knowing what we as the customer do when we’re on online visiting with them. But I think that’s kind of exposed to them that they’re not seeing how we behave in the physical retail environment.

WILL SPALDING [00:17:42] So I know you just want to make one final point.

NATALIE BERG [00:17:44] I do.

WILL SPALDING [00:17:45] Unfortunately, we’re sort of running out of time, actually.

NATALIE BERG [00:17:47] So can I just say.

WILL SPALDING [00:17:49] Yeah, go ahead.

NATALIE BERG [00:17:49] Government scrutiny and consumer backlash. Those are the other things that we need to look out for. But I’ll leave it there.

WILL SPALDING [00:17:54] So just a quick plug as well. Where can you buy it? And what’s, tell us more.

NATALIE BERG [00:18:01] Yeah. So it’s.

WILL SPALDING [00:18:01] On Amazon I imagine as well.

NATALIE BERG [00:18:02] It’s a book about Amazon called Amazon and it’s being sold on Amazon.

WILL SPALDING [00:18:06] It would be weird if it wasn’t.

NATALIE BERG [00:18:07] You can also buy through our publishers directly at Kogan Page.

MIYA KNIGHTS [00:18:10] And all other good book retailers. See that it’s in the Smith’s book chart at the moment as well, Waterstones, all good book retailers should have it.

WILL SPALDING [00:18:17] Well, Natalie, Miya thanks ever so much for coming on and telling us more about Amazon.

NATALIE BERG [00:18:22] Thanks for having us.

MIYA KNIGHTS [00:18:23] Thank you, thank you.

WILL SPALDING [00:18:25] Best of luck, cheers.

NATALIE BERG [00:18:26] Thanks.