From the President’s Desk: Amazon – Fact and Fiction

  • by itradmin - Fri, 12/29/2017 - 11:06

It is common to hear that Amazon is going to take over the retail world and that brick and mortar retail stores are about to become a thing of the past, along with distributors. That is fiction. That premise assumes that retail stores do not provide an experience that people enjoy and that retailers and distributors will not adapt to the challenges that Amazon presents.

Fact: Retail Sales, as shown on the chart below, are a record-high $5.733 trillion. Amazon Sales have reached a record-high $161.2 billion, but that is just 2.8% of total Retail Sales. Total E-Commerce Retail Sales, which includes Amazon, are up to $432.8 billion, or 7.5% of all retail sales. Brick and mortar stores clearly have a place in our society and our economy.

amazon sales revenue to US total retail sales chart

The fiction of Amazon’s position as the slayer of retail stores is somewhat grounded in their rate of growth, currently 25.9%, as compared to that of all of retail sales, which is a much smaller 4.2%. (25.9% is more impressive in print and conversation!) The difference in the growth rates is a function of widespread acceptance of the Amazon model and also a function of the difference in the denominators. Amazon’s sales grew by an impressive $33.2 billion year over year (through September 2017). Retail Sales in total, without Amazon, grew by approximately $200 billion, or six times more than Amazon. The larger-percent growth in Amazon, while impressive, clearly benefits from the smaller denominator since overall retail sales posted a larger dollar increase. The chart above makes it look like Amazon is gaining quickly on overall retail sales, but that is not what the dollars show. The fact that one company has done so well is truly impressive and should not be dismissed, but there is little in the numbers to suggest that the demise of brick and mortar stores is imminent.

The fact is many retailers and distributors who do not adapt to Amazon’s convenience and benefits will be forced out of business. The fiction is that all retailers and distributors are doomed. Retailers and distributors who have invested in knowledgeable workers, a web presence, superior service, quick response times, and clearly-defined competitive advantages (you have them, even if you don’t know what they are) can grow and be profitable as they change with the world around them. The change can be painful, expensive, disruptive, and challenging, but it is, above all else, necessary. One of my favorite quotes is from W. Edwards Deming, who stated, “It is not necessary to change. Survival is not mandatory.”

Alan Beaulieu