Opinion: Want to beat Amazon? Target its weak spots

That shopper was not alone, as Amazon’s stellar results reveal. Globally, the online giant recorded sales growth of 20% during the year to December 2019, with a 21% jump in revenues during the crucial fourth quarter.

More than ever, it appears consumers opted for convenience over the busy holiday season, particularly when they already knew what they wanted to buy.

Holiday trading was “particularly strong from mid-November onwards”, according to chief financial officer Brian Olsavsky. Amazon exceeded not only its own expectations but those of analysts. So what is Amazon doing right, what can other retailers learn and how can they possibly compete?

Amazon’s ecosystem of 150 million loyal Prime members is a huge strength for the retailer, which is now achieving faster uptake of membership internationally than in its more saturated domestic market. Investment in rapid delivery and bringing fulfilment centres closer to customers allows Amazon to deliver impulse online, and in the US the retailer has moved from two-day to one-day shipping.

Stores are not yet a strength

Through its Whole Foods Market business, Amazon now generates 9.5% of retail revenue from physical stores, but sales in that part of the business edged down 1% during the fourth quarter, demonstrating that Amazon has a lot still to learn in bricks and mortar.

Amazon’s grocery business moved forward last year with the removal of a separate subscription for Amazon Fresh, which has merged into the Prime offer. In the US, Amazon more than doubled deliveries of groceries from Whole Foods and Prime Now in the fourth quarter but says it is continuing to test and learn, reacting to customer demand and preferences.

Multichannel is a key area on which established retailers can leverage their stores in ways that Amazon cannot match. It takes some creativity to tempt people away from the easy online alternative, but providing curated assortments, experiences and combining bricks and clicks are all ways that retailers such as Selfridges, Lush and John Lewis are striving to differentiate. Those that do not change their business models are the retailers most at risk from the shifting retail environment.

Rather than the impossible task of trying to compete on everything at once, retailers should start by picking a single point of differentiation. That could be discoverability, personalisation, a localised assortment or sustainability. In the US, Walmart has recently opted to compete against Amazon on speed of delivery by offering hyperlocal online fulfilment from its stores.

Personalisation and AI limitations

Despite Amazon’s vast range, one of the major challenges of shopping with the retailer online is finding something to buy when shoppers are not completely sure what they want.

As Amazon generates more revenue from ads and sponsored content, this makes the task even more challenging for shoppers looking for help and guidance. It is another weakness where competitors can leverage their strengths.

As an early adopter of AI, Amazon’s recommendation algorithms now appear to be showing their age and certainly do not replace human interaction. The best (or worst) demonstration of this is in the grocery category, where customers now receive emails suggesting they may want to buy exciting products such as toilet cleaner and baked beans.

Do what Amazon can’t do

As the results show, it’s been another hugely successful year for Amazon with growth across its business and across geographies. But much like its Kindle e-books, customers fall in and out of love with what Amazon has to offer. Just as physical books now sit alongside e-books with their different usage models, experience-led, curated, inspirational physical retail will continue to complement convenient and functional online purchasing.

The key to success for Amazon’s competitors is finding things that Amazon can’t do and avoiding mediocrity.