Are bricks and mortar stores beating back Amazon?
If growth in Amazon’s ecommerce is limited, does it still make sense for Amazon to keep discounting retail and shipping costs so aggressively?
The limitations of online retail are well known. Last summer at a PandoMonthly talk, Fred Wilson of Union Square Ventures was asked what he thought about ecommerce. Wilson answered bluntly:
I don’t like ecommerce. I think it’s a low-margin business with high capital costs and high customer-acquisition costs. Most ecommerce companies fool themselves into thinking that the lifetime value of their customer is in excess of their acquisition costs when it’s not… Then the whole thing is revealed to be an emperor that has no clothes. And then they really, really struggle.”
Wilson was speaking about ecommerce startups, not Amazon. For nearly two decades Amazon was the exception to this rule because it could leverage economies of scale and pressure publishers and suppliers into lowering prices to lure shoppers with the lowest prices on the Web.
But what if Amazon isn’t that different in the end? What if customers aren’t necessarily loyal? What if the high costs Amazon has been paying for their loyalty don’t pay off? Given the high multiple of Amazon’s stock, based on the premise that Amazon will keep growing, these are questions worth asking in 2014.
For years, shoppers could take for granted that Amazon would offer the lowest price, or close to it. Over the past year or so, just as Amazon’s revenue growth rate began to slow dramatically, that stopped being the case. It’s not just big retailers like Target and Best Buy offering to match Amazon’s prices, other retail chains are beating it without appearing to try.
It’s never been unusual to find, somewhere, a lower price than Amazon offered. But it’s growing commonplace.
Readers, is that your experience?
NOTE For me, since I don't drive, Amazon is, alas, preferable to taking a day to go to the Mall and back via public transportation. But I'm probably an outlier.