Amazon investing in becoming top 10 retailer

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With tough trading conditions prevalent in many developed markets, and a hard 2012 predicted, many retailers will be casting envious glances towards Amazon, which has recently posted its 2011 full-year results.

Profit is down at Amazon as it has invested in fulfilment and new products

The world’s largest ecommerce specialist seemingly continued to defy gravity by posting a stellar 41% increase in sales to $8.1bn (£30bn) during the year.

Planet Retail’s database now shows that Amazon is the 25th largest retailer in the world, up from position 31 in 2010. We now predict that Amazon will break into the world’s top 10 retailers as early as 2014.

Despite the rise in sales, Amazon reported its operating profit actually down 39% to $862m (£537m). This is because the retailer is investing in logistics and new products that it is betting will enable it to sustain continued rapid growth in the coming years – 17 new fulfilment centres were opened in 2011 and Kindle Fire, its first tablet, was also launched towards the end of the year.

For the first quarter of 2012, Amazon is forecasting that at the lower end of the range it may actually make an operating loss of $200m (£125m).

This clearly illustrates the importance Amazon is placing on investment in order to grow its position at the expense of short-term profitability.

What of the future? It seems clear that the retailer will continue to broaden and deepen its product range as part of its strategy of offering ‘Earth’s biggest selection’. As a result, it will encroach on to the territory of a host of other retailers.

In grocery alone, for instance, Amazon now offers more than 600,000 items in the US. Improving its online grocery service to include chilled foods in key markets could be a significant threat to existing grocery retailers.

The introduction of its Kindle range (a move into smartphones may be on the agenda) into new fields will help it to tighten its stranglehold in certain entertainment categories, most notably books. It is worth remembering that Amazon still has a presence in a relatively small number of markets – launching in new markets in Europe, Asia and Latin America will continue to drive growth in the coming years.

One potential area of weakness could be its lack of a multichannel proposition. A key initiative will be to develop collection lockers, either in partnership with bricks-and-mortar retailers or by installing lockers in locations such as shopping centres.